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Compounding of Wealth in Proof-of-Stake Cryptocurrencies

  • Giulia FantiEmail author
  • Leonid Kogan
  • Sewoong Oh
  • Kathleen Ruan
  • Pramod Viswanath
  • Gerui Wang
Conference paper
Part of the Lecture Notes in Computer Science book series (LNCS, volume 11598)

Abstract

Proof-of-stake (PoS) is a promising approach for designing efficient blockchains, where block proposers are randomly chosen with probability proportional to their stake. A primary concern in PoS systems is the “rich getting richer” effect, whereby wealthier nodes are more likely to get elected, and hence reap the block reward, making them even wealthier. In this paper, we introduce the notion of equitability, which quantifies how much a proposer can amplify her stake compared to her initial investment. Even with everyone following protocol (i.e., honest behavior), we show that existing methods of allocating block rewards lead to poor equitability, as does initializing systems with small stake pools and/or large rewards relative to the stake pool. We identify a geometric reward function, which we prove is maximally equitable over all choices of reward functions under honest behavior and bound the deviation for strategic actions; the proofs involve the study of optimization problems and stochastic dominances of Pólya urn processes. These results allow us to provide a systematic framework to choose the parameters of a practical incentive system for PoS cryptocurrencies.

Keywords

Proof-of-stake Cryptocurrencies Random processes 

Supplementary material

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Copyright information

© International Financial Cryptography Association 2019

Authors and Affiliations

  • Giulia Fanti
    • 1
    Email author
  • Leonid Kogan
    • 2
  • Sewoong Oh
    • 3
  • Kathleen Ruan
    • 1
  • Pramod Viswanath
    • 4
  • Gerui Wang
    • 4
  1. 1.Carnegie Mellon UniversityPittsburghUSA
  2. 2.Massachusetts Institute of TechnologyCambridgeUSA
  3. 3.University of WashingtonSeattleUSA
  4. 4.University of Illinois Urbana-ChampaignUrbanaUSA

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