The blockchain folk theorem

Bruno Biais, Christophe Bisière, Matthieu Bouvard and Catherine Casamatta

No 873, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: Blockchains are distributed ledgers, operated within peer-to-peer networks. If reliable and stable, they could offer a new, cost effective, way to record transactions and asset ownership, but are they? We model the blockchain as a stochastic game and analyse the equilibrium strategies of rational, strategic miners. We show that mining the longest chain is a Markov perfect equilibrium, without forking on the equilibrium path, in line with the seminal vision of Nakamoto (2008). We also clarify, however, that the blockchain game is a coordination game, which opens the scope for multiple equilibria. We show there exist equilibria with forks, leading to orphaned blocks and also possibly to persistent divergence between different chains.

Date: 2017-05, Revised 2017-11
New Economics Papers: this item is included in nep-des, nep-mic and nep-pay
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: The Blockchain Folk Theorem (2019)
Working Paper: The blockchain folk theorem (2019)
Working Paper: The blockchain folk theorem (2018)
Working Paper: The Blockchain Folk Theorem (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:31763

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