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Blockchain consensus mechanisms and fragmentation

Author

Listed:
  • Daniel Eidan
  • Jon Frost
  • Rudraksh Kansal
  • Ulf Lewrick
  • Sang Hyuk Lim
  • Tomasz Rybarczyk

Abstract

While all permissionless blockchains use token-based incentives to sustain honest validation, differences in how validator rewards, coordination and participation are structured lead to distinct equilibria and trade-offs between decentralisation, security and scalability. These trade-offs underpin the emergence of multiple layer 1 networks and the expansion of layer 2 solutions, resulting in fragmentation of infrastructure, liquidity and assets across and within chains.Tools to mitigate fragmentation – eg bridges and native multi-chain issuance – can reduce frictions, but they reintroduce new dependencies on trust, governance and operational resilience.

Suggested Citation

  • Daniel Eidan & Jon Frost & Rudraksh Kansal & Ulf Lewrick & Sang Hyuk Lim & Tomasz Rybarczyk, 2026. "Blockchain consensus mechanisms and fragmentation," BIS Bulletins 126, Bank for International Settlements.
    • Handle: RePEc:bis:bisblt:126
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    References listed on IDEAS

    as
    1. Eric Budish, 2025. "Trust at Scale: The Economic Limits of Cryptocurrencies and Blockchains," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 140(1), pages 1-62.
    2. Hyun Song Shin, 2026. "Tokenomics and blockchain fragmentation," BIS Working Papers 1335, Bank for International Settlements.
    3. Auer, Raphael & Monnet, Cyril & Shin, Hyun Song, 2025. "Distributed ledgers and the governance of money," Journal of Financial Economics, Elsevier, vol. 167(C).
    4. Fahad Saleh & Wei Jiang, 2021. "Blockchain without Waste: Proof-of-Stake [Proof of Work vs Proof of Stake]," The Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1156-1190.
    Full references (including those not matched with items on IDEAS)

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