CBER Forum -“An Economic Model of Consensus on Distributed Ledgers“ – Hanna Halaburda

Abstract:
In recent years, the designs of many new blockchain applications have been inspired by the Byzantine fault tolerance (BFT) problem. While traditional BFT protocols assume that most system nodes are honest (in that they follow the protocol), we recognize that blockchains are deployed in environments where nodes are subject to strategic incentives. This paper develops an economic framework for analyzing such cases. We characterize all equilibria, some of which feature rational leaders withholding messages from some nodes in order to achieve consensus. We also study how the progress of communication technology (i.e., potential message losses) affects the equilibrium consensus outcome.