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Tuning PoW with Hybrid Expenditure

Authors Itay Tsabary, Alexander Spiegelman, Ittay Eyal

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Author Details

Itay Tsabary
  • Technion, Haifa, Israel
  • IC3
Alexander Spiegelman
  • Novi Research, Herzliya, Israel
Ittay Eyal
  • Technion, Haifa, Israel
  • IC3

Funding

This research was supported by the Israel Science Foundation (grant No. 1641/18), BSF, and the Technion Hiroshi Fujiwara cyber-security research center.

Acknowledgements

We thank Or Sattath for his comments on preliminary versions of this work. Part of this work was performed when the authors worked at VMware Research, Israel.

Cite As Get BibTex

Itay Tsabary, Alexander Spiegelman, and Ittay Eyal. Tuning PoW with Hybrid Expenditure. In 3rd International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2021). Open Access Series in Informatics (OASIcs), Volume 97, pp. 3:1-3:17, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2022) https://doi.org/10.4230/OASIcs.Tokenomics.2021.3

Abstract

Proof of Work (PoW) is a Sybil-deterrence security mechanism. It introduces an external cost to system participation by requiring computational effort to perform actions. However, since its inception, a central challenge was to tune this cost. Initial designs for deterring spam email and DoS attacks applied overhead equally to honest participants and attackers. Requiring too little effort does not deter attacks, whereas too much encumbers honest participation. This might be the reason it was never widely adopted.
Nakamoto overcame this trade-off in Bitcoin by distinguishing desired from malicious behavior and introducing internal rewards for the former. This mechanism gained popularity in securing permissionless cryptocurrencies, using virtual internally-minted tokens for rewards. However, in existing blockchain protocols the internal rewards directly compensate users for (almost) the same value of external expenses. Thus, as the token value soars, so does the PoW expenditure. Bitcoin PoW, for example, already expends as much electricity as Colombia or Switzerland. This amount of resource-guzzling is unsustainable, and hinders even wider adoption of these systems.
As such, a prominent alternative named Proof of Stake (PoS) replaces the expenditure requirement with token possession. However, PoS is shun by many cryptocurrency projects, as it is only secure under qualitatively-different assumptions, and the resultant systems are not permissionless.
In this work we present Hybrid Expenditure Blockchain (HEB), a novel PoW mechanism. HEB is a generalization of Nakamoto’s protocol that enables tuning the external expenditure by introducing a complementary internal-expenditure mechanism. Thus, for the first time, HEB decouples external expenditure from the reward value.
We show a practical parameter choice by which HEB requires significantly less external consumption compare to Nakamoto’s protocol, its resilience against rational attackers is similar, and it retains the decentralized and permissionless nature of the system. Taking the Bitcoin ecosystem as an example, HEB cuts the electricity consumption by half.

Subject Classification

ACM Subject Classification
  • Security and privacy → Distributed systems security
Keywords
  • Blockchain
  • Proof of work
  • Cryptocurrency
  • Environmental impact

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