Blockchain consensus mechanisms and fragmentation

Daniel Eidan, Jon Frost, Rudraksh Kansal, Ulf Lewrick, Sang Hyuk Lim and Tomasz Rybarczyk

No 126, BIS Bulletins from Bank for International Settlements

Abstract: While all permissionless blockchains use token-based incentives to sustain honest validation, differences in how validator rewards, coordination and participation are structured lead to distinct equilibria and trade-offs between decentralisation, security and scalability. These trade-offs underpin the emergence of multiple layer 1 networks and the expansion of layer 2 solutions, resulting in fragmentation of infrastructure, liquidity and assets across and within chains.Tools to mitigate fragmentation – eg bridges and native multi-chain issuance – can reduce frictions, but they reintroduce new dependencies on trust, governance and operational resilience.

Pages: 8 pages
Date: 2026-07-06
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