Bitcoin: An Axiomatic Approach and an Impossibility Theorem
Jacob D. Leshno, Philipp Strack
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. (JEL D82, E42, O33)
Topics & Concepts
ImpossibilityAnonymityAxiomAxiomatic systemIncentiveMathematical economicsEconomicsArrow's impossibility theoremIncentive compatibilityDecentralizationProtocol (science)MicroeconomicsProfit (economics)Computer scienceComputer securitySocial choice theoryMathematicsPolitical scienceMarket economyAlternative medicineGeometryMedicineLawPathologyBlockchain Technology Applications and SecurityAuction Theory and ApplicationsCryptography and Data Security