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Blockchain without Waste: Proof-of-Stake
[Proof of Work vs Proof of Stake]

Author

Listed:
  • Fahad Saleh
  • Wei Jiang

Abstract

Permissionless blockchains require a protocol to generate consensus. Many prominent permissionless blockchains employ Proof-of-Work (PoW) for that purpose, but PoW possesses significant shortcomings. Various alternatives have been proposed. This paper provides the first formal economic model of the most famous alternative, Proof-of-Stake (PoS), and establishes conditions under which PoS generates consensus. A sufficiently modest reward schedule not only implies the existence of an equilibrium in which consensus obtains as soon as possible but also precludes a persistent forking equilibrium. The latter result arises because PoS, unlike PoW, requires that validators are also stakeholders.

Suggested Citation

  • Fahad Saleh & Wei Jiang, 2021. "Blockchain without Waste: Proof-of-Stake [Proof of Work vs Proof of Stake]," The Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1156-1190.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:3:p:1156-1190.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa075
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    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • G00 - Financial Economics - - General - - - General

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