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Statistical Uncertainty in Mining Power Estimates for PoW Blockchains

Core Concepts
Estimating mining power distribution in PoW blockchains requires statistical uncertainty quantification to avoid false security assumptions.
The content delves into the importance of accurately estimating mining power distribution in Proof of Work (PoW) blockchains. It introduces a framework to quantify statistical uncertainty for the Nakamoto coefficient, a measure of blockchain decentralization. The analysis reveals that daily granularity can lead to considerable uncertainty, recommending aggregation over at least 7 days. The study highlights the need for reporting a range of possible Nakamoto coefficient values due to statistical support variations across different blockchains and time periods. Abstract: Security depends on mining power distribution. Framework for Nakamoto coefficient uncertainty. Daily aggregation leads to significant uncertainty. Recommends 7-day sample window. Introduction: Security relies on mining power distribution. State-of-the-art approaches estimate mining power. Imperfect inference due to insufficient blocks observed. Approach: Statistical framework for Nakamoto coefficient evaluation. Data collection methods explained. Results: Statistical confidence impacted by significance level and granularity. Comparison across different ledgers. Recommendations for optimal granularity. Discussion: Reporting statistical confidence is crucial. Direct estimates may underestimate centralization risk. Recommendation for minimum granularity of 7 days.
Bitcoin fails more than half hypothesis tests with daily granularity. - Bitcoin Cash shows similar results. - Ethereum and Zcash pass tests even with daily data. - Aggregating blocks over 7 days increases statistical confidence significantly.
"Most estimates for Bitcoin do not pass a binomial hypothesis test with α = 0.05 if a daily granularity is used." "Aggregating blocks over 7 days creates more statistical confidence." "We recommend that authors report a range of possible Nakamoto coefficient values."

Deeper Inquiries

How does the underestimation of centralization impact blockchain security?

The underestimation of centralization in blockchain systems can have significant implications for security. When the distribution of mining power is inaccurately assessed, it may lead to a false sense of security regarding the risk of a 51% attack. If one entity actually controls more mining power than estimated, they could potentially manipulate the blockchain and carry out malicious activities like double-spending coins. This highlights the critical importance of accurately assessing decentralization metrics to ensure the integrity and security of blockchain networks.

What are the implications of failing hypothesis tests in estimating mining power?

Failing hypothesis tests when estimating mining power can indicate a lack of statistical confidence in the results. In practical terms, this means that there is uncertainty about whether the reported values accurately reflect the true distribution of mining power among participants. This uncertainty can introduce vulnerabilities into blockchain systems, as incorrect assessments may lead to inadequate safeguards against attacks or manipulation by entities with significant control over mining resources.

How can attribution uncertainties affect the accuracy of decentralization metrics?

Attribution uncertainties refer to challenges in correctly identifying which entity or entities are responsible for specific actions within a blockchain network, such as block creation or transaction validation. These uncertainties can significantly impact decentralization metrics by introducing inaccuracies into calculations based on attributed actions. For example, if multiple entities collaborate covertly or if attributions are incorrect due to limited information availability, decentralization metrics may not provide an accurate reflection of actual network dynamics. As a result, decisions and assessments based on these metrics may be flawed and compromise overall system security and integrity.