Problem 4 (Bitcoin Blacklisting Attack, 20 Points) Suppose a mining pool wants to blacklist transactions from address X. In other words, they want to freeze the money held by that address, making it unspendable. 1. (10 pts (Punitive Forking) The mining pool announces that they will refuse to work on a chain containing a transaction originating from address X. Explain why this strategy can guarantee that the blacklisted transactions will never be published if the mining pool has the majority of the hash power. 2. (10 pts) (Feather Forking) The mining pool announces that they will attempt to fork if they see a block that has a transaction from address X, but they will give up after the transaction from address X has k confirmations. The success of this attack depends entirely on the motivation of other miners to join the attacker. If a miner includes a transaction from address X in his block, he will receive block reward plus transaction fee from address X. Otherwise, the miner only receives block reward. Suppose the attacker controls q = 20% of the network hash power. Let k= 2 and block reward be 12.5 BTC $48,550. What is the minimum transaction fee address X has to pay in order to avoid being blacklisted? (Hint: first find out the probability that the attacker successfully prunes the block containing a transaction from address X.) Problem 4 (Bitcoin Blacklisting Attack, 20 Points) Suppose a mining pool wants to blacklist transactions from address X. In other words, they want to freeze the money held by that address, making it unspendable. 1. (10 pts (Punitive Forking) The mining pool announces that they will refuse to work on a chain containing a transaction originating from address X. Explain why this strategy can guarantee that the blacklisted transactions will never be published if the mining pool has the majority of the hash power. 2. (10 pts) (Feather Forking) The mining pool announces that they will attempt to fork if they see a block that has a transaction from address X, but they will give up after the transaction from address X has k confirmations. The success of this attack depends entirely on the motivation of other miners to join the attacker. If a miner includes a transaction from address X in his block, he will receive block reward plus transaction fee from address X. Otherwise, the miner only receives block reward. Suppose the attacker controls q = 20% of the network hash power. Let k= 2 and block reward be 12.5 BTC $48,550. What is the minimum transaction fee address X has to pay in order to avoid being blacklisted? (Hint: first find out the probability that the attacker successfully prunes the block containing a transaction from address X.)