Document Type

Discussion Paper

Publication Date

10-1-2019

CFDP Number

2204R

CFDP Revision Date

November 1, 2019

CFDP Pages

18

Journal of Economic Literature (JEL) Code(s)

C72, D02, D47

Abstract

Bitcoin’s main innovation lies in allowing a decentralized system that relies on anonymous, profit driven miners who can freely join the system. We formalize these properties in three axioms: anonymity of miners, no incentives for miners to consolidate, and no incentive to assuming multiple fake identities. This novel axiomatic formalization allows us to characterize which other protocols are feasible: Every protocol with these properties must have the same reward scheme as Bitcoin. This implies an impossibility result for risk-averse miners: no protocol satisfies the aforementioned constraints simultaneously without giving miners a strict incentive to merge. Furthermore, any protocol either gives up on some degree of decentralization or its reward scheme is equivalent to Bitcoin’s.

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Economics Commons

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