Incentive Mechanism Design for Privacy-Preserving Decentralized Blockchain Relayers

Abstract

Public blockchains, though renowned for their transparency and immutability, suffer from significant privacy concerns. Network-level analysis and long-term observation of publicly available transactions can often be used to infer user identities. To mitigate this, several blockchain applications rely on relayers, which serve as intermediary nodes between users and smart contracts deployed on the blockchain. However, dependence on a single relayer not only creates a single point of failure but also introduces exploitable vulnerabilities that weaken the system's privacy guarantees. This paper proposes a decentralized relayer architecture that enhances privacy and reliability through game-theoretic incentive design. We model the interaction among relayers as a non-cooperative game and design an incentive mechanism in which probabilistic uploading emerges as a unique mixed Nash equilibrium. Using evolutionary game analysis, we demonstrate the equilibrium's stability against perturbations and coordinated deviations. Through numerical evaluations, we analyze how equilibrium strategies and system behavior evolve with key parameters such as the number of relayers, upload costs, rewards, and penalties. In particular, we show that even with high transaction costs, the system maintains reliability with an outage probability below 0.05 . Furthermore, our results highlight a fundamental trade-off between privacy, reliability, robustness, and cost in decentralized relayer systems.