Abstract
Cryptocoins based on public distributed ledgers can differ in their quality due to different subjective values users assign to coins depending on the unique transaction history of each coin. We apply game theory to study how qualitative differentiation between coins will affect the behavior of users interested in improving their anonymity through mixing services. We present two stylized models of mixing with perfect and imperfect information and analyze them for three distinct quality propagation policies: poison, haircut, and seniority. In the game of perfect information, mixing coins of high quality remains feasible under certain conditions, while imperfect information eventually leads to a mixing market where only coins of the lowest quality are mixed.
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Notes
- 1.
Otherwise, switch players A and B.
- 2.
Note that the game of perfect information under the poison regime has even more Nash equilibria. However, these are not subgame perfect.
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Acknowledgments
The authors are grateful to Daniel G. Arce for his insightful comments on an earlier version of this paper. The authors are responsible for all remaining errors and omissions. This work was funded by the German Bundesministerium für Bildung und Forschung (BMBF) under grant agreement No. 13N13505 and by Archimedes Privatstiftung, Innsbruck, Austria.
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Abramova, S., Schöttle, P., Böhme, R. (2017). Mixing Coins of Different Quality: A Game-Theoretic Approach. In: Brenner, M., et al. Financial Cryptography and Data Security. FC 2017. Lecture Notes in Computer Science(), vol 10323. Springer, Cham. https://doi.org/10.1007/978-3-319-70278-0_18
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DOI: https://doi.org/10.1007/978-3-319-70278-0_18
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