Citation
Discussion Paper Details
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Full Details
Title: More (or Less) Economic Limits of the Blockchain
Author(s): Neil Gandal and Joshua Gans
Publication Date: November 2019
Keyword(s): blockchain, proof-of-stake and Proof-of-Work
Programme Area(s): Industrial Organization
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.
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Bibliographic Reference
Gandal, N and Gans, J. 2019. 'More (or Less) Economic Limits of the Blockchain'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14154