International Association
for Cryptologic Research

Traditional payment processors are the subject of antitrust concerns and regulations. Open decentralized ledgers (e.g., Bitcoin) provide an alternative. They do not rely on a central authority, avoiding antitrust and monopoly concerns. However, the open nature of these systems gives rise to many challenges, including fundamental questions about their security. To address this question, we consider a framework that combines economic theory and dis- tributed systems theory and define economic security for general permissionless decentralized ledgers. Analysis of Bitcoin’s Nakamoto protocol shows that block rewards are ineffective in pro- viding economic security due to limitations of incentives in environments with many anonymous participants. We present an alternative protocol showing that an open decentralized ledger can be economically secure.