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From the limits of Blockchain-based
systems to the Emergent
Centralisation of Bitcoin
Claudio J� Tessone
URPP Social Networks
Blockchain from a Central Bank Perspective | ��������
Prelude
Limits of blockchain and Bitcoin centralisation | �� Prelude
Thesis �
�� Blockchain-based systems are complex techno-economic ones� Interconnectedness� Incentive schemes �hidden!�� Feedback loops
�� As such� they cannot be designed immutably�� Proper interdisciplinary insight is necessary for their design
and sustainability
z Thesis� Wrongly placed incentives at different levels foster itscentralisation
⌅ Monetary supply� Means of production� Governance
Limits of blockchain and Bitcoin centralisation | �� Prelude
Thesis �
�� Blockchain-based systems are complex techno-economic ones� Interconnectedness� Incentive schemes �hidden!�� Feedback loops
�� As such� they cannot be designed immutably
�� Proper interdisciplinary insight is necessary for their design
and sustainability
z Thesis� Wrongly placed incentives at different levels foster itscentralisation
⌅ Monetary supply� Means of production� Governance
Limits of blockchain and Bitcoin centralisation | �� Prelude
Thesis �
�� Blockchain-based systems are complex techno-economic ones� Interconnectedness� Incentive schemes �hidden!�� Feedback loops
�� As such� they cannot be designed immutably�� Proper interdisciplinary insight is necessary for their design
and sustainability
z Thesis� Wrongly placed incentives at different levels foster itscentralisation
⌅ Monetary supply� Means of production� Governance
Limits of blockchain and Bitcoin centralisation | �� Prelude
Thesis �
�� Blockchain-based systems are complex techno-economic ones� Interconnectedness� Incentive schemes �hidden!�� Feedback loops
�� As such� they cannot be designed immutably�� Proper interdisciplinary insight is necessary for their design
and sustainability
z Thesis� Wrongly placed incentives at different levels foster itscentralisation
⌅ Monetary supply� Means of production� Governance
Limits of blockchain and Bitcoin centralisation | �� Prelude
Digitalisation of economic transactions �
Verification
Transactions
Limits of blockchain and Bitcoin centralisation | �� Prelude
Digitalisation of economic transactions �
Verification
Transactions
⌅ Economic transactions have regressed since electroniccommerce
⌅ Credit cards� debit transfers� remi�ances
⌅ All require a central authority that asserts identity and
validates the transactions before they occur
Limits of blockchain and Bitcoin centralisation | �� Prelude
Digitalisation of economic transactions �
Verification
Transactions
⌅ Economic transactions have regressed since electroniccommerce
⌅ Credit cards� debit transfers� remi�ances
⌅ All require a central authority that asserts identity and
validates the transactions before they occur
Limits of blockchain and Bitcoin centralisation | �� Prelude
Digitalisation of economic transactions �
Verification
Transactions
Centralised payment systems propagate trustworthy informa-tion because of trusted communication channels
The obvious
Limits of blockchain and Bitcoin centralisation | �� Prelude
Bitcoin� A decentralised approach �
In a decentralised payment network� possible misbehaviour bythe users abound⌅ A user claims to own assets she actually does not own⌅ A user a�empts to use multiple times the same assets
⌅ Risk of forging transactions / assets
How to propagate trustworthy information and create confi-dence among peers in a decentralised system with non-trustedcommunication channels?
The difficult part
Limits of blockchain and Bitcoin centralisation | �� Prelude
Bitcoin� A decentralised approach �
In a decentralised payment network� possible misbehaviour bythe users abound⌅ A user claims to own assets she actually does not own⌅ A user a�empts to use multiple times the same assets⌅ Risk of forging transactions / assets
How to propagate trustworthy information and create confi-dence among peers in a decentralised system with non-trustedcommunication channels?
The difficult part
Limits of blockchain and Bitcoin centralisation | �� Prelude
Blocks �
How to keep consistent the information stored in the system?
Transaction_ID Sender Receiver Amount Received
------------------------
2001193F04EA23 Alice Bob 5 BTC 1070BA782056FA
20020AC93670A6 Charles Dan, Alice 3 BTC, 1 BTC 1090945761BE90
2003620FB49204 Eva Faythe 2 BTC 10509587DAB3BA
20041957701BC3 Bob Sam 5 BTC 2001193F04EA23
2005AB30C94045 Wendy Oscar 5 BTC 135294594CB10EE
------------------------
⌅ Make data accessible to everyparticipant
⌅ Bundle multiple new� verified
transactions into a block
⌅ Each block building on theprevious one
���� is the only way new bitcoins are createdSupply
Limits of blockchain and Bitcoin centralisation | �� Prelude
Blocks �
How to keep consistent the information stored in the system?
