Many large decentralized systems rely on information propagation to ensure their proper function. However,
it is common that only participants that are aware of the information can compete for some reward, and
thus informed participants have an incentive
to propagate information to others. One recent scenario in
which such tension arises is the 2009 DARPA Network Challenge (finding red balloons). We focus on another
prominent scenario: Bitcoin, a decentralized electronic currency system.
Bitcoin represents a radical new approach to monetary systems. It has been getting a large amount
of public attention over the last year, both in policy discussions and in the popular press [Davis 2011;
Surowiecki 2011]. Its cryptographic fundamentals have largely held up even as its usage has become in-
creasingly widespread. We find, however, that it exhibits a fundamental problem of a different nature,
based on how its incentives are structured. We propose a modification to the protocol that can eliminate
Bitcoin relies on a peer-to-peer network to track transactions that are performed with the currency. For
this purpose, every transaction a node learns about should be transmitted to its neighbors in the network.
As the protocol is currently defined and implemented, it does not provide an incentive for nodes to broadcast
transactions they are aware of. In fact, it provides a strong incentive not to do so. Our solution is to augment
the protocol with a scheme that rewards information propagation. Since clones are easy to create in the
Bitcoin system, an important feature of our scheme is Sybil-proofness.
We show that our proposed scheme succeeds in setting the correct incentives, that it is Sybil-proof, and
that it requires only a small payment overhead, all this is achieved with iterated elimination of dominated
strategies. We complement this result by showing that there are no reward schemes in which information
propagation and no self-cloning is a dominant strategy.