An Economic Model of Consensus on Distributed Ledgers / Hanna Halaburda, Zhiguo He, Jiasun Li.

Format:

Book

Author/Creator:

Halaburda, Hanna.

Contributor:

National Bureau of Economic Research.

He, Zhiguo.

Li, Jiasun.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29515.

NBER working paper series no. w29515

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

In recent years, the designs of many new blockchain applications have been inspired by the Byzantine fault tolerance (BFT) problem. While traditional BFT protocols assume that most system nodes are honest (in that they follow the protocol), we recognize that blockchains are deployed in environments where nodes are subject to strategic incentives. This paper develops an economic framework for analyzing such cases. Specifically, we assume that 1) non-Byzantine nodes are rational, so we explicitly study their incentives when participating in a BFT consensus process; 2) non-Byzantine nodes are ambiguity averse, and specifically, Knightian uncertain about Byzantine actions; and 3) decisions/inferences are all based on local information. We thus obtain a consensus game with preplay communications. We characterize all equilibria, some of which feature rational leaders withholding messages from some nodes in order to achieve consensus. These findings enrich those from traditional BFT algorithms, where an honest leader always sends messages to all nodes. We also study how the progress of communication technology (i.e., potential message losses) affects the equilibrium consensus outcome.

Notes:

Print version record

November 2021.