Incentive Attacks in BTC: Short-Term Revenue Changes and Long-Term Efficiencies

TL;DR

This paper analyzes incentive attacks on Bitcoin's DAA, revealing that long-term selfish mining is more efficient, coin hopping benefits honest miners, and small pools are vulnerable to PAW attacks, challenging previous assumptions about attack profitability.

Contribution

It introduces a new efficiency metric, compares short-term and long-term effects of various attacks, and identifies vulnerabilities in small pools and the potential of PAW strategies.

Findings

Long-term selfish mining yields higher efficiency than short-term strategies.

Coin hopping benefits honest miners similarly to attackers in the short-term.

Small pools are immediately threatened by Power Adjusting Withholding (PAW) attacks.

Abstract

Bitcoin's (BTC) Difficulty Adjustment Algorithm (DAA) has been a source of vulnerability for incentive attacks such as selfish mining, block withholding and coin hopping strategies. In this paper, first, we rigorously study the short-term revenue change per hashpower of the adversarial and honest miners for these incentive attacks. To study the long-term effects, we introduce a new efficiency metric defined as the revenue/cost per hashpower per time for the attacker and the honest miners. Our results indicate that the short-term benefits of intermittent mining strategies are negligible compared to the original selfish mining attack, and in the long-term, selfish mining provides better efficiency. We further demonstrate that a coin hopping strategy between BTC and Bitcoin Cash (BCH) relying on BTC DAA benefits the loyal honest miners of BTC in the same way and to the same extent per unit of computational power as it does the hopper in the short-term. For the long-term, we establish a new boundary between the selfish mining and coin hopping attack, identifying the optimal efficient strategy for each parameter. For block withholding strategies, it turns out, the honest miners outside the pool profit from the attack, usually even more than the attacker both in the short-term and the long-term. Moreover, a Power Adjusting Withholding (PAW) attacker does not necessarily observe a profit lag in the short-term. In other words, even without a difficulty adjustment, a PAW attacker makes profits. It has been long thought that the profit lag of selfish mining is among the main reasons why such an attack has not been observed in practice. We show that such a barrier does not apply to PAW and relatively small pools are at an immediate threat.