Towards Overcoming the Undercutting Problem

Mining processes of Bitcoin and similar cryptocurrencies are currently incentivized with voluntary transaction fees and fixed block rewards which will halve gradually to zero. In the setting where optional and arbitrary transaction fee becomes the prominent/remaining incentive, Carlsten et al. [CCS 2016] find that an undercutting attack can become the equilibrium strategy for miners. In undercutting, the attacker deliberately forks an existing chain by leaving wealthy transactions unclaimed to attract petty complaint miners to its fork. We observe that two simplifying assumptions in [CCS 2016] of fees arriving at fixed rates and miners collecting all accumulated fees regardless of block size limit are often infeasible in practice, thus inaccurately inflating its profitability. The intuition is that the fees deliberately left out by an undercutter may not be attractive to other miners (hence to the attacker itself): the left-out transactions may not fit into a block without "squeezing out" other to-be transactions, and thus claimable fees in the next round cannot be raised arbitrarily. This work views undercutting and shifting among chains as mining strategies of rational miners. We model profitability of undercutting strategy with block size limit present, which bounds the claimable fees in a round and gives rise to a pending transaction set. In the proposed model, we first identify conditions necessary to make undercutting profitable. We then present an easy-to-deploy defense against undercutting by selectively assembling transactions into a new block to invalidate the identified conditions. Indeed, in a typical setting with undercutters present, applying the avoidance technique is a Nash Equilibrium. Finally, we complement the analytical results with an experimental analysis using both artificial data of normally distributed fee rates and actual transactions in Bitcoin and Monero.