Is decentralization sustainable in the bitcoin system?
Publication Date
5-1-2024
Document Type
Article
Publication Title
Decision Support Systems
Volume
180
DOI
10.1016/j.dss.2024.114178
Abstract
The Bitcoin system is a decentralized monetary system in that any participant can potentially verify and record transactions onto a public ledger. Using a simple model, we show that the number of miners could be negatively (positively) related to the expected rewards if miners with low-operating costs also have less (more) severe financing constraints. We characterize the possibility of miners with low-operating (high-operating) costs facing less (more) severe financing constraints as large-size (small-size) miners. The empirical evidence supports the model's large- and small-size miner characterization prediction. The negative association between the number of miners and expected rewards is attributable to Bitcoin's exchange rate. Collectively, our evidence suggests that even though the Bitcoin system is designed as an egalitarian system, it is likely to evolve into a near-centralized system because of economic forces.
Keywords
Blockchain, Mining, Proof-of-work
Department
Information Systems and Technology
Recommended Citation
Varghese S. Jacob, Sailendra Prasanna Mishra, and Suresh Radhakrishnan. "Is decentralization sustainable in the bitcoin system?" Decision Support Systems (2024). https://doi.org/10.1016/j.dss.2024.114178
