Negative Incentive Attack
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A Negative Incentive Attack is a potential flaw in a digital cash scheme in which negative incentives are utilized to drive down the price and ultimately collapse a cryptocurrency. Negative Incentive Attacks are attacks in which an adversary obtains significant decision-making power (referred to as capacity) and uses it to introduce hostile forks in the system to cause significant damage. Such attacks focus on an attacker obtaining a majority of the tokens, though significant damage may be done with less capacity.
Unlike physical cash, a digital token is extremely volatile and reacts strongly towards incentives.[1][2] As with counterfeit money, cryptocurrencies can be inflationary by creating a new amount of copied currency that did not previously exist. This devalues the currency relative to other monetary units or goods and diminishes user trust as well as the circulation and retention of the currency.[2] Beyond inflation, there exists opportunities for other negative incentives which could cause holders of a cryptocurrency to mass sell, resulting in an extreme decrease of the price. One instance of this type of attack was theorized by Computer Scientist and Cryptocurrency Influencer Kara Szabo [3] when she hypothesized that she could "destroy" Dogecoin by creating a cryptocurrency dubbed DeadDoge, in which current Dogecoin holders would be incentivized to sell their tokens for 2x over the market value paid in an adversary token. Many token holders would easily give up their tokens for a guaranteed 2x return. The liquidity, and funding of the adversary token would be built into the system as a method of minimizing the resources needed to carry out such an attack. The key to this attack is that the attacking coin collects tokens of the coin being attacked, and assumes an a whale-like stake in the token. In Kara's DeadDoge example, the whale-like stake would threaten to sell its vast share of the tokens, causing more disruption and panic, and holders of Dogecoin would thus mass sell, and exit their positions.
Centralized currencies[edit]
Prevention of Negative Incentive Attacks is difficult, even by using an online central trusted third party.[2] This normally represents a single point of failure from both availability and trust viewpoints.
Decentralized currencies[edit]
In a decentralized system, the Negative Incentive Attacks are significantly harder to solve. To avoid the need for a trusted third party, many servers must store identical up-to-date copies of a public transaction ledger, but as transactions (requests to spend money) are broadcast, they will arrive at each server at slightly different times.
See also[edit]
References[edit]
- ↑ Chohan, Usman W. (6 January 2021). "The Double Spending Problem and Cryptocurrencies". Banking & Insurance Journal. Social Science Research Network (SSRN). doi:10.2139/ssrn.3090174. SSRN 3090174. Retrieved 24 December 2017. Unknown parameter
|s2cid=ignored (help) - ↑ 2.0 2.1 2.2 Mark Ryan. "Digital Cash". School of Computer Science, University of Birmingham. Retrieved 2017-05-27.
- ↑ [1][2]
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