But Why Does It Work? A Rational Protocol Design Treatment of Bitcoin.

An exciting recent line of work has focused on formally investigating the core cryptographic assumptions underlying the security of Bitcoin. In a nutshell, these works conclude that Bitcoin is secure if and only if the majority of the mining power is honest. Despite their great impact, however, these works do not address an incisive question asked by positivists and Bitcoin critics, which is fuelled by the fact that Bitcoin indeed works in reality: Why should the real-world system adhere to these assumptions?

In this work we employ the machinery from the Rational Protocol Design (RPD) framework by Garay et al. [FOCS’13] to analyze Bitcoin and address questions such as the above. We show assuming a natural class of incentives for the miners’ behavior—i.e., rewarding them for adding blocks to the blockchain but having them pay for mining—where one can reserve the honest majority assumption as a fallback, or even, depending on the application, completely replace it by the assumption that the miners aim to maximize their revenue.

Our results underscore the appropriateness of RPD as a “rational cryptography” framework for analyzing Bitcoin. Along the way, we devise significant extensions to the original RPD machinery that broaden its applicability to cryptocurrencies, which may be of independent interest.