Incentive Mechanism for Rational Miners in Bitcoin Mining Pool

• Published in: Information systems frontiers 2021-04, Vol.23 (2), p.317-327
• Main Authors: Xue, Gang, Xu, Jia, Wu, Hanwen, Lu, Weifeng, Xu, Lijie
• Format: Article
• Language: English
• Subjects: Budgets; Business and Management; Control; Digital currencies; Game theory; Games; Information systems; IT in Business; Management of Computing and Information Systems; Miners; Operations Research/Decision Theory; Optimization; Systems Theory
• ISSN: 1387-3326; 1572-9419
• DOI: 10.1007/s10796-020-10019-2

Bitcoin is one of the most popular cryptocurrency in the world. Miners in the Bitcoin network reduce their risks through participating in mining pool. Existing mining pool systems do not consider the cost and strategy of miners. In this paper, we study two mining models: public cost model and private cost model. For the public cost model, we design an incentive mechanism, called Mining game, using a Stackelberg game. We show that Mining game is individually rational, profitable, and has the unique Stackelberg Equilibrium . For the private cost model, we formulate the Budget Feasible Reward Optimization ( BFRO ) problem to maximize the reward function under the budget constraint, and design a budget feasible reverse auction to solve the BFRO problem, which is computationally efficient, individually rational, truthful, budget feasible, and constant approximate. Through extensive simulations, we evaluate the performance and validate the theoretical properties of our incentive mechanisms.