Blockchain Economics

Joseph Abadi and Markus Brunnermeier

No 25407, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The fundamental problem in digital record-keeping is to establish consensus on an update to a ledger, e.g., a payment. Consensus must be achieved in the presence of faults—situations in which some computers are offline or fail to function appropriately. Traditional centralized record-keeping systems rely on trust in a single entity to achieve consensus. Blockchains decentralize record-keeping, dispensing with the need for trust in a single entity, but some instead build a consensus based on the wasteful expenditure of computational resources (proof-of-work). An ideal method of consensus would be tolerant to faults, avoid the waste of computational resources, and be capable of implementing all individually rational transfers of value among agents. We prove a Blockchain Trilemma: any method of consensus, be it centralized or decentralized, must give up (i) fault-tolerance, (ii) resource-efficiency, or (iii) full transferability.

JEL-codes: D82 E42 G29 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-mic and nep-pay
Note: AP CF IFM IO ME
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Citations: View citations in EconPapers (39)

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Related works:
Working Paper: Blockchain Economics (2022)
Working Paper: Blockchain Economics (2019)
Working Paper: Blockchain Economics (2018)
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