Understanding Decentralization in Proof-of-Stake Blockchains: An Agent-Based Simulation Approach

46 Pages Posted: 11 Jul 2022

See all articles by Christoph Mueller-Bloch

Christoph Mueller-Bloch

ESSEC Business School - Information & Decision Sciences Department

Jonas Valbjørn Andersen

IT University of Copenhagen

Jason Spasovski

ZTLment

Jungpil Hahn

National University of Singapore (NUS) - Department of Information Systems and Analytics

Date Written: May 01, 2022

Abstract

Blockchain systems allow for securely keeping shared records of transactions in a decentralized way. This is enabled by consensus mechanisms. Proof-of-work is the most prominent consensus mechanism but has major shortcomings. In this paper, we focus on proof-of-stake, its best-known alternative. Importantly, decentralization is not an inherent feature of blockchain systems, but a technological possibility. Numerous security incidents illustrate that decentralization cannot be taken for granted. We therefore study how key parameters affect the degree of decentralization in proof-of-stake blockchains. Based on a real-world implementation of a proof-of-stake blockchain system, we conduct an agent-based simulation to study how a range of parameter manipulations impact the degree of decentralization. The results suggest that a high number of initial potential validator nodes, large transactions, and a high number of transactions increase the degree of decentralization. They also suggest that a very high or very low positive validator network growth rate increases the degree of decentralization. We only find weak support for an impact of changes in transaction fees and initial stake distributions. Our findings contribute to understanding the mechanisms that lead to decentralization in proof-of-stake blockchains as well as to designing proof-of-stake blockchains that are prone to decentralization and therefore more secure.

Keywords: Blockchain, consensus mechanism, simulation, complex adaptive systems, agent-based modeling

JEL Classification: M1

Suggested Citation

Mueller-Bloch, Christoph and Andersen, Jonas Valbjørn and Spasovski, Jason and Hahn, Jungpil, Understanding Decentralization in Proof-of-Stake Blockchains: An Agent-Based Simulation Approach (May 01, 2022). Available at SSRN: https://ssrn.com/abstract=4149460 or http://dx.doi.org/10.2139/ssrn.4149460

Christoph Mueller-Bloch (Contact Author)

ESSEC Business School - Information & Decision Sciences Department ( email )

Avenue Bernard Hirsch B.P. 50105
Cergy-Pontoise (Paris), 95021
France

Jonas Valbjørn Andersen

IT University of Copenhagen ( email )

Denmark

Jason Spasovski

ZTLment ( email )

Copenhagen, 1361
Denmark

Jungpil Hahn

National University of Singapore (NUS) - Department of Information Systems and Analytics ( email )

Singapore

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