Fee-Redistribution Smart Contracts for Transaction-Fee-Based Regime of Blockchains with the Longest Chain Rule

Abstract: In this paper, we review the undercutting attacks in the transaction-fee-based regime of proof-of-work (PoW) blockchains with the longest chain fork-choice rule. Next, we focus on the problem of fluctuations in mining revenue and the mining gap - i.e., a situation, in which the immediate reward from transaction fees does not cover miners' expenditures. To mitigate these issues, we propose a solution that splits transaction fees from a mined block into two parts - (1) an instant reward for the miner of a block and (2) a deposit sent to one or more fee-redistribution smart contracts ($\mathcal{FRSC}$s) that are part of the consensus protocol. At the same time, these redistribution smart contracts reward the miner of a block with a certain fraction of the accumulated funds of the incoming fees over a predefined time. This setting enables us to achieve several interesting properties that are beneficial for the incentive stability and security of the protocol. With our solution, the fraction of Default-Compliant miners who strictly do not execute undercutting attacks is lowered from the state-of-the-art result of 66% to 30%.