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Bitcoin: An Impossibility Theorem for Proof-of-Work based Protocols

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Abstract

A key part of decentralized consensus protocols is a procedure for random selection, which is the source of the majority of miners cost and wasteful energy consumption in Bitcoin. We provide a simple economic model for random selection mechanism and show that any PoW protocol with natural desirable properties is outcome equivalent to the random selection mechanism used in Bitcoin.

Suggested Citation

  • Jacob Leshno & Philipp Strack, 2019. "Bitcoin: An Impossibility Theorem for Proof-of-Work based Protocols," Cowles Foundation Discussion Papers 2204, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2204
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d22/d2204.pdf
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    Cited by:

    1. Assimakis Kattis & Fabian Trottner, 2020. "Stabilizing Congestion in Decentralized Record-Keepers," Papers 2005.06093, arXiv.org.

    More about this item

    Keywords

    Bitcoin; Random Selection; Proportional Selection Rule; Impossibility Theorem;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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