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Resilience Analysis for Double Spending via Sequential Decision Optimization

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  • Juri Hinz

Abstract

Recently, diverse concepts originating from blockchain ideas have gained increasing popularity. One of the innovations in this technology is the use of the proof-of-work (PoW) concept for reaching a consensus within a distributed network of autonomous computer nodes. This goal has been achieved by design of PoW-based protocols with a built-in equilibrium property: If all participants operate honestly then the best strategy of any agent is also to follow the same protocol. However, there are concerns about the stability of such systems. In this context, the analysis of attack vectors, which represent potentially successful deviations from the honest behavior, turns out to be the most crucial question. Naturally, stability of a blockchain system can be assessed only by determining its most vulnerable components. For this reason, knowing the most successful attacks, regardless of their sophistication level, is inevitable for a reliable stability analysis. In this work, we focus entirely on blockchain systems which are based on the proof-of-work consensus protocols, referred to as PoW-based systems, and consider planning and launching an attack on such system as an optimal sequential decision-making problem under uncertainty. With our results, we suggest a quantitative approach to decide whether a given PoW-based system is vulnerable with respect to this type of attack, which can help assessing and improving its stability.

Suggested Citation

  • Juri Hinz, 2020. "Resilience Analysis for Double Spending via Sequential Decision Optimization," Research Paper Series 408, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:408
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    References listed on IDEAS

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    1. Juri Hinz & Nicholas Yap, 2015. "Algorithms for Optimal Control of Stochastic Switching Systems," Research Paper Series 352, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Hinz, Juri & Yee, Jeremy, 2018. "Optimal forward trading and battery control under renewable electricity generation," Journal of Banking & Finance, Elsevier, vol. 95(C), pages 244-254.
    3. Pierre-Olivier Goffard, 2019. "Fraud risk assessment within blockchain transactions," Working Papers hal-01716687, HAL.
    4. Cyril Grunspan & Ricardo Pérez-Marco, 2017. "Double spend races," Working Papers hal-01456773, HAL.
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