Who Is Liable for a Cryptocurrency System Chain Reorg?

Abstract

Cryptocurrencies are based on digitally signed updates to a ledger maintained in a decentralized manner according to consensus mechanisms in compliance with consented protocols. Cryptocurrency systems are often presented as immutable. However, attacks and other chain reorganization possibilities—so-called chain reorgs—challenge the validity of such a claim. In this paper, chain reorg possibilities are explored together with the associated harm and liability for such harm. It is found that while certain chain reorgs may trigger a liability of those who perform the reorg, protocol developers, network participants, and misinforming agents, others may be considered a risk accepted by the participants.

Keywords: Blockchain, Cryptocurrencies, Liability

JEL Classification: E42, K13, K24, L17