Too Big to Cheat: Mining Pools' Incentives to Double Spend in Blockchain Based Cryptocurrencies

50 Pages Posted: 10 Jan 2020 Last revised: 20 May 2020

See all articles by Ville Savolainen

Ville Savolainen

Hanken School of Economics - Department of Finance and Statistics

Jorge Soria

University of Helsinki - Helsinki Graduate School of Economics

Date Written: May 19, 2020

Abstract

In most blockchain based cryptocurrencies majority of verification power is required for facilitating a successful double spending attack, i.e. using the same funds multiple times. Because possibility to double spend sharply deteriorates trust and value, concentration is traditionally considered to be a significant problem. We model agents’ incentives to facilitate double spending attacks under opportunity costs. Contrary to a host of previous literature, our main findings indicate that under meager economic profits large pools have higher incentives to act honestly than outsiders, our results hold for 13 major proof-of-work cryptocurrencies. Intuitively, this stems from the fact that mining pools holding more power in a cryptocurrency have stronger vested interest in it.

Keywords: Blockchain, Cryptocurrencies, Bitcoin, Double Spending Attacks

JEL Classification: D43, E42, G29

Suggested Citation

Savolainen, Ville and Soria, Jorge, Too Big to Cheat: Mining Pools' Incentives to Double Spend in Blockchain Based Cryptocurrencies (May 19, 2020). Available at SSRN: https://ssrn.com/abstract=3506748 or http://dx.doi.org/10.2139/ssrn.3506748

Ville Savolainen (Contact Author)

Hanken School of Economics - Department of Finance and Statistics ( email )

FI-00101 Helsinki
Finland

Jorge Soria

University of Helsinki - Helsinki Graduate School of Economics ( email )

P.O. Box 17 (Arkadiankatu 7)
Helsinki, FI00014
Finland

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