Transaction_ID Sender Receiver Amount Received
------------------------
2001193F04EA23 Alice Bob 5 BTC 1070BA782056FA
20020AC93670A6 Charles Dan, Alice 3 BTC, 1 BTC 1090945761BE90
2003620FB49204 Eva Faythe 2 BTC 10509587DAB3BA
20041957701BC3 Bob Sam 5 BTC 2001193F04EA23
2005AB30C94045 Wendy Oscar 5 BTC 135294594CB10EE
------------------------
⌅ Make data accessible to everyparticipant
⌅ Bundle multiple new� verified
transactions into a block
⌅ Each block building on theprevious one
���� is the only way new bitcoins are createdSupply
Limits of blockchain and Bitcoin centralisation | �� Prelude
Blocks �
How to keep consistent the information stored in the system?
Transaction_ID Sender Receiver Amount Received
------------------------
2001193F04EA23 Alice Bob 5 BTC 1070BA782056FA
20020AC93670A6 Charles Dan, Alice 3 BTC, 1 BTC 1090945761BE90
2003620FB49204 Eva Faythe 2 BTC 10509587DAB3BA
20041957701BC3 Bob Sam 5 BTC 2001193F04EA23
2005AB30C94045 Wendy Oscar 5 BTC 135294594CB10EE
------------------------
Why should users verify?Allow the block creator �miner� toissue a reward transaction toherself consisting of�� A predefined arbitrary quantity
without a sender�� All fees included in the
transactions
���� is the only way new bitcoins are createdSupply
Limits of blockchain and Bitcoin centralisation | �� Prelude
Blocks �
How to keep consistent the information stored in the system?
Transaction_ID Sender Receiver Amount Received
------------------------
20010BA4569035 MINE Gandalf 12.5 BTC
2001193F04EA23 Alice Bob 5 BTC 1070BA782056FA
20020AC93670A6 Charles Dan, Alice 3 BTC, 1 BTC 1090945761BE90
20030DAD029445 MINE Merlin 12.5 BTC
2003620FB49204 Eva Faythe 2 BTC 10509587DAB3BA
20041957701BC3 Bob Sam 5 BTC 2001193F04EA23
2005AB30C94045 Wendy Oscar 5 BTC 135294594CB10EE
------------------------
Why should users verify?Allow the block creator �miner� toissue a reward transaction toherself consisting of�� A predefined arbitrary quantity
without a sender�� All fees included in the
transactions
���� is the only way new bitcoins are createdSupply
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01
addr_01 5 BTCaddr_02 3 BTC
Issuing transactions
⌅ Users issue transactions� which build a transaction network
⌅ Verifiers are connected to a peer-to-peer verification network
⌅ Each new transaction is broadcast through to the verificationnetwork
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01
addr_01 5 BTCaddr_02 3 BTC
Issuing transactions
⌅ Users issue transactions� which build a transaction network
⌅ Verifiers are connected to a peer-to-peer verification network
⌅ Each new transaction is broadcast through to the verificationnetwork
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01
addr_01 5 BTCaddr_02 3 BTC
Issuing transactions
⌅ Users issue transactions� which build a transaction network
⌅ Verifiers are connected to a peer-to-peer verification network
⌅ Each new transaction is broadcast through to the verificationnetwork
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01
addr_01 5 BTCaddr_02 3 BTC
Issuing transactions
⌅ Users issue transactions� which build a transaction network
⌅ Verifiers are connected to a peer-to-peer verification network
⌅ Each new transaction is broadcast through to the verificationnetwork
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01
addr_01 5 BTCaddr_02 3 BTC
Mining new blocks
…It must be �computationally� costly to add new information�
simple to verify it …� �e�g� proof of work�⌅ Nodes in the verification network a�empt to create a new
block �with all new transactions�
⌅ Once found� the block is broadcast through to the verificationnetwork
