Bitcoin: An Axiomatic Approach and an Impossibility Theorem
American Economic Review: Insights
vol. 2,
no. 3, September 2020
(pp. 269-86)
Abstract
Bitcoin's main innovation lies in allowing a decentralized system that relies on anonymous, profit-driven miners who can freely join the system. We formalize these properties in three axioms: anonymity of miners, no incentives for miners to consolidate, and no incentive to assuming multiple fake identities. This novel axiomatic formalization allows us to characterize what other protocols are feasible: every protocol with these properties must have the same reward scheme as Bitcoin. This implies an impossibility result for risk-averse miners. Furthermore, any protocol either gives up on some degree of decentralization or its reward scheme is equivalent to Bitcoin's.Citation
Leshno, Jacob D., and Philipp Strack. 2020. "Bitcoin: An Axiomatic Approach and an Impossibility Theorem." American Economic Review: Insights, 2 (3): 269-86. DOI: 10.1257/aeri.20190494Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
- O33 Technological Change: Choices and Consequences; Diffusion Processes