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

34 Pages Posted: 10 Jan 2020 Last revised: 14 Jan 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: December 19, 2019

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 miners have higher incentives to act honestly than outsiders. 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

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 (December 19, 2019). 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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