Mechanism Design for Blockchain Order Books against Selfish Miners

2025-01-22

AI Summary

Selfish miners’ preference for high-fee transactions degrades social welfare. Method: We propose an adjustable block-size mechanism that aligns buyer-seller pricing incentives and miner behavior without modifying the underlying decentralized protocol, featuring information robustness and no requirement for global knowledge. Contribution/Results: We first quantify the Price of Anarchy (PoA) under selfish mining, proving it can diverge to infinity. Our mechanism achieves PoA = 1 (social optimality) in homogeneous NFT trading settings, theoretically guaranteed. Empirical evaluation on Bitcoin-style heterogeneous transaction workloads demonstrates up to a 3.7× improvement in social welfare. The mechanism exhibits strong robustness against stochastic fluctuations in buyer and seller arrivals. We implement and validate it on a local Ethereum testbed using real-world datasets.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Search and Optimization: Distributed Search

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Blockchains and distributed ledgers
• Web Mining and Content Analysis: Content-based information diffusion

Abstract

In blockchain-based order book systems, buyers and sellers trade assets, while it is miners to match them and include their transactions in the blockchain. It is found that many miners behave selfishly and myopically, prioritizing transactions with high fees and ignoring many desirable matches that could enhance social welfare. Existing blockchain mechanisms fail to address this issue by overlooking miners' selfish behaviors. To our best knowledge, this work presents the first analytical study to quantify and understand buyer and seller transaction fee choices and selfish miners' transaction matching strategies, proving an infinitely large price of anarchy (PoA) for social welfare loss. To mitigate this, we propose an adjustable block size mechanism that is easy to implement without altering the existing decentralized protocols and still allows buyers and sellers to freely decide transaction fees and miners to selfishly match. The analysis is challenging, as pure strategy Nash equilibria do not always exist, requiring the analysis of many buyers' or sellers' interactive mixed-strategy distributions. Moreover, the system designer may even lack information about each buyer's or seller's bid/ask prices and trading quantities. Nevertheless, our mechanism achieves a well-bounded PoA, and under the homogeneous-quantity trading for non-fungible tokens (NFT), it attains a PoA of 1 with no social welfare loss. We implement our mechanism on a local instance of Ethereum to demonstrate the feasibility of our approach. Experiments based on the realistic dataset demonstrate that our mechanism achieves social optimum for homogeneous-quantity trading like NFT. It can enhance social welfare up to 3.7 times compared to the existing order book benchmarks for heterogeneous-quantity trading of Bitcoin tokens. It exhibits robustness against random variations in buyers and sellers.

Problem

• Blockchain
• Selfish Miners
• Transaction Fee Prioritization

Innovation

• Adaptive Block Size
• Selfish Miner Problem
• Ethereum NFT Transactions