Abstract:

Bitcoin demonstrated the possibility of a financial rail with a novel economic structure that circumvents monopoly and antitrust concerns. However, questions remain as to whether this open structure can satisfy the security requirements of mainstream financial applications. This paper investigates the underlying consensus protocols to determine whether they can deliver a financial rail that is both open and secure. We answer affirmatively by constructing a protocol that provides an economically meaningful security guarantee while also preserving Bitcoin’s permissionless and open design. Notably, our protocol’s security does not rely on monetary payments to miners or high energy consumption, which our analysis indicates are ineffective. Our framework integrates economic theory with distributed systems theory and formalizes the role of the user community.

Joint with Rafael Pass and Elaine Shi.

Paper available here.