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Biais, Bruno
, Bisière, Christophe, Bouvard, Matthieu and Casamatta, Catherine
(2019)
The blockchain folk theorem.
The Review of Financial Studies, vol. 32 (n° 5).
pp. 1662-1715.
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Abstract
Blockchains are distributed ledgers, operated within peer-to-peer networks. We model the proof-of-work blockchain protocol as a stochastic game and analyze the equilibrium strategies of rational, strategic miners. Mining the longest chain is a Markov perfect equilibrium, without forking, in line with Nakamoto (2008). The blockchain protocol, however, is a coordination game, with multiple equilibria. There exist equilibria with forks, leading to orphaned blocks and persistent divergence between chains. We also show how forks can be generated by information delays and software upgrades. Last we identify negative externalities implying that equilibrium investment in computing capacity is excessive.
| Item Type: | Article |
|---|---|
| Language: | English |
| Date: | May 2019 |
| Refereed: | Yes |
| JEL Classification: | C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games G2 - Financial Institutions and Services L86 - Information and Internet Services; Computer Software |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse), TSM Research (Toulouse) |
| Site: | UT1 |
| Date Deposited: | 12 Sep 2018 14:34 |
| Last Modified: | 02 Sep 2021 08:46 |
| OAI Identifier: | oai:tse-fr.eu:32924 |
| URI: | https://publications.ut-capitole.fr/id/eprint/26234 |
Available Versions of this Item
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The blockchain folk theorem. (deposited 13 Jun 2017 13:17)
- The blockchain folk theorem. (deposited 12 Sep 2018 14:34) [Currently Displayed]