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01
addr_01 5 BTCaddr_02 3 BTC
Mining new blocks
…It must be �computationally� costly to add new information�
simple to verify it …� �e�g� proof of work�⌅ Nodes in the verification network a�empt to create a new
block �with all new transactions�⌅ Once found� the block is broadcast through to the verification
network
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01 8 BTC
addr_01 0 BTCaddr_02 0 BTC
⌅ Only a�er this block has been added to all nodes in theverification network� the transactions it contains� occurred
�network consensus�
⌅ Miners want to ensure the reward transaction is theirs
⌅ Reward the effort invested in keeping the system consistent
⌅ Anyone can participate of the supply� it is decentralised
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01 8 BTC
addr_01 0 BTCaddr_02 0 BTC
⌅ Only a�er this block has been added to all nodes in theverification network� the transactions it contains� occurred
�network consensus�⌅ Miners want to ensure the reward transaction is theirs
⌅ Reward the effort invested in keeping the system consistent
⌅ Anyone can participate of the supply� it is decentralised
Limits of blockchain and Bitcoin centralisation | �� Prelude
The dynamics of verification and mining �
addr_01 8 BTC
addr_01 0 BTCaddr_02 0 BTC
⌅ Only a�er this block has been added to all nodes in theverification network� the transactions it contains� occurred
�network consensus�⌅ Miners want to ensure the reward transaction is theirs
⌅ Reward the effort invested in keeping the system consistent
⌅ Anyone can participate of the supply� it is decentralised
Limits of blockchain and Bitcoin centralisation | �� Prelude
Bitcoin supply �
2010 2011 2012 2013 2014 2015 2016Year
0
2
4
6
8
10
12
14
16
Tota
lSup
ply
�10
6B
itcoi
n
Complete Supply
⌅ Supply policy� arbitrary decision� unrelated to the technology
⌅ Predictable�
⌅ Supply grows �piece-wise� linearly over time⌅ Every two years� supply rate halves
⌅ However� supply in circulation is sizeable smaller
⌅ Reasons?
⌅ Incentivise early adoption even in absence of transactions⌅ Self-reward for creators -?-
Limits of blockchain and Bitcoin centralisation | �� Prelude
Bitcoin supply �
2010 2011 2012 2013 2014 2015 2016Year
0
2
4
6
8
10
12
14
16
Tota
lSup
ply
�10
6B
itcoi
n
Complete Supply
⌅ Supply policy� arbitrary decision� unrelated to the technology⌅ Predictable�
⌅ Supply grows �piece-wise� linearly over time⌅ Every two years� supply rate halves
⌅ However� supply in circulation is sizeable smaller⌅ Reasons?
⌅ Incentivise early adoption even in absence of transactions⌅ Self-reward for creators -?-
Limits of blockchain and Bitcoin centralisation | �� Prelude
Bitcoin supply �
2010 2011 2012 2013 2014 2015 2016Year
0
2
4
6
8
10
12
14
16
Tota
lSup
ply
�10
6B
itcoi
n
Complete Supply
⌅ Supply policy� arbitrary decision� unrelated to the technology⌅ Predictable�
⌅ Supply grows �piece-wise� linearly over time⌅ Every two years� supply rate halves
⌅ However� supply in circulation is sizeable smaller
⌅ Reasons?
⌅ Incentivise early adoption even in absence of transactions⌅ Self-reward for creators -?-
Limits of blockchain and Bitcoin centralisation | �� Prelude
Bitcoin supply �
2010 2011 2012 2013 2014 2015 2016Year
0
2
4
6
8
10
12
14
16
Tota
lSup
ply
�10
6B
itcoi
n
Complete SupplyCirculating Supply
⌅ Supply policy� arbitrary decision� unrelated to the technology⌅ Predictable�
⌅ Supply grows �piece-wise� linearly over time⌅ Every two years� supply rate halves⌅ However� supply in circulation is sizeable smaller
⌅ Reasons?
