Double-Spend Counterattacks: Threat of Retaliation in Proof-of-Work Systems

Abstract

Proof-of-Work mining is intended to provide blockchains with robustness against double-spend attacks. However, an economic analysis that follows from Budish (2018), which considers free entry conditions together with the ability to rent sufficient hashrate to conduct an attack, suggests that the resulting block rewards can make an attack cheap. We formalize a defense to double-spend attacks. We show that when the victim can counterattack in the same way as the attacker, this leads to a variation on the classic game-theoretic War of Attrition model. The threat of this kind of counterattack induces a subgame perfect equilibrium in which no attack occurs in the first place.

Transaction Fee Mechanism Design for the Ethereum Blockchain: An Economic Analysis of EIP-1559

“…Because of the burned base fee revenues, many miners appear to view EIP-1559 as taking away some of their profits and handing them over to ETH holders. 46 For example, of the nine miners responding to a questionnaire by Beiko [12], six wrote that "they would not implement it under any circumstances." This strong negative reaction suggests that EIP-1559 may galvanize miners to sustain collusion to a degree not yet seen under the status quo.…”

“…Under EIP-1559, the block reward alone must be sufficiently high to incentivize an adequate amount of hashrate and consequent security. 46 There is merit to this argument but also some counterbalancing factors. First, because Ethereum mining has a relatively low barrier to entry and exit, a decrease in aggregate miner rewards should lead to a decrease in the overall hashrate, with the least profitable miners exiting (see e.g.…”

“…Though three recent double-spend attacks on the Ethereum Classic blockchain have not significantly harmed the price of ETC; perhaps that blockchain's relatively low level of security has been priced in all along. See also Moroz et al[46] for further discussion 42. This fear is perhaps more relevant for ASIC miners than for GPU miners.…”

"Zero Cost'' Majority Attacks on Permissionless Blockchains

“…That means that the majority miner has an incentive to double-spend whenever the value gained in the double-spend is positive. Indeed, we see some double-spending in Proof of Work blockchains (e.g., Shanaev et al (2019), Moroz et al (2020), Ramos et al (2021)). But why don't we see more of these behaviors?…”