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Bitcoin: An Axiomatic Approach and an Impossibility Theorem

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Listed:
  • 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.

Suggested Citation

  • Jacob D. Leshno & Philipp Strack, 2020. "Bitcoin: An Axiomatic Approach and an Impossibility Theorem," American Economic Review: Insights, American Economic Association, vol. 2(3), pages 269-286, September.
    • Handle: RePEc:aea:aerins:v:2:y:2020:i:3:p:269-86
    DOI: 10.1257/aeri.20190494
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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