Explaining Sustained Blockchain Decentralization with Quasi-Experiments: The Resource Flexibility of Consensus Mechanisms

TL;DR

This paper investigates how the resource flexibility of consensus mechanisms influences the sustained decentralization of blockchain networks, using quasi-experiments to analyze various shocks.

Contribution

It introduces the hypothesis that resource flexibility is a key enabler of decentralization and provides empirical evidence supporting this claim through quasi-experimental analysis.

Findings

Resource flexibility correlates with sustained decentralization.

Quasi-experimental shocks reveal the importance of resource adaptability.

Implications for blockchain design and regulation are discussed.

Abstract

Decentralization is a fundamental design element of the Web3 economy. Blockchains and distributed consensus mechanisms are touted as fault-tolerant, attack-resistant, and collusion-proof because they are decentralized. Recent analyses, however, find some blockchains are decentralized, others are centralized, and that there are trends towards both centralization and decentralization in the blockchain economy. Despite the importance and variability of decentralization across blockchains, we still know little about what enables or constrains blockchain decentralization. We hypothesize that the resource flexibility of consensus mechanisms is a key enabler of the sustained decentralization of blockchain networks. We test this hypothesis using three quasi-experimental shocks -- policy-related, infrastructure-related, and technical -- to resources used in consensus. We find strong suggestive evidence that the resource flexibility of consensus mechanisms enables sustained blockchain decentralization and discuss the implications for the design, regulation, and implementation of blockchains.