Bitcoin relies on a peer-to-peer network to track transactions that are performed with the currency. For this purpose, every transaction a node learns about should be transmitted to its neighbours in the network. As the protocol is currently defined and implemented, it does not provide ant incentives for nodes to broadcast transactions they are aware of. In fact, it provides an incentive not to do so.

In this research, the authors offer a solution to augment the protocol with a scheme that rewards information propagation. Since clones are easy to create in the Bitcoin system, an important feature of our scheme is Sybil-proofness. They show that the proposed scheme succeeds in setting the correct incentives, that it is Sybil-proof, and that it requires only a small payment overhead, all this is achieved with iterated elimination of dominated strategies. They complement this result by showing that there are no reward schemes in which information propagation and no self-cloning is a dominant strategy.

This research looks at the role of incentives at different parts of transaction. To incentivise nodes to participate in the peer to peer network and invest effort in authorising transactions, rewards have to be allocated. Currently, in the initial stages of the protocol this is done by giving the authoriser of a block a fixed amount of bitcoins (this also the only method for printing new bitcoins). This fixed amount will be reduced every few years at a rate determined by the protocol. As the money creation is slowly phased out, there will be a need to reward the nodes differently.

The authors’ incentives protocol has been designed with this in mind. It already requires the transaction initiator to specify a fee for authorising her transaction. As explained in the introduction of this research,  this introduces an incentive problem since nodes prefer to keep the transaction to themselves instead of broadcasting it.

Discover how these issues can be resolved and incentives improved.