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The blockchain folk theorem


  • Biais, Bruno
  • Bisière, Christophe
  • Bouvard, Matthieu
  • Casamatta, Catherine


Blockchains are distributed ledgers, operated within peer-to-peer networks. If reliable and stable, they could offer a new, cost effective way to record transactions, but are they? We model the proof-of-work blockchain protocol as a stochastic game and analyse the equilibrium strategies of rational, strategic miners. Mining the longest chain is a Markov perfect equilibrium, without forking, in line with Nakamoto (2008). The blockchain protocol, however, is a coordination game, with multiple equilibria. There exist equilibria with forks, leading to orphaned blocks and persistent divergence between chains. We also show how forks can be generated by information delays and software upgrades. Last we identify negative externalities implying that equilibrium investment in computing capacity is excessive.

Suggested Citation

  • Biais, Bruno & Bisière, Christophe & Bouvard, Matthieu & Casamatta, Catherine, 2017. "The blockchain folk theorem," TSE Working Papers 17-817, Toulouse School of Economics (TSE), revised Jan 2018.
  • Handle: RePEc:tse:wpaper:31770

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    References listed on IDEAS

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    More about this item


    blockchain; forks; proof-of-work; distributed ledger; multiplicity of equilibria; coordination game;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • G2 - Financial Economics - - Financial Institutions and Services
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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