Oceanic Games: Centralization Risks and Incentives in Blockchain Mining

DOI10.1007/978-3-030-37110-4_13zbMATH Open1457.91427arXiv1904.02368OpenAlexW2934929315MaRDI QIDQ3294792FDOQ3294792

Georgios Piliouras, Stefanos Leonardos, Nikos Leonardos

Publication date: 29 June 2020

Published in: Mathematical Research for Blockchain Economy (Search for Journal in Brave)

Abstract: To participate in the distributed consensus of permissionless blockchains, prospective nodes -- or miners -- provide proof of designated, costly resources. However, in contrast to the intended decentralization, current data on blockchain mining unveils increased concentration of these resources in a few major entities, typically mining pools. To study strategic considerations in this setting, we employ the concept of Oceanic Games, Milnor and Shapley (1978). Oceanic Games have been used to analyze decision making in corporate settings with small numbers of dominant players (shareholders) and large numbers of individually insignificant players, the ocean. Unlike standard equilibrium models, they focus on measuring the value (or power) per entity and per unit of resource} in a given distribution of resources. These values are viewed as strategic components in coalition formations, mergers and resource acquisitions. Considering such issues relevant to blockchain governance and long-term sustainability, we adapt oceanic games to blockchain mining and illustrate the defined concepts via examples. The application of existing results reveals incentives for individual miners to merge in order to increase the value of their resources. This offers an alternative perspective to the observed centralization and concentration of mining power. Beyond numerical simulations, we use the model to identify issues relevant to the design of future cryptocurrencies and formulate prospective research questions.

Full work available at URL: https://arxiv.org/abs/1904.02368

zbMATH Keywords

resourcescryptocurrenciesvaluesblockchainmining poolsoceanic games

Mathematics Subject Classification ID

Applications of game theory (91A80) Actuarial science and mathematical finance (91G99)

Cites Work

• Title not available (Why is that?)
• Markets with a Continuum of Traders
• Multiplicative updates outperform generic no-regret learning in congestion games
• Oligopoly in Markets with a Continuum of Traders
• Values of Large Games, I: A Limit Theorem
• Majority Is Not Enough: Bitcoin Mining Is Vulnerable
• The Bitcoin Backbone Protocol: Analysis and Applications
• Values of Large Games II: Oceanic Games
• Thunderella: blockchains with optimistic instant confirmation
• But why does it work? A rational protocol design treatment of bitcoin
• The Bitcoin backbone protocol with chains of variable difficulty
• Ouroboros: a provably secure proof-of-stake blockchain protocol
• Bootstrapping the blockchain, with applications to consensus and fast PKI setup
• Socially Optimal Mining Pools

Cited In (4)

• Market Equilibria and Risk Diversification in Blockchain Mining Economies
• Griefing Factors and Evolutionary In-Stabilities in Blockchain Mining Games
• \textsf{HaPPY-Mine}: designing a mining reward function
• Ignore the extra zeroes: variance-optimal mining pools

Recommendations

• A hashing power allocation game in cryptocurrencies 👍 👎
• The Incentive Study in the Blockchain Era: A Two-Period Strategic Inventory Game 👍 👎
• Game Theoretical Framework for Analyzing Blockchains Robustness 👍 👎
• On reward sharing in blockchain mining pools 👍 👎
• Blockchain mining in pools: analyzing the trade-off between profitability and ruin 👍 👎
• On the Profitability of Selfish Blockchain Mining Under Consideration of Ruin 👍 👎
• Bitcoin: A Game-Theoretic Analysis 👍 👎
• Brief announcement: Game theoretical framework for analyzing blockchains robustness 👍 👎

This page was built for publication: Oceanic Games: Centralization Risks and Incentives in Blockchain Mining

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q3294792)