Cyber risk management with risk aware cyber-insurance in blockchain networks

Benefit from the capabilities of providing decentralized tamper-proof ledgers and platforms for data-driven autonomous organization, open-access blockchains based on proof-of-work protocols have gained tremendous popularity. Yet, the proof-of-work based consensus protocols under threats, e.g., double-spending. In this paper, by adopting the cyber-insurance as an economic tool to neutralize cyber risks, we propose a novel approach of cyber risk management for blockchain-based service. The blockchain service market under our consideration is composed of four entities, i.e., the infrastructure provider, blockchain provider, cyber-insurer, and users. The blockchain provider purchases the computing resources, e.g., a cloud, from the infrastructure provider to maintain the blockchain consensus and then offers blockchain services to the users. The blockchain provider optimize its profit by strategizing its investment in the infrastructure in order to improve the security of the blockchain and the service price charged to the users. In the meantime, to prevent the potential damage incurred by the attacks and then fully secure the cyber-space, the blockchain provider purchases a cyber-insurance from the cyber-insurer. In return, the cyber- insurer adjusts the insurance premium according to the perceived risk level of the blockchain service and will pay the claim to the blockchain provider once attacks happen. Based on the rationality of the market entities, we model the interaction among the blockchain provider, users, and cyber-insurer as a two- stage Stackelberg game. Specifically, the blockchain provider and cyber-insurer lead to set their pricing-investment strategies in the upper level subgame, and then the users follow to determine their demand of the blockchain service in the lower level subgame. Specifically, we consider the scenario of double-spending attacks and provide a series of analytical results about the Stackelberg equilibrium in the market game.