Formal Barriers to Longest-Chain Proof-of-Stake Protocols

TL;DR

This paper establishes fundamental formal barriers that prevent the design of incentive-compatible Longest-Chain Proof-of-Stake protocols, highlighting key differences from Proof-of-Work systems.

Contribution

It introduces formal barriers specific to incentive compatibility in Longest-Chain Proof-of-Stake protocols, contrasting with prior work focused on adversarial corruption.

Findings

Proof-of-Stake's wasteless nature leads to unique incentive issues.

Formal barriers show impossibility of certain incentive-compatible designs.

Differences between Proof-of-Work and Proof-of-Stake are fundamental.

Abstract

The security of most existing cryptocurrencies is based on a concept called Proof-of-Work, in which users must solve a computationally hard cryptopuzzle to authorize transactions (`one unit of computation, one vote'). This leads to enormous expenditure on hardware and electricity in order to collect the rewards associated with transaction authorization. Proof-of-Stake is an alternative concept that instead selects users to authorize transactions proportional to their wealth (`one coin, one vote'). Some aspects of the two paradigms are the same. For instance, obtaining voting power in Proof-of-Stake has a monetary cost just as in Proof-of-Work: a coin cannot be freely duplicated any more easily than a unit of computation. However some aspects are fundamentally different. In particular, exactly because Proof-of-Stake is wasteless, there is no inherent resource cost to deviating (commonly referred to as the `Nothing-at-Stake' problem). In contrast to prior work, we focus on incentive-driven deviations (any participant will deviate if doing so yields higher revenue) instead of adversarial corruption (an adversary may take over a significant fraction of the network, but the remaining players follow the protocol). The main results of this paper are several formal barriers to designing incentive-compatible proof-of-stake cryptocurrencies (that don't apply to proof-of-work).