A Memo on the Proof-of-Stake Mechanism
This addresses security concerns for blockchain systems, but it is incremental as it builds on existing economic models.
The paper analyzes the economic incentives of proof-of-stake (PoS) mechanisms, particularly in Ethereum's Casper upgrade, finding that PoS is safer than proof-of-work (PoW) against double-spending and sabotage attacks due to higher attacker costs and less repurposable assets.
We analyze the economic incentives generated by the proof-of-stake mechanism discussed in the Ethereum Casper upgrade proposal. Compared with proof-of-work, proof-of-stake has a different cost structure for attackers. In Budish (2018), three equations characterize the limits of Bitcoin, which has a proof-of-work mechanism. We investigate their counterparts and evaluate the risk of double-spending attack and sabotage attack. We argue that PoS is safer than PoW agaisnt double-spending attack because of the tractability of attackers, which implies a large "stock" cost for the attacker. Compared to a PoW system whose mining equipments are repurposable, PoS is also safer against a sabotage attack.