EURO 2024 Copenhagen
Abstract Submission

EURO-Online login

3719. Liability in Blockchain Consensus: An Analysis of the Incentives Set by Proof of Stake Voting Mechanisms

Invited abstract in session MC-43: Simulation in economics I, stream Agent-based Models in Management, Economic and Organisation Sciences.

Monday, 12:30-14:00
Room: 99 (building: 306)

Authors (first author is the speaker)

1. Sascha Hägele
Chair of Managerial Accounting, Saarland University

Abstract

In the landscape of blockchain consensus mechanisms, Proof of Stake (PoS) has emerged as a prominent alternative to traditional Proof of Work protocols, as evidenced by the consensus change of the second largest cryptocurrency, Ethereum. In PoS systems, validators are tasked with securing the network and validating transactions based on the amount of cryptocurrency they 'stake' as collateral. However, ensuring the integrity of PoS networks requires mechanisms to incentivise validators to behave honestly and to penalise malicious actors. Drawing on insights from economic theory, in particular principal-agent theory, this paper examines the role of liability in the PoS consensus, focusing in particular on the incentives created by voting mechanisms designed to enforce compliance. By developing a mathematical model and using an agent-based simulation approach, I analyse the impact of these mechanisms on validator behaviour and network security. My research highlights the importance of aligning incentives to deter undesirable actions while promoting network resilience and decentralisation. By comprehensively examining liability within blockchain consensus, this paper contributes to a deeper understanding of the dynamics at play in PoS systems. By elucidating the interplay between stakeholder incentives and protocol design, my findings provide valuable insights for the development and governance of blockchain networks in the pursuit of robust and secure decentralised ecosystems.

Keywords

Status: accepted

Back to the list of papers