2019年-BIS国际清算银行_Beyond_the_doomsday_economics_of_proof-of-work_in_cryptocurrencies_31页_712kb

Summary of "Beyond the doomsday economics of 'proof-of-work' in cryptocurrencies" by Raphael Auer

Core Content

This paper explores the economic implications of "proof-of-work" (PoW) in cryptocurrencies, particularly focusing on Bitcoin. It argues that the current economic design of PoW-based systems has fundamental limitations that may threaten their long-term viability and payment finality.

Main Points

• Bitcoin's Payment Finality: Bitcoin achieves payment finality through costly computational work, known as "proof-of-work". This process ensures that transactions are secure and unalterable once added to the blockchain.
• Economic Limitations of PoW:
  • High Transaction Costs: To achieve economic payment finality, the mining income must be a significant portion of the transaction volume. For instance, to ensure finality within six blocks (one hour), mining income must be about 8.3% of the transaction volume, which is far higher than current transaction fee levels.
  • Free-Rider Problem: Users can free-ride on the transaction fees of others, leading to a "tragedy of the common chain". This makes it difficult for the system to generate sufficient fees to ensure payment finality.
• Block Rewards and Liquidity: Block rewards have historically been the main source of mining income. However, as these rewards decrease over time (halving every 210,000 blocks), the reliance on transaction fees will increase. This could lead to a dramatic decline in liquidity unless new technologies or economic models are introduced.
• Future Implications:
  • Once block rewards reach zero (expected around 2140), the system may require months or even years for a payment to be considered final, unless second-layer solutions or new consensus mechanisms are implemented.
  • Second-layer solutions like the Lightning Network may help improve payment efficiency and reduce costs, but they face their own scaling issues.
• Need for New Consensus Mechanisms: The paper suggests that moving away from PoW is necessary for the long-term sustainability of cryptocurrencies. "Proof-of-stake" (PoS) is highlighted as a potential alternative, but it may require additional coordination mechanisms to function effectively.

Key Information

• Transaction Finality: A payment is considered final only if it is unprofitable for an attacker to undo it through a double-spending attack.
• Double-Spending Attack: Attackers can potentially spend the same bitcoin twice, but the cost of creating a fraudulent blockchain deters this. However, the profit from such attacks is higher than the income from honest mining.
• Mining Income: Mining income is derived from block rewards and transaction fees. Block rewards are decreasing over time, while transaction fees are currently insufficient to ensure security.
• Equilibrium Difficulty: The difficulty of mining is self-adjusting, ensuring that the average time to add a block remains around 10 minutes. This difficulty is tied to the USD price of Bitcoin and the cost of computational work.
• Technological Evolution: The paper discusses the evolution of block rewards and how they are expected to diminish over time, affecting the overall economic model of Bitcoin.

Conclusion

The paper concludes that, despite the technological advancements in blockchain, the economic design of PoW-based systems has inherent flaws that could lead to liquidity issues and reduced payment finality. The future of such cryptocurrencies may depend on either technological innovations to improve efficiency or the adoption of alternative consensus mechanisms that incorporate social coordination or institutional support. Ultimately, it suggests that good money in the digital age remains a social construct rather than a purely technological one.

Key Terms

• Proof-of-work (PoW): A consensus mechanism that requires miners to perform computational work to validate transactions.
• Block Rewards: Newly minted bitcoins given to miners for adding blocks to the blockchain.
• Transaction Fees: Payments made by users to miners for processing their transactions.
• Double-Spending: Spending the same bitcoin twice, which is prevented by the PoW mechanism.
• Lightning Network: A second-layer solution that aims to improve payment efficiency and reduce costs.
• Proof-of-stake (PoS): An alternative consensus mechanism where validators pledge their coin holdings to secure the network.

References

• Graph 1: Shows global interest in Bitcoin compared to sovereign currencies and gold.
• Graph 2: Illustrates the difference between a centralised ledger (bank) and a distributed blockchain.
• Graph 3: Depicts the structure of a blockchain with blocks and transactions.
• Graph 4: Displays the evolution of Bitcoin block rewards and mining income.
• Graph 5: Shows Bitcoin price developments and corresponding changes in difficulty and block discovery time during late 2018.