⌅ Incentivise early adoption even in absence of transactions⌅ Self-reward for creators -?-
Limits of blockchain and Bitcoin centralisation | �� Prelude
The effect of supply policy on mining �
2009 2010 2011 2012 2013 2014 2015 2016Year
104
106
108
1010
1012
1014
1016
1018
Has
hR
ate
[Has
h/se
c]
BTCTop 500
⌅ This created an arms race to devote more resources to mining
⌅ Everybody has an incentive to mine as soon as possible⌅ With increasing Bitcoin prices� only larger-scale investors can
afford it
Limits of blockchain and Bitcoin centralisation | �� Prelude
The effect of supply policy on mining �
2009 2010 2011 2012 2013 2014 2015 2016Year
104
106
108
1010
1012
1014
1016
1018
Has
hR
ate
[Has
h/se
c]
BTCTop 500
⌅ This created an arms race to devote more resources to mining⌅ Everybody has an incentive to mine as soon as possible
⌅ With increasing Bitcoin prices� only larger-scale investors canafford it
Limits of blockchain and Bitcoin centralisation | �� Prelude
The effect of supply policy on mining �
2009 2010 2011 2012 2013 2014 2015 2016Year
104
106
108
1010
1012
1014
1016
1018
Has
hR
ate
[Has
h/se
c]
BTCTop 500
⌅ This created an arms race to devote more resources to mining⌅ Everybody has an incentive to mine as soon as possible⌅ With increasing Bitcoin prices� only larger-scale investors can
afford it
Limits of blockchain and Bitcoin centralisation | �� Prelude
The limits to blockchain consensus
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Blockchain ��
Block height
⌅ Sequential data structure� New blocks can only be appendedat the end of the chain
⌅ To change a block in the middle� all subsequent ones must bealtered
⌅ But the blockchain is replicated in all network nodes! Historyredundancy makes it resilient to a�acks
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Blockchain ��
Block height
⌅ Sequential data structure� New blocks can only be appendedat the end of the chain
⌅ To change a block in the middle� all subsequent ones must bealtered
⌅ But the blockchain is replicated in all network nodes! Historyredundancy makes it resilient to a�acks
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Blockchain ��
Block height
⌅ Sequential data structure� New blocks can only be appendedat the end of the chain
⌅ To change a block in the middle� all subsequent ones must bealtered
⌅ But the blockchain is replicated in all network nodes! Historyredundancy makes it resilient to a�acks
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Blockchain consensus ��
⌅ The efficiency of blockchain-based systems depends onwhether consensus in the information stored in the differentnodes is reached
⌅ Consensus must not be confused with the policy followed toselect the issuer of the new block
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Blockchain consensus ��
⌅ The efficiency of blockchain-based systems depends onwhether consensus in the information stored in the differentnodes is reached
⌅ Consensus must not be confused with the policy followed toselect the issuer of the new block
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
An example of blockchain dynamics ��
⌅ Consensus is unknownto nodes
⌅ Blocks can appear indifferent nodes beforeconsensus is reached
⌅ Conflicts are resolvedby chain depth
⌅ The information in the
offchain blocks is lostwasted resources
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
An example of blockchain dynamics ��
⌅ Consensus is unknownto nodes
⌅ Blocks can appear indifferent nodes beforeconsensus is reached
⌅ Conflicts are resolvedby chain depth
⌅ The information in the
offchain blocks is lostwasted resources
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
An example of blockchain dynamics ��
⌅ Consensus is unknownto nodes
⌅ Blocks can appear indifferent nodes beforeconsensus is reached
⌅ Conflicts are resolvedby chain depth
⌅ The information in the
offchain blocks is lostwasted resources
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
The importance of verification diversity ��
Diverse
Concentrated
⌅ When mining becomes concentrated� large portion ofverification is performed by the same actor
⌅ It decides which information enters or not into the blockchain
⌅ Others lose incentive to participate of verification �no reward�⌅ Feedback loop
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
The importance of verification diversity ��
Diverse
Concentrated
⌅ When mining becomes concentrated� large portion ofverification is performed by the same actor
⌅ It decides which information enters or not into the blockchain⌅ Others lose incentive to participate of verification �no reward�
⌅ Feedback loop
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
The importance of verification diversity ��
Diverse
Concentrated
⌅ When mining becomes concentrated� large portion ofverification is performed by the same actor
⌅ It decides which information enters or not into the blockchain⌅ Others lose incentive to participate of verification �no reward�⌅ Feedback loop
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Elements that affect verification diversity ��
The consensus mechanism is known to work �and be efficient� in a
complete graph where all nodes have homogeneous block
creation power
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Elements that affect verification diversity ��
⌅ The architecture of the network of interconnections
⌅ The probability that different nodes create a new block⌅ The node properties in each dimension� and interaction
