Compounding of Wealth in Proof-of-Stake Cryptocurrencies

Speaker:   Giulia Fanti, CMU

Title:  Compounding of Wealth in Proof-of-Stake Cryptocurrencies

Abstract: 

Proof-of-stake (PoS) is a promising approach for designing efficient blockchains, where block proposers are randomly chosen with probability proportional to their stake. A primary concern with PoS systems is the “rich getting richer” phenomenon, whereby wealthier nodes are more likely to get elected, and hence reap the block reward, making them even wealthier. In this paper, we introduce the notion of equitability, which quantifies how much a proposer can amplify her stake compared to her initial investment. Even with everyone following protocol (i.e., honest behavior), we show that existing methods of allocating block rewards lead to poor equitability, as does initializing systems with small stake pools and/or large rewards relative to the stake pool. We identify a geometric reward function, which we prove is maximally equitable over all choices of reward functions under honest behavior and bound the deviation for strategic actions; the proofs involve the study of optimization problems and stochastic dominances of Polya urn processes, and are of independent mathematical interest. These results allow us to provide a systematic framework to choose the parameters of a practical incentive system for PoS cryptocurrencies.

Bio: 

Giulia Fanti is an Assistant Professor of Electrical and Computer Engineering at Carnegie Mellon University. Her research interests span the algorithmic foundations of blockchains, distributed systems, privacy-preserving technologies, and machine learning. She is a fellow for the World Economic Forum's Global Future Council on Cybersecurity, and has received a best paper award at ACM Sigmetrics and an NSF Graduate Research Fellowship. She obtained her Ph.D. in EECS from U.C. Berkeley and her B.S. in ECE from Olin College of Engineering.