On the Viability of Open-Source Financial Rails
Research Seminars: Virtual Market Design SeminarThe Economic Security of Permissionless Consensus
Bitcoin demonstrated the possibility of a financial rail with a novel economic structure that circumvents monopoly and antitrust concerns. However, questions remain as to whether this open structure can satisfy the security requirements of mainstream financial applications. The paper presented in this Virtual Market Design Seminar investigates the underlying consensus protocols to determine whether they can deliver a financial rail that is both open and secure. The authors answer affirmatively by constructing a protocol that provides an economically meaningful security guarantee while also preserving Bitcoin’s permissionless and open design. Notably, the protocol’s security does not rely on monetary payments to miners or high energy consumption, which the analysis indicates as ineffective. The framework used in the paper integrates economic theory with distributed systems theory and formalizes the role of the user community.
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