When Cryptocurrencies Mine Their Own Business
Bitcoin and hundreds of other cryptocurrencies employ a consensus protocol called Nakamoto consensus which rewards miners for maintaining a public blockchain. In this paper, we study the security of this protocol with respect to rational miners and show how a minority of the computation power can incentivize the rest of the network to accept a blockchain of the minority's choice. By deviating from the mining protocol, a mining pool which controls at least 38.2% of the network's total computational power can, with modest financial capacity, gain mining advantage over honest mining. Such an attack creates a longer valid blockchain by forking the honest blockchain, and the attacker's blockchain need not disrupt any "legitimate" non mining transactions present on the honest blockchain. By subverting the consensus protocol, the attacking pool can double spend money or simply create a blockchain that pays mining rewards to the attacker's pool. We show that our attacks are easy to encode in any Nakamoto consensus based cryptocurrency which supports a scripting language that is sufficiently expressive to encode its own mining puzzles.
Financial Cryptography