Decent-BRM: Decentralization through Block Reward Mechanisms

Proof-of-Work (PoW) is a consensus algorithm where miners solve cryptographic puzzles to mine blocks and obtain the reward specified through the underlying blockchain's Block Reward Mechanism (BRM). Rewards from mining the block have a high associated risk (variance). Miners form mining pools to reduce this risk. The formation of mining pools leads to centralization in PoW blockchains. We study the role of BRMs in forming mining pools and propose a novel BRM that disincentivizes the formation of mining pools. For our analysis, we model the system as a two-player game between (1) an incoming miner and (2) the existing PoW blockchain system. We categorize BRMs into (a) Memoryless-history independent and (b) Retentive BRMs. We show the impossibility of designing a Memoryless BRM that disincentivizes mining pool formation. We propose a novel retentive BRM-Decent-BRM, which incentivizes incoming miners to perform solo mining (leading to a decentralized PoW blockchain) over forming mining pools.