Mechanism Design Approaches to Blockchain Consensus

23 Pages Posted: 27 Jun 2022

See all articles by Joshua S. Gans

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Richard Holden

University of New South Wales (UNSW)

Date Written: June 20, 2022

Abstract

Blockchain consensus is a state whereby each node in a network agrees on the current state of the blockchain. Existing protocols achieve consensus via a contest or voting procedure to select one node as a dictator to propose new blocks. However, this procedure can still lead to potential attacks that make consensus harder to achieve or lead to coordination issues if multiple, competing chains (i.e., forks) are created with the potential that an untruthful fork might be selected. We explore the potential for mechanisms to be used to achieve consensus that are triggered when there is a dispute impeding consensus. Using the feature that nodes stake tokens in proof of stake (POS) protocols, we construct revelation mechanisms in which the unique (subgame perfect) equilibrium involves validating nodes propose truthful blocks using only the information that exists amongst all nodes. We construct operationally and computationally simple mechanisms under both Byzantine Fault Tolerance and a Longest Chain Rule, and discuss their robustness to attacks. Our perspective is that the use of simple mechanisms is an unexplored area of blockchain consensus and has the potential to mitigate known trade-offs and enhance scalability.

Keywords: subgame perfect implementation, blockchain, consensus, mechanism design, Byzantine fault tolerance

JEL Classification: D87

Suggested Citation

Gans, Joshua S. and Holden, Richard, Mechanism Design Approaches to Blockchain Consensus (June 20, 2022). Rotman School of Management Working Paper No. 4141590, Available at SSRN: https://ssrn.com/abstract=4141590 or http://dx.doi.org/10.2139/ssrn.4141590

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Richard Holden

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
171
Abstract Views
740
Rank
328,906
PlumX Metrics