BAR Nash Equilibrium and Application to Blockchain Design

Abstract: This paper presents a novel solution concept, called BAR Nash Equilibrium (BARNE) and apply it to analyse the Verifier's dilemma, a fundamental problem in blockchain. Our solution concept adapts the Nash equilibrium (NE) to accommodate interactions among Byzantine, altruistic and rational agents, which became known as the BAR setting in the literature. We prove the existence of BARNE in a large class of games and introduce two natural refinements, global and local stability. Using this equilibrium and its refinement, we analyse the free-rider problem in the context of byzantine consensus. We demonstrate that by incorporating fines and forced errors into a standard quorum-based blockchain protocol, we can effectively reestablish honest behavior as a globally stable BARNE.