Publication Date

Fall 2015

Degree Type

Master's Project

Department

Computer Science

Abstract

Bitcoin [19] is a decentralized cryptocurrency that has recently gained popularity and has emerged as a popular medium of exchange. The total market capitalization is around 1.5 billion US dollars as of October 2013 [28]. All the operations of Bitcoin are maintained in a distributed public global ledger known as a block chain which consists of all the successful transactions that have ever taken place. The security of a block chain is maintained by a chain of cryptographic puzzles solved by participants called miners, who in return are rewarded with bitcoins. To be successful, the miner has to put in his resources to solve the cryptographic puzzle (also known as a proof of work). The reward structure is an incentive for miners to contribute their computational resources and is also essential to the currency's decentralized nature. One disadvantage of the reward structure is that the payment system is uneven. The reward is always given to one person. Hence people form mining pools where every member of the pool solves the same cryptographic puzzle and irrespective of the person who solved it, the reward is shared evenly among all the members of the pool. The Bitcoin protocol assumes that the miners are honest and they follow the Bitcoin protocol as prescribed. If group of selfish miners comes to lead by forming pools, the currency stops being decentralized and comes under the control of the selfish miners. Such miners can control the whole Bitcoin network [29]. Our goal is to address this problem by creating a distinct peer-to-peer protocol that reduces the incentives for the miners to join large mining pools. The central idea is to pay the “runners-up” who come close to finding a proof, thereby creating a less volatile payout situation. The work done by the “runners-up” can be used by other miners to find the solution of proof of work by building upon their work. Once they find the actual solution they have to include the solution of the other miner in order to get rewarded. The benefit of this protocol is that not only the miners save their computational resources but also the reward is distributed among the miners.

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