Abstract:
The centralization of verification power within pools affects blockchain security. We propose a game-theoretic model to compare the incentives of pools versus individual verifiers in both Proof-of-Work (PoW) and Proof-of-Stake (PoS). Pool centralization affects security by diminishing the security advantage of PoS over PoW and increases majority attack risks in both systems due to lower per-block profits compared to verifiers, yet it enhances resilience by sustaining high attack costs during market downturns. In general, expected post-attack value losses align pool actions with stability. Supported by numerical illustrations, our research underscores how incentives for pools determine blockchain security, offering practical insights.
”Cryptocurrency pricing: An Exactly Solved Model with Endogenous Crashes”, Job Market Paper
“Too Big to Cheat: Mining Pools' Incentives to Double Spend in Blockchain Based Cryptocurrencies” with Jorge Soria; Working Paper; 17 Google Scholar citations and over 1000 SSRN Downloads
“Microeconomics of Social Media Sentiment”
“Increasing Returns to Scale: Endogenous Explanation for Four Cyclical Asset Pricing Anomalies”, Working Paper
"Monetary Economics of Proof-of-Stake Cryptocurrencies: Implications for Market Capitalization and Security," Working Paper