Collaborative Research: SaTC: CORE: Medium: Game Theory, Economics, and Mechanism Design for Blockchains

Blockchains, and their capability of enforcing property rights for digital data, have the potential to unlock the next incarnation of the Internet and a new wave of important applications. Modern blockchains rely on incentives for cooperative behavior differently than do classical distributed systems, such as our traditional banking system. Decentralized blockchains usually rely on a native cryptocurrency to motivate independent actors to run them correctly, whereas classical distributed systems are typically deployed in directed and closed environments. There is therefore an urgent need to develop rigorous foundations of the economic and incentive factors in blockchains and cryptocurrencies in general. The project team is also developing new and freely available educational materials on blockchains, in order to make this important but complex topic more accessible to all.The project has three research thrusts. The first thrust concerns transaction fee mechanism design (that is, how to select which pending transactions are included for execution on the blockchain, and at what prices). The goals here are to understand the welfare and revenue approximation guarantees for different transaction fee mechanisms, to leverage cryptographic primitives to overcome impossibility results, and to achieve robustness to long-term collusion by cartels of block producers. The second thrust pursues cryptographic protocols that possess strong game-theoretic guarantees, with a focus on the design of cryptographic mechanisms that are resilient to side contracts and game-theoretically fair multi-party computation. The final thrust investigates how to design decentralized blockchains with desirable economic properties. Specific goals here include determining simple modifications to Nakamoto consensus that improve its security, formulating a definition of economic security against liveness (as opposed to safety) attacks, and rigorously comparing the economic security offered by proof-of-work and proof-of-stake mechanisms. Together, these research thrusts develop significant foundations for a theory of blockchains and cryptocurrencies.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.