between these two factors is far from trivial overlooked
⌅ ��� And this is without taking into account the strategic
behaviour of nodes in this network
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Elements that affect verification diversity ��
⌅ The architecture of the network of interconnections⌅ The probability that different nodes create a new block
⌅ The node properties in each dimension� and interaction
between these two factors is far from trivial overlooked
⌅ ��� And this is without taking into account the strategic
behaviour of nodes in this network
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Elements that affect verification diversity ��
⌅ The architecture of the network of interconnections⌅ The probability that different nodes create a new block⌅ The node properties in each dimension� and interaction
between these two factors is far from trivial overlooked
⌅ ��� And this is without taking into account the strategic
behaviour of nodes in this network
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Elements that affect verification diversity ��
⌅ The architecture of the network of interconnections⌅ The probability that different nodes create a new block⌅ The node properties in each dimension� and interaction
between these two factors is far from trivial overlooked
⌅ ��� And this is without taking into account the strategic
behaviour of nodes in this network
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Tackling this problem� �i�Modelling ��
⌅ Understanding diffusion� core question in complex systems
⌅ Input� Arbitrary network architectures� arbitrary node’sproperties� arbitrary mechanisms for block creation anddiffusion
⌅ Output� Understanding emergent properties� blocktree�distribution of consensus time� fork probability� miningconcentration� etc�
⌅ All of this without requiring high computational resources
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Tackling this problem� �i�Modelling ��
⌅ Understanding diffusion� core question in complex systems
⌅ Input� Arbitrary network architectures� arbitrary node’sproperties� arbitrary mechanisms for block creation anddiffusion
⌅ Output� Understanding emergent properties� blocktree�distribution of consensus time� fork probability� miningconcentration� etc�
⌅ All of this without requiring high computational resources
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Tackling this problem� �i�Modelling ��
⌅ Understanding diffusion� core question in complex systems
⌅ Input� Arbitrary network architectures� arbitrary node’sproperties� arbitrary mechanisms for block creation anddiffusion
⌅ Output� Understanding emergent properties� blocktree�distribution of consensus time� fork probability� miningconcentration� etc�
⌅ All of this without requiring high computational resources
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Tackling this problem� �i�Modelling ��
⌅ Understanding diffusion� core question in complex systems
⌅ Input� Arbitrary network architectures� arbitrary node’sproperties� arbitrary mechanisms for block creation anddiffusion
⌅ Output� Understanding emergent properties� blocktree�distribution of consensus time� fork probability� miningconcentration� etc�
⌅ All of this without requiring high computational resources
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Tackling this problem� �ii� Simulating ��
⌅ So�ware-defined-networks allow to instantiateso�ware-controlled virtual networks
⌅ Used to emulate the full production environments in muchsmaller systems
⌅ Taking into account �synthetically� server-server /
country-country latencies
⌅ Logical� Peers in the verification network⌅ Emulated� Established in the So�ware defined networking⌅ Physical� Actual physical underlying infrastructure
Real system Emulated system
underlying
underlying
Physicalinfrastructure
Emulated SDN
Application logic
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Tackling this problem� �ii� Simulating ��
⌅ So�ware-defined-networks allow to instantiateso�ware-controlled virtual networks
⌅ Used to emulate the full production environments in muchsmaller systems
⌅ Taking into account �synthetically� server-server /
country-country latencies
⌅ Logical� Peers in the verification network⌅ Emulated� Established in the So�ware defined networking⌅ Physical� Actual physical underlying infrastructure
Real system Emulated system
underlying
underlying
Physicalinfrastructure
Emulated SDN
Application logic
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Tackling this problem� �ii� Simulating ��
⌅ The mining process is simulated without wasting CPU
Miner 1 Poisson(λ1)
Miner 2 Poisson(λ2)
Miner 3 Poisson(λ3)
GlobalNetworkMining
Poisson(λ1+λ2+λ3)
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Tackling this problem� �ii� Simulating ��
⌅ Detailed properties of the system can be computed⌅ Time required for a block to reach a given percentage of the
system⌅ Propagation through the network
10%
50% 95%
100%90%
t1 t2t3
bloquenuevo
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Results and conclusions ��
10-1 100 101 102 103 104 105 106
Gossip Delay(seconds)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Orp
hane
d Bl
ock
Rate
�k�= 4�k�= 8�k�= 16
⌅ Three regions� Ideal condition� intermediate performance�congested system
⌅ In the congested region� orphaned branches are longer
�system collapse�
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Results and conclusions ��
10-1 100 101 102 103 104 105 106
