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Thesis

Mitigating Undercutting Attacks: A Study on Mining and Transaction Fee Behavior

Bao, C. (2024). Mitigating Undercutting Attacks: A Study on Mining and Transaction Fee Behavior. [Master's thesis, MIT]. https://media.mit.edu/publications/mitigating-undercutting-attacks-a-study-on-mining-and-transaction-fee-behavior

Abstract

With block rewards dwindling in Bitcoin, a miner’s revenue will become increasingly reliant on transaction fees. However, these transaction fees are highly variable, which could result in undercutting attacks occurring. Undercutting attacks are when miners intentionally fork the blockchain in an attempt to steal transactions from an already-mined block. These attacks could cause repeated forking of the blockchain, thereby rendering Bitcoin unstable and less secure long-term. The original paper [1] proposing these attacks made assumptions about the future mining environment. For instance, they assumed that block size limits were large relative to the number of transactions and that all transactions had the same fee. This thesis aims to examine whether undercutting attacks would still be a threat under different mining dynamics. Specifically, we examine two important mempool characteristics that have changed since the original paper was written: the block size limit and the fee gradient. By investigating what happens as these characteristics and factors change, our research is able to not only generate a holistic view of whether undercutting attacks are a threat for a wide variety of possible mempool dynamics, but it also provides guidelines on what range each of these measurable characteristics must fall within in order for the blockchain to be secure and stable long-term. Our research found that the blockchain is safe from undercutting attacks when the block size limit is small relative to the number of transactions, but the blockchain becomes more susceptible to undercutting attacks if transactions with much higher fees enter the mempool infrequently even for smaller block size limits. Moreover, we extend the logic of undercutting attacks from the original paper to show that, if the mempool dynamics are such that the undercutting occurs long-term, the tangible impact on users is that very little progress will be made as fully rational miners will end up only including one transaction per block, regardless of the total amount of available transactions. 

Thesis supervisor: Neha Narula 
Title: Director, Digital Currency Initiative

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