Compounding of Wealth in Proof-of-Stake Cryptocurrencies
Name
1809.07468.pdf
Description
Submitted version
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829.72 KB
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Author(s)
Fanti, Giulia
Kogan, Leonid
Oh, Sewoong
Ruan, Kathleen
Viswanath, Pramod
Wang, Gerui
Date Issued
September 2019
Journal
Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Publisher
Springer International Publishing
Citation
2019. "Compounding of Wealth in Proof-of-Stake Cryptocurrencies." Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), 11598 LNCS.
Version
Original manuscript
Abstract
© 2019, International Financial Cryptography Association. Proof-of-stake (PoS) is a promising approach for designing efficient blockchains, where block proposers are randomly chosen with probability proportional to their stake. A primary concern in PoS systems is the “rich getting richer” effect, whereby wealthier nodes are more likely to get elected, and hence reap the block reward, making them even wealthier. In this paper, we introduce the notion of equitability, which quantifies how much a proposer can amplify her stake compared to her initial investment. Even with everyone following protocol (i.e., honest behavior), we show that existing methods of allocating block rewards lead to poor equitability, as does initializing systems with small stake pools and/or large rewards relative to the stake pool. We identify a geometric reward function, which we prove is maximally equitable over all choices of reward functions under honest behavior and bound the deviation for strategic actions; the proofs involve the study of optimization problems and stochastic dominances of Pólya urn processes. These results allow us to provide a systematic framework to choose the parameters of a practical incentive system for PoS cryptocurrencies.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1007/978-3-030-32101-7_3
