Towards Overcoming the Undercutting Problem (2007.11480v4)

Abstract: Mining processes of Bitcoin and similar cryptocurrencies are currently incentivized with voluntary transaction fees and fixed block rewards which will halve gradually to zero. In the setting where optional and arbitrary transaction fee becomes the remaining incentive, Carlsten et al.\ [CCS~2016] find that an undercutting attack can become the equilibrium strategy for miners. In undercutting, the attacker deliberately forks an existing chain by leaving wealthy transactions unclaimed to attract petty complaint miners to its fork. We observe that two simplifying assumptions in [CCS~2016] of fees arriving at fixed rates and miners collecting {\em all} accumulated fees regardless of block size limit are often infeasible in practice and find that they are inaccurately inflating the profitability of undercutting. Studying Bitcoin and Monero blockchain data, we find that the fees deliberately left out by an undercutter may not be attractive to other miners (hence to the attacker itself): the deliberately left out transactions may not fit into a new block without "squeezing out" some other to-be transactions, and thus claimable fees in the next round cannot be raised arbitrarily. This work views undercutting and shifting among chains rationally as mining strategies of rational miners. We model profitability of undercutting strategy with block size limit present, which bounds the claimable fees in a round and gives rise to a pending (cushion) transaction set. In the proposed model, we first identify the conditions necessary to make undercutting profitable. We then present an easy-to-deploy defense against undercutting by selectively assembling transactions into the new block to invalidate the identified conditions. Under a typical setting with undercutters present, applying this avoidance technique is a Nash Equilibrium. Finally, we complement the above analytical results with experiments.