More (or Less) Economic Limits of the Blockchain

Neil Gandal and Joshua Gans

No 14154, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper extends the blockchain sustainability framework of Budish (2018) to consider proof of stake (in addition to proof of work) consensus mechanisms and permissioned (where the number of nodes are fixed) networks. It is demonstrated that an economically sustainable network will involve the same cost regardless of whether it is proof of work or proof of stake although in the later the cost will take the form of illiquid financial resources. In addition, it is shown that regulating the number of nodes (as in a permissioned network) does not lead to additional cost savings that cannot otherwise be achieved via a setting of block rewards in a permissionless (i.e., free entry) network. This suggests that permissioned networks will not be able to economize on costs relative to permissionless networks.

Keywords: Blockchain; Proof-of-work; Proof-of-stake (search for similar items in EconPapers)
Date: 2019-11
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Citations: View citations in EconPapers (9)

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Working Paper: More (or Less) Economic Limits of the Blockchain (2019)
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