Explaining Sustained Blockchain Decentralization with Quasi-Experiments: The Resource Flexibility of Consensus Mechanisms
For blockchain designers and regulators, this identifies a key factor (resource flexibility) that enables sustained decentralization, addressing a gap in understanding why some blockchains remain decentralized while others centralize.
The paper investigates what enables sustained decentralization in blockchains, hypothesizing that resource flexibility of consensus mechanisms is key. Using three quasi-experimental shocks, they find strong evidence that resource flexibility enables sustained decentralization.
Decentralization is a fundamental design element of the Web3 economy. Blockchains and distributed consensus mechanisms are touted as fault-tolerant, attack-resistant, and collusion-proof because they are decentralized. Recent analyses, however, find some blockchains are decentralized, others are centralized, and that there are trends towards both centralization and decentralization in the blockchain economy. Despite the importance and variability of decentralization across blockchains, we still know little about what enables or constrains blockchain decentralization. We hypothesize that the resource flexibility of consensus mechanisms is a key enabler of the sustained decentralization of blockchain networks. We test this hypothesis using three quasi-experimental shocks -- policy-related, infrastructure-related, and technical -- to resources used in consensus. We find strong suggestive evidence that the resource flexibility of consensus mechanisms enables sustained blockchain decentralization and discuss the implications for the design, regulation, and implementation of blockchains.