Incentive Attacks in BTC: Short-Term Revenue Changes and Long-Term Efficiencies

2025-11-14

AI Summary

Bitcoin’s Difficulty Adjustment Algorithm (DAA) is vulnerable to incentive-driven attacks—including selfish mining, block withholding, and coin-switching—undermining protocol security and fairness. Method: We formulate a game-theoretic model integrating dynamic payoff analysis and long-term efficiency evaluation, introducing a novel metric: “profit-to-cost ratio per unit hashpower per unit time.” Contribution/Results: Our analysis reveals that coin-switching temporarily increases short-term profits for BTC-loyal miners, thereby reshaping the strategic boundary between coin-switching and selfish mining; selfish mining dominates intermittent mining in long-term efficiency; block withholding paradoxically benefits honest miners; and power-throttling attacks incur negligible profit latency, posing an immediate threat to small mining pools. These findings provide theoretical foundations and quantitative insights for enhancing DAA security and guiding rational miner strategy selection.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Data Mining & Knowledge Management: Representing, Reasoning, and Using Provenance, Trust
• Multiagent Systems: Mechanism Design

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Large-scale security measurements
• Web Mining and Content Analysis: Content-based information diffusion

Abstract

Bitcoin's (BTC) Difficulty Adjustment Algorithm (DAA) has been a source of vulnerability for incentive attacks such as selfish mining, block withholding and coin hopping strategies. In this paper, first, we rigorously study the short-term revenue change per hashpower of the adversarial and honest miners for these incentive attacks. To study the long-term effects, we introduce a new efficiency metric defined as the revenue/cost per hashpower per time for the attacker and the honest miners. Our results indicate that the short-term benefits of intermittent mining strategies are negligible compared to the original selfish mining attack, and in the long-term, selfish mining provides better efficiency. We further demonstrate that a coin hopping strategy between BTC and Bitcoin Cash (BCH) relying on BTC DAA benefits the loyal honest miners of BTC in the same way and to the same extent per unit of computational power as it does the hopper in the short-term. For the long-term, we establish a new boundary between the selfish mining and coin hopping attack, identifying the optimal efficient strategy for each parameter. For block withholding strategies, it turns out, the honest miners outside the pool profit from the attack, usually even more than the attacker both in the short-term and the long-term. Moreover, a power adjusting withholding attacker does not necessarily observe a profit lag in the short-term. It has been long thought that the profit lag of selfish mining is among the main reasons why such an attack has not been observed in practice. We show that such a barrier does not apply to power adjusting attacks and relatively small pools are at an immediate threat.

Problem

• Analyzing short-term revenue changes in Bitcoin incentive attacks
• Evaluating long-term efficiency of selfish mining versus coin hopping
• Assessing vulnerability of small pools to power adjusting attacks

Innovation

• Studied short-term revenue changes per hashpower
• Introduced long-term efficiency metric revenue/cost per hashpower
• Established boundary between selfish mining and coin hopping