research-article

On bitcoin and red balloons

Authors:

Moshe Babaioff,

Shahar Dobzinski,

Sigal Oren,

Aviv ZoharAuthors Info & Claims

EC '12: Proceedings of the 13th ACM Conference on Electronic Commerce

Pages 56 - 73

https://doi.org/10.1145/2229012.2229022

Published: 04 June 2012 Publication History

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Abstract

Many large decentralized systems rely on information propagation to ensure their proper function. We examine a common scenario in which only participants that are aware of the information can compete for some reward, and thus informed participants have an incentive not to propagate information to others. One recent example in which such tension arises is the 2009 DARPA Network Challenge (finding red balloons). We focus on another prominent example: Bitcoin, a decentralized electronic currency system.

Bitcoin represents a radical new approach to monetary systems. It has been getting a large amount of public attention over the last year, both in policy discussions and in the popular press. Its cryptographic fundamentals have largely held up even as its usage has become increasingly widespread. We find, however, that it exhibits a fundamental problem of a different nature, based on how its incentives are structured. We propose a modification to the protocol that can eliminate this problem.

Bitcoin relies on a peer-to-peer network to track transactions that are performed with the currency. For this purpose, every transaction a node learns about should be transmitted to its neighbors in the network. As the protocol is currently defined and implemented, it does not provide an incentive for nodes to broadcast transactions they are aware of. In fact, it provides an incentive not to do so. Our solution is to augment the protocol with a scheme that rewards information propagation. Since clones are easy to create in the Bitcoin system, an important feature of our scheme is Sybil-proofness.

We show that our proposed scheme succeeds in setting the correct incentives, that it is Sybil-proof, and that it requires only a small payment overhead, all this is achieved with iterated elimination of dominated strategies. We complement this result by showing that there are no reward schemes in which information propagation and no self-cloning is a dominant strategy.

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Index Terms

On bitcoin and red balloons
1. Applied computing
  1. Electronic commerce
  2. Law, social and behavioral sciences

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Information & Contributors

Information

Published In

EC '12: Proceedings of the 13th ACM Conference on Electronic Commerce

June 2012

1016 pages

ISBN:9781450314152

DOI:10.1145/2229012

General Chair:
Boi Faltings
École Polytechnique Fédérale de Lausanne (EPFL)
,
Program Chairs:
Kevin Leyton-Brown
University of British Columbia
,
Panos Ipeirotis
New York University

Permission to make digital or hard copies of all or part of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for components of this work owned by others than ACM must be honored. Abstracting with credit is permitted. To copy otherwise, or republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee. Request permissions from [email protected]

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Association for Computing Machinery

New York, NY, United States

Publication History

Published: 04 June 2012

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EC '12

Sponsor:

SIGecom

EC '12: ACM Conference on Electronic Commerce

June 4 - 8, 2012

Valencia, Spain

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https://dl.acm.org/doi/10.5555/3635637.3662867
Garay JKiayias ALeonardos N(2024)The Bitcoin Backbone Protocol: Analysis and ApplicationsJournal of the ACM10.1145/365344571:4(1-49)Online publication date: 18-Apr-2024
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