Assessing the connectedness between Proof of Work and Proof of Stake/Other digital coins

George Milunovich

Economics Letters, 2022, vol. 211, issue C

Abstract: Major cryptocurrencies such as bitcoin and etherium rely on the computationally expensive and energy inefficient Proof of Work (PoW) consensus mechanism to validate transactions and secure their networks. In response to such concerns digital coins that implement more energy efficient algorithms, e.g. Proof of Stake (PoS), have started to grow in popularity and some PoW based coins are planning to switch to PoS. We investigate linkages and transmission of price shocks across fourteen PoW and PoS/Other powered digital assets. PoW cryptocurrencies appear to be more strongly connected within the network of digital coins than are PoS/Other digital currencies. On average PoW coins export more uncertainty to other cryptocurrencies, while assets in both groups import similar levels of risk. PoS/Other cryptocurrency stakeholders need to be aware of the impact that PoW cryptocurrencies can exert on the riskiness of their assets.

Keywords: Cryptocurrency connectedness; Digital coins; Proof of Work; Proof of Stake; Network; Linkages (search for similar items in EconPapers)
JEL-codes: C22 C3 G1 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:211:y:2022:i:c:s0165176521004778

DOI: 10.1016/j.econlet.2021.110243

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