More (or Less) Economic Limits of the Blockchain
This addresses economic sustainability issues for blockchain developers and policymakers, but it is incremental as it builds on prior work.
The paper extends a blockchain sustainability framework to analyze proof of stake and permissioned networks, finding that sustainable networks incur similar costs regardless of consensus mechanism, with proof of stake costs manifesting as illiquid resources, and that permissioned networks do not achieve cost savings over permissionless ones.
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.