Examining Attacks on Consensus and Incentive Systems in Proof-of-Work Blockchains: A Systematic Literature Review

The mining program assembles this block and places the transactions it has prioritized in the transaction field. It continuously adjusts the nonce and the extra nonce (which is part of the coinbase transaction in the Merkle tree) and sends the information in the block through https://www.xcritical.com/ a hashing algorithm. Some criticisms of proof-of-work include its energy-intensive nature, which leads to high electricity consumption and environmental concerns.

Proof of Work (PoW) vs. Proof of Stake (PoS)

The difficulty adjustment occurs approximately every 2,016 blocks (about once every two weeks) to maintain the target block time of 10 minutes. Miners coming and going from the network on an individual basis do nothing to affect difficulty level minute to minute, or day to day. Satoshi’s improvements to proof-of-work used game theory to solve this problem. It made a way to incentivize anonymous volunteers called miners to verify the validity of all Bitcoin transactions – ensuring that no one is double-spending. This invention was the first time a decentralized network of participants could secure trust without proof of work cryptocurrency a centralized intermediary. Proof of work is a consensus mechanism to choose which of these network participants—called miners—are allowed to handle the lucrative task of verifying new data.

Energy and Time consumption in Mining:

While anyone can technically start mining with modest hardware, their likelihood of receiving any reward is vanishingly small compared to institutional mining operations. With proof-of-stake, the cost of staking and the percentage return on that stake are the same for everyone. Although it takes countless hashing attempts to find a valid hash, it’s trivial for anyone to confirm that the generated hash is correct.

• To consistently create malicious yet valid blocks, a malicious miner would have needed over 51% of the network mining power to beat everyone else.
• Bitcoin mining through proof-of-work works similarly to buying lottery tickets with a prize draw every 10 minutes.
• Drawing upon subject knowledge, we identified various types of attacks targeting consensus and incentive mechanisms in PoW-based blockchain networks.
• In short, Proof of Work (PoW) is a mechanism created to prevent double-spends in digital payment systems.
• This unfair distribution discourages regular miners from staying in the pool, as they end up earning less rewards than what they would in a fair system.

How did Ethereum’s proof-of-work work?

The proof-of-stake protocol has been independently implemented by five separate teams (on each of the execution and consensus layers) in five programming languages, providing resilience against client bugs. However, it has only recently been implemented for the real Ethereum Mainnet and is less time-proven than proof-of-work. The following sections discuss the pros and cons of proof-of-stake’s security model compared to proof-of-work. There are many consensus algorithms besides PoW, but one of the most popular is Proof of Stake (PoS).

It then explores how combining these attacks with each other or with other malicious and non-malicious strategies can enhance their overall effectiveness and profitability. The analysis further explores how the deployment of attacks such as selfish mining and block withholding by multiple competing mining pools against each other impacts their economic returns. Lastly, a set of design guidelines is provided, outlining areas future work should focus on to prevent or mitigate the identified threats. The research community has made substantial efforts to tackle this issue through the exploration of various innovative solutions and consensus methods resulting in impressive outcomes6,11,13,14,15. To begin with on-chain solutions possess characteristics such as recording, verifying and retaining all transactions without the need for coordinating or managing multiple subsystems9. These attributes establish on-chain solutions as the primary alternative for scaling blockchains in domain with different levels of network bandwidth and computing resources16.

The Bitcoin network consumes significantly less energy than existing monetary systems and other major industries, including gold mining and financial sectors. The “work” in the proof-of-work consensus mechanism is the source of these unsustainability concerns. This gamification incentivizes network participation so well that nation-states such as El Salvador use bitcoin as a reserve currency. But as the cryptocurrency currently employs approximately 99 terawatt hours of electricity per year, many believe this growth is unsustainable. If you deposit a check in your savings account, how do you know that you’ll be credited for the accurate amount?

Bitcoin, like all blockchain networks, rely on crypto nodes to validate transactions. On the bitcoin network, full nodes are software clients running the Bitcoin software that automatically validate and propagate transactions and blocks in the network. Consistency is a fundamental property in blockchain networks ensuring that all honest participants agree on the order of transactions. In our system, DPoS ensures that only the delegates are responsible for validating blocks, reducing the risk of inconsistent states. For instance, we ensure consistency through the use of the BFT mechanism in the DPoS consensus.

Such mechanisms are often referred to as consensus algorithms or consensus mechanisms, because they involve multiple parties achieving consensus without the need to trust one another. The “work” in proof-of-work is the computational power nodes have to contribute in validating a new block of transactions. This power is represented by the SHA-256 cryptographic hash function, and it sets this consensus mechanisms apart from its counterparts. Blockchain based IoT networks necessitate scalable consensus algorithms that can process a high volume of transactions. However, due to their resource limitations IoT devices face challenges when it comes to executing computationally intensive tasks6. Although PoW is a popular consensus mechanism but IoT devices with limited resources cannot be used due to its high computing needs10.

In exchange for “staking” cryptocurrency, they get a chance to validate new transactions and earn a reward. But if they improperly validate bad or fraudulent data, they may lose some or all of their stake as a penalty. Nakamoto published a famous white paper describing a digital currency based on proof of work protocols that would allow secure, peer-to-peer transactions without the involvement of a centralized authority. Bitcoin is a blockchain, which is a shared ledger that contains a history of every Bitcoin transaction that ever took place.

However, this approach faced limitations in its applicability to a real blockchain environment due to two primary reasons. Secondly, in their study, they employed a tabular Q-Learning algorithm, which is highly inefficient for handling realistic blockchain environments with large state spaces. If the algorithm requires a substantial amount of time to discover the optimal policy, it becomes economically unviable for miners.

When disagreements occurred between the two reviewers, they were resolved through discussion or by involving a third reviewer. This transparent process ensured that only studies meeting the necessary criteria progressed to the next stage of screening. At the end of this process a sum of 71 publications were submitted to the next phase. Proof of stake differs because it only allows miners to validate blocks if they have a security deposit or “stake.” If attackers try dishonest processes, they lose their stake. There is no real benefit for cryptocurrency attackers to disrupt the blockchain because they can’t double-spend coins or steal coins without losing their investment. Both, in different ways, help ensure users are honest with transactions, through incentivizing good actors and making it extremely difficult and expensive for bad actors.

The algorithm is used to verify the transaction and create a new block in the blockchain. The idea for Proof of Work(PoW) was first published in 1993 by Cynthia Dwork and Moni Naor and was later applied by Satoshi Nakamoto in the Bitcoin paper in 2008. The term “proof of work” was first used by Markus Jakobsson and Ari Juels in a publication in 1999. While our system focuses on transparency for auditing purposes, we also support confidentiality using IPFS to store sensitive IoT data off-chain. Only the hash of the data is stored on-chain, ensuring that the actual data remains private.

The primary goal is to quickly assess each study’s relevance to the research questions and eliminate those that do not fulfil the fundamental inclusion criteria. During this phase, the titles and abstracts of 518 publications were reviewed by two independent reviewers to assess their relevance. Every decision to include or exclude a study was carefully recorded, with justifications provided for any exclusions when relevant.

The decentralization of the blockchain among a network of nodes ensures that it is not under the control of a single entity [16]. The study utilized a consensus model that forms the foundation of the entire P2P network with system performance including throughput, security, and latency. However, the traditional PoW consensus algorithm is ill-suited for IoT devices due to their limited computational power. To harness the potential of numerous IoT devices in networks, our architecture suggests employing a customized DPoS consensus mechanism.