Blockchains, Coordination, and Forks
Bruno Biais, Christophe Bisière, Matthieu Bouvard, Catherine Casamatta · AEA Papers and Proceedings · 2019
Blockchains are distributed ledgers. Their protocol aims at ensuring that the miners in charge of recording transactions reach a consensus about a unique ledger. In this paper, we highlight that the game induced by the blockchain proof-of-work protocol generates several equilibria. In some equilibria, different versions of the ledger or “branches” coexist, breaching consensus. Such forks arise because of the interplay of miners' incentives to coordinate on the same branch, and miners' incentives to protect their vested interests on a given branch. We illustrate that these elements were present in the recent hard forks that occurred on Bitcoin.