Can We Afford Integrity by Proof-of-Work? Scenarios Inspired by the Bitcoin Currency

University of Innsbruck; University of Münster - Department of Information Systems; Massachusetts Institute of Technology (MIT) - MIT Media Laboratory; ICSI Berkeley; TU Dresden

Date Written: February 24, 2012

Abstract

Proof-of-Work (PoW), a well-known principle to ration resource access in client-server relations, is about to experience a renaissance as a mechanism to protect the integrity of a global state in distributed transaction systems under decentralized control. Most prominently, the Bitcoin cryptographic currency protocol leverages PoW to 1) prevent double spending and 2) establish scarcity, two essential properties of any electronic currency. This paper asks the important question whether this approach is generally viable. Citing actual data, it provides a first cut of an answer by estimating the resource requirements, in terms of operating cost and ecological footprint, of a suitably dimensioned PoW infrastructure and comparing them to three attack scenarios. The analysis is inspired by Bitcoin, but generalizes to potential successors, which fix Bitcoin’s technical and economic teething troubles discussed in the literature.

Keywords: Bitcoin, Proof-of-Work, Block Chain

JEL Classification: E42, Q30

Suggested Citation: Suggested Citation

Becker, Jörg and Breuker, Dominic and Heide, Tobias and Holler, Justus and Rauer, Hans and Böhme, Rainer, Can We Afford Integrity by Proof-of-Work? Scenarios Inspired by the Bitcoin Currency (February 24, 2012). Workshop on the Economics of Information Security WEIS 2012, Berlin, Germany, Available at SSRN: https://ssrn.com/abstract=2041492