In this article, we explore how to design reward mechanisms for users in blockchain systems. We consider three different models: a basic participation game, a model with retraction, and universal payments where participants are paid irrespective of their eligibility. Our analysis shows that even in the simplest bookkeeping possible, there are negatives of higher overall expenditure and unfairness towards participants who complete tasks. However, we find that the positives of simple reward mechanisms outweigh the negatives, leading to a positive overall picture.
Section 2: Section 2 – Penalty Mechanism
In this section, we discuss the idea of implementing penalty mechanisms in blockchain systems. While this may seem like an efficient way to ensure completion of tasks, we find that it would actually counteract the efficiency benefit we were hoping to obtain by simplifying bookkeeping. Therefore, we do not recommend using penalty mechanisms in our analysis.
Section 3: Section 3 – Richer Model with Retraction
In this section, we explore a richer model where users have an additional choice of declaring participation and then "retracting" or not completing all assigned tasks (but still getting rewarded when eligible). We find that even with this more involved analysis, non-trivial equilibria will have a relatively high number of contributors.
Section 4: Section 4 – Universal Payments
In the final section, we consider universal payments where participants are paid regardless of their eligibility. This represents the simplest bookkeeping possible and leads to expected outcomes in both the basic participation game and games with retraction. However, we find that the simplification in bookkeeping comes with the negatives of higher overall expenditure and unfairness towards participants who complete tasks.
Conclusion
In summary, our findings reveal a positive picture, concluding that simple reward mechanisms are effective in encouraging user participation in blockchain systems. However, we must be mindful of the potential negatives of higher overall expenditure and unfairness towards participants who complete tasks. By carefully designing reward mechanisms, we can strike a balance between simplicity and fairness to maximize overall welfare or profit extracted by maintainers.
