Optimal Incentive Mechanisms for Fair and Equitable Rewards in Proof of Stake-Based Blockchains

Authors

Abdulhadi Sahin, Florida International UniversityFollow

Document Type

Thesis

Degree

Master of Science (MS)

Major/Program

Computer Engineering

First Advisor's Name

Kemal Akkaya

First Advisor's Committee Title

Committee Chair

Second Advisor's Name

Sukumar Ganapati

Second Advisor's Committee Title

Committee Member

Third Advisor's Name

Selcuk Uluagac

Third Advisor's Committee Title

Committee Member

Keywords

Blockchain, Proof of Stake, Consensus mechanisms, Reward distribution, Decentralization, Inequality

Date of Defense

5-3-2023

Abstract

Blockchain technology was introduced in 2009 with Bitcoin, creating a secure,
trustless, and decentralized digital currency system. Today, its applications ex-
tend beyond digital currencies and are used in various domains such as finance,
healthcare, supply chain management, record keeping, and energy. While blockchain technology has the potential to revolutionize industries with its distributed and decentralized structure, practical implementations show the existence of power and resource concentration at different levels. This gives rise to security concerns and prevents the realization of the technology’s full potential. In this thesis, we focus on how consensus protocols, which regulate block creation and the interaction between nodes, inadvertently encourage concentration of power. The two most common protocols are Proof of Work (PoW) and Proof of Stake (PoS). Due to computational requirements, the former encourages large mining pools, while the latter weighs selection processes according to a node’s stakes, which could lead to the concentration of wealth. We explore and evaluate alternative incentive mechanisms to PoS, aiming for more decentralized and equitable participation. Using game theory, we demonstrate the optimality of these proposed models. Moreover, through simulations, we show that two of our alternative mechanisms can mitigate inequality and provide an appealing solution for more decentralized stake distribution.

Identifier

FIDC011197

Recommended Citation

Sahin, Abdulhadi, "Optimal Incentive Mechanisms for Fair and Equitable Rewards in Proof of Stake-Based Blockchains" (2023). FIU Electronic Theses and Dissertations. 5369.
https://digitalcommons.fiu.edu/etd/5369