IEEE/IFIP DSN '20 - On Incentive Compatible Role-based Reward Distribution in Algorand Blockchain

The paper titled "On Incentive Compatible Role-based Reward Distribution in Algorand" was published at the 50th Annual IEEE/IFIP International Conference on Dependable Systems and Networks (DSN 2020). The abstract of this paper is as follows:
"Algorand is a recent, open-source public or permissionless blockchain system that employs a novel proof-of-stake byzantine consensus protocol to efficiently scale the distributed transaction agreement problem to billions of users. In addition to being more democratic and energy-efficient, compared to popular protocols such as Bitcoin, Algorand also touts a much high transaction throughput. This paper is the first attempt in the literature to study and address this problem. By carefully modeling the participation costs and rewards received within a strategic interaction scenario, we first empirically show that even a small number of nodes defecting to participate in the protocol tasks due to insufficiency of the available incentives can result in the Algorand network failing to compute and add new blocks of transactions. We further show that this effect can be formalized by means of a mathematical model of interaction in Algorand given its participation costs and the current (or planned) reward distribution/sharing approach envisioned by the Algorand Foundation. Specifically, on analyzing this game model we observed that mutual cooperation under the currently proposed reward sharing approach is not a Nash equilibrium. This is a significant result that could threaten the success of an otherwise robust distributed consensus mechanism. We propose a novel reward sharing approach for Algorand and formally show that it is incentive-compatible, i.e., it can guarantee cooperation within a group of selfish Algorand users. Extensive numerical and Algorand simulation results further confirm our analytical findings. Moreover, these results show that for a given distribution of stakes in the network, our reward sharing approach can guarantee cooperation with a significantly smaller reward per round."
Interested readers can find the full paper at the following link(s):
ieeexplore.iee....
arxiv.org/abs/...
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