Distributed Ledgers and the Governance of Money

Arbeitspapier

Blockchain technology breathes new life into the classical analysis of money as a substitute for a ledger of all past transactions. While it involves updating the ledger through a decentralized consensus on the unique truth, the robustness of the equilibrium that supports this consensus depends on who has access to the ledger and how it can be updated. To find the optimal solution, Buterin’s “scalability trilemma” needs to be addressed, so that a workable balance can be found between decentralization, security (i.e. a robust consensus), and scale (the efficient volume of transactions). Using a global game analysis of an exchange economy with credit, we solve for the optimal ledger design that balances the three objectives of this trilemma. We characterize the optimal number of validators, supermajority threshold, fees and transaction size. When intertemporal incentives are strong, a centralized ledger is always optimal. Otherwise, decentralization may be optimal, and validators need to be selected from the set of users of the system.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 9441

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Market Structure, Pricing, and Design: General ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Financial Institutions and Services: General ; Information and Internet Services; Computer Software
• Subject: market design ; money distributed ledger technology ; DLT ; blockchain ; decentralized finance ; global game ; consensus

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Auer, Raphael A. ; Monnet, Cyril ; Shin, Hyun Song
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/248986
• Last update: 10.03.2025, 11:43 AM CET