On Strategic Interactions in Blockchain Markets: A Three-stage Stackelberg Game Approach

Blockchain technology is a promising approach for solving the security and personal privacy problems in Internet applications. The successful commercial deployment of Blockchain markets relies on a comprehensive understanding of the economic and strategic interactions among different entities involved. In this paper, we focus on a blockchain market consisting of a blockchain platform (BP), multiple miners, and blockchain users (BUs), and formulate their interactions as a three-stage Stackelberg game. In Stage I, the BP strategizes the rewards granted to the miners, so as to attract the miners to contribute more computing power used for improving the security and privacy of the blockchain. In Stage II, each miner strategizes its computing power individually for winning the mining compe-tition, which is modeled as a non-cooperative game. In Stage III, the BUs strategize the transaction fee to acquire a corresponding service experience. With the objective of utility maximization, we develop a theoretical framework to analyze the hierarchical interactive behaviors among the entities in a backward inductive way. By solving the Stackelberg equilibrium, we determine the optimal strategies of entities in closed-form. Numerical results are provided to demonstrate the performance of the strategic interactions in the blockchain market.

I. Introduction

The world-changing blockchain technology is a promising approach for solving the security and personal privacy problems in Internet applications, via establishing distributed tamper-proof ledgers and platforms [1]. As the most famous blockchain application, Bitcoin was invented by Nakamoto in 2008, which adopts a distributed consensus mechanism proof-of-work (PoW) to achieve trusted interactions in distributed systems without the involvement of any third party [2]. With the increasing popularity of Bitcoin, as well as due to the capability of providing low-cost, efficient, and secure data storage in distributed systems, blockchain technology has been attracting tremendous attention from both industry and academia.