Working Paper: NBER ID: w29515
Authors: Hanna Halaburda; Zhiguo He; Jiasun Li
Abstract: In recent years, the designs of many new blockchain applications have been inspired by the Byzantine fault tolerance (BFT) problem. While traditional BFT protocols assume that most system nodes are honest (in that they follow the protocol), we recognize that blockchains are deployed in environments where nodes are subject to strategic incentives. This paper develops an economic framework for analyzing such cases. Specifically, we assume that 1) non-Byzantine nodes are rational, so we explicitly study their incentives when participating in a BFT consensus process; 2) non-Byzantine nodes are ambiguity averse, and specifically, Knightian uncertain about Byzantine actions; and 3) decisions/inferences are all based on local information. We thus obtain a consensus game with preplay communications. We characterize all equilibria, some of which feature rational leaders withholding messages from some nodes in order to achieve consensus. These findings enrich those from traditional BFT algorithms, where an honest leader always sends messages to all nodes. We also study how the progress of communication technology (i.e., potential message losses) affects the equilibrium consensus outcome.
Keywords: No keywords provided
JEL Codes: D02; D82; D85; G14; G29
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Leader's behavior (C92) | Commitment decisions of non-byzantine nodes (D79) |
| Message delivery technology (L96) | Consensus outcomes (D70) |
| Systematic message losses (L96) | Consensus probability (D70) |
| Communication strategy of leaders (H12) | Overall consensus process (D70) |