Proof of Work as a Three-Sided Market
Chris Berg, Sinclair Davidson, Jason Potts
Abstract
Blockchain technology is the distributed, decentralised ledger technology underlying Bitcoin and other cryptocurrencies. We apply Oliver Williamson’s transactions cost analysis to the blockchain consensus mechanism. Blockchains reduce the costs of opportunism but are not ‘trustless’. We show that blockchains are trust machines. Blockchains are platforms for three-sided bargaining that convert energy-intensive computation into economically-valuable trust.
Topics & Concepts
CryptocurrencyBlockchainProof-of-work systemDistributed ledgerOpportunismWork (physics)Computer scienceLedgerComputer securityByzantine fault toleranceIndustrial organizationBusinessEconomicsDistributed computingFinanceEngineeringFault toleranceMarket economyMechanical engineeringBlockchain Technology Applications and SecurityAuction Theory and ApplicationsGame Theory and Applications