Working Paper: CEPR ID: DP14154
Authors: Joshua Gans; Neil Gandal
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.
Keywords: blockchain; proof of work; proof of stake
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| proof of work (PoW) (E42) | economic costs (D61) |
| proof of stake (PoS) (E42) | economic costs (D61) |
| proof of work (PoW) (E42) | proof of stake (PoS) (E42) |
| permissioned network (D85) | permissionless network (D85) |
| block reward is endogenous (E19) | costs align with permissionless blockchains (D61) |