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Economic incentives and Blockchain security

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  • Freund, Dr Andreas

Abstract

This paper shows that in order to account for significant value-at-risk scenarios, it is only possible to establish a Blockchain protocol as a truly secure, decentralised and automated trust provider with the significant security guarantees provided through inherent economically incentivised consensus mechanisms that are built on top of cryptographic guarantees. This is relevant for all industries but in particular for capital markets, as the inherent conflict of interest of banks running Blockchain/distributed ledger technology (DLT) network nodes for scenarios such as security exchanges necessitates the use of third party Blockchain/DLT node providers. This in turn requires higher security guarantees since these third party providers are inherently less trusted by the ecosystem participants than the banks themselves, at least in principle, which requires even more security guarantees as the value-at-risk for third party operated Blockchain/DLT network rapidly increases over the medium term as Blockchain/DLT adoption picks up.

Suggested Citation

  • Freund, Dr Andreas, 2018. "Economic incentives and Blockchain security," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 10(1), pages 67-76, January.
    • Handle: RePEc:aza:jsoc00:y:2018:v:10:i:1:p:67-76
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    More about this item

    Keywords

    Blockchain; distributed ledger technology (DLT); cryptography; economic security; game theory; consensus algorithms;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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