Gossip Delay(seconds)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Orp
hane
d Bl
ock
Rate
�k�= 4�k�= 8�k�= 16
⌅ Three regions� Ideal condition� intermediate performance�congested system
⌅ In the congested region� orphaned branches are longer
�system collapse�
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Results and conclusions ��
10-1 100 101 102 103 104 105 106
Gossip Delay(seconds)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Orp
hane
d Bl
ock
Rate
�k�= 4�k�= 8�k�= 16
⌅ In fully decentralised implementations� there exists a balancebetween competing forces� The smaller the interblock time �orlarger time to propagate blocks�
⌅ The closer the systems get to collapse �rising orphaned blocks�⌅ The network structure compensates for node heterogeneity
⌅ The higher the mining heterogeneity� the less orphaned blocksbut at the cost of a non diverse set of verifiers
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Results and conclusions ��
10-1 100 101 102 103 104 105 106
Gossip Delay(seconds)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Orp
hane
d Bl
ock
Rate
�k�= 4�k�= 8�k�= 16
⌅ In fully decentralised implementations� there exists a balancebetween competing forces� The smaller the interblock time �orlarger time to propagate blocks�
⌅ The closer the systems get to collapse �rising orphaned blocks�⌅ The network structure compensates for node heterogeneity
⌅ The higher the mining heterogeneity� the less orphaned blocksbut at the cost of a non diverse set of verifiers
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Results and conclusions ��
10-1 100 101 102 103 104 105 106
Gossip Delay(seconds)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Orp
hane
d Bl
ock
Rate
�k�= 4�k�= 8�k�= 16
⌅ These analyses call for a careful thinking of the mechanismsthat generate the network topology and the miningdistribution
⌅ A scalable� transversal set of tools to prototype
blockchain-based systems in arbitrary conditions
Limits of blockchain and Bitcoin centralisation | �� The limits to blockchain consensus
Bitcoin centralisation
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Analysing the circulation in the Bitcoin economy ��
addr_01addr_02addr_03
addr_11addr_12
addr_13addr_14
⌅ Participants of the transactions can be� Miners� End-Users
⌅ Incorrect aggregation avoided
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Bitcoin adoption ��
2010 2011 2012 2013 2014 2015 2016Year
1
10
102
103
104
105
106
107
N(t
),N
i(t)
End-usersMinersTotal
⌅ User adoption shows two regimes of adoption� early adopters–miners–� end-users
⌅ Miners constitute a tiny fraction of all users
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Bitcoin adoption ��
2010 2011 2012 2013 2014 2015 2016Year
1
10
102
103
104
105
106
107
N(t
),N
i(t)
End-usersMinersTotal
2010 2011 2012 2013 2014 2015 2016Year
0.0
0.2
0.4
0.6
0.8
1.0
Use
rsha
re
End-UsersMiners
⌅ User adoption shows two regimes of adoption� early adopters–miners–� end-users
⌅ Miners constitute a tiny fraction of all users
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
The network of transactions ��
2010 2011 2012 2013 2014 2015 2016Year
0.0
0.2
0.4
0.6
0.8
1.0
N(1
)n
/Nn
Bitcoin
⌅ A�er end-users surface in the system� transactions create alargely connected network
⌅ With respect to their properties in the network oftransactions� miners have different properties than end-users
⌅ Miners have many outgoing connections� only end-users
transact among themselves
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
The network of transactions ��
2010 2011 2012 2013 2014 2015 2016Year
0.0
0.2
0.4
0.6
0.8
1.0
N(1
)n
/Nn
Bitcoin
2010 2011 2012 2013 2014 2015 2016Year
0
10
20
30
40
50
�k(o
)M
���k
(o)
U�
⌅ A�er end-users surface in the system� transactions create alargely connected network
⌅ With respect to their properties in the network oftransactions� miners have different properties than end-users
⌅ Miners have many outgoing connections� only end-users
transact among themselves
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Circulation of bitcoins ��
2010 2011 2012 2013 2014 2015 2016Year
0.0
0.2
0.4
0.6
0.8
1.0
p iR
elat
ive
Wea
lth
i = Useri = Miner
⌅ Miners still hold a sizeable portion of the total amount ofbitcoins in circulation
⌅ Very unequal wealth distribution� Much more than unequalcountries� Gini index = 0.9 ������
⌅ Transition in the transaction behaviour� Nowadays�most
transactions are
⌅ miner ! end-user
⌅ end-user ! end-user
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Circulation of bitcoins ��
2010 2011 2012 2013 2014 2015 2016Year
0.0
0.2
0.4
0.6
0.8
1.0
p iR
elat
ive
Wea
lth
i = Useri = Miner
10�4 10�3 10�2 10�1 100 101 102 103 104
Bitcoin Balance
10�4
10�3
10�2
10�1
100
CC
DF
Bitc
oin
Bal
ance
UnfilteredMinersPure users
⌅ Miners still hold a sizeable portion of the total amount ofbitcoins in circulation
⌅ Very unequal wealth distribution� Much more than unequalcountries� Gini index = 0.9 ������
⌅ Transition in the transaction behaviour� Nowadays�most
transactions are
⌅ miner ! end-user
⌅ end-user ! end-user
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Circulation of bitcoins ��
2010 2011 2012 2013 2014 2015 2016Year
0.0
0.2
0.4
0.6
0.8
1.0
p iR
elat
ive
Wea
lth
i = Useri = Miner
10�4 10�3 10�2 10�1 100 101 102 103 104
Bitcoin Balance
10�4
10�3
10�2
10�1
100
CC
DF
Bitc
oin
Bal
ance
UnfilteredMinersPure users
2010 2011 2012 2013 2014 2015 2016Year
0.0
0.2
0.4
0.6
0.8
1.0
1.2
T i!
