Difficulty control for blockchain-based consensus systems

• Published in: Peer-to-peer networking and applications Vol. 9; no. 2; pp. 397 - 413
• Main Author: Kraft, Daniel
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.03.2016; Springer Nature B.V
• Subjects: Blocking; Communications Engineering; Computer Communication Networks; Control systems; Currencies; Digital currencies; Engineering; Information Systems and Communication Service; Mathematical models; Mining; Names; Networks; Peer to peer computing; Signal,Image and Speech Processing; Simulation; Namecoin; Bitcoin mining; Poisson process; Crypto-currency; Nakamoto blockchain
• ISSN: 1936-6442; 1936-6450
• DOI: 10.1007/s12083-015-0347-x

Crypto-currencies like Bitcoin have recently attracted a lot of interest. A crucial ingredient into such systems is the “mining” of a Nakamoto blockchain. We model mining as a Poisson process with time-dependent intensity and use this model to derive predictions about block times for various hash-rate scenarios (exponentially rising hash rate being the most important). We also analyse Bitcoin’s method to update the “network difficulty” as a mechanism to keep block times stable. Since it yields systematically too fast blocks for exponential hash-rate growth, we propose a new method to update difficulty. Our proposed method performs much better at ensuring stable average block times over longer periods of time, which we verify both in simulations of artificial growth scenarios and with real-world data. Besides Bitcoin itself, this has practical benefits particularly for systems like Namecoin. It can be used to make name expiration times more predictable, preventing accidental loss of names.