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

In this paper, we review the undercutting attacks in the transaction-fee-based regime (i.e., without block rewards) of proof-of-work (PoW) blockchains with the longest chain fork-choice rule. Next, we focus on the two related problems: (1) fluctuations in mining revenue and (2) 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 (FRSCs) that are part of the consensus protocol. At the same time, these FRSCs reward the miner of a block with a certain fraction of the accumulated funds over a predefined time. This setting enables us to achieve several interesting properties that improve the incentive stability and security of the protocol, which is beneficial for the honest miners. 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%.