j/�
j�T i
!j�
Miner to MinerMiner to end-userEnd-user to minerEnd-user to End-user
⌅ Miners still hold a sizeable portion of the total amount ofbitcoins in circulation
⌅ Very unequal wealth distribution� Much more than unequalcountries� Gini index = 0.9 ������
⌅ Transition in the transaction behaviour� Nowadays�most
transactions are
⌅ miner ! end-user
⌅ end-user ! end-user
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Implications ��
Transactions
Transactions
Transactions
With respect to economic
transactions���
⌅ Three well-defined periods
� System working as designed� Egalitarian transformation� Centralisation of supply �
wealth inequality
Bitcoin has evolved into a statethat works in a stark contrastwith its design principles��� butworks
Because of misplaced incentives
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Implications ��
Transactions
Transactions
Transactions
With respect to economic
transactions���
⌅ Three well-defined periods� System working as designed� Egalitarian transformation� Centralisation of supply �
wealth inequality
Bitcoin has evolved into a statethat works in a stark contrastwith its design principles��� butworks
Because of misplaced incentives
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Implications ��
Transactions
Transactions
Transactions
With respect to economic
transactions���
⌅ Three well-defined periods� System working as designed� Egalitarian transformation� Centralisation of supply �
wealth inequality
Bitcoin has evolved into a statethat works in a stark contrastwith its design principles��� butworks
Because of misplaced incentives
Limits of blockchain and Bitcoin centralisation | �� Bitcoin centralisation
Governance
Limits of blockchain and Bitcoin centralisation | �� Governance
The effect of governance ��
2009 2010 2011 2012 2013 2014 2015 2016 2017Year
0
500
1000
1500
2000
2500
3000
Mar
ketP
rice
[USD
]
2011 2012 2013 2014 2015 2016Year
106
107
108
109
1010
Mar
ketC
ap[U
SD]
⌅ The main developers and other stakeholders have their ownincentive to maintain the status quo
⌅ Changes of supply policy would damage tremendously theprice
⌅ But this weakens enormously the system -!-
Limits of blockchain and Bitcoin centralisation | �� Governance
The effect of governance ��
2009 2010 2011 2012 2013 2014 2015 2016 2017Year
0
500
1000
1500
2000
2500
3000
Mar
ketP
rice
[USD
]
2011 2012 2013 2014 2015 2016Year
106
107
108
109
1010
Mar
ketC
ap[U
SD]
⌅ The main developers and other stakeholders have their ownincentive to maintain the status quo
⌅ Changes of supply policy would damage tremendously theprice
⌅ But this weakens enormously the system -!-
Limits of blockchain and Bitcoin centralisation | �� Governance
The effect of governance ��
2009 2010 2011 2012 2013 2014 2015 2016 2017Year
0
500
1000
1500
2000
2500
3000
Mar
ketP
rice
[USD
]
2011 2012 2013 2014 2015 2016Year
106
107
108
109
1010
Mar
ketC
ap[U
SD]
⌅ The main developers and other stakeholders have their ownincentive to maintain the status quo
⌅ Changes of supply policy would damage tremendously theprice
⌅ But this weakens enormously the system -!-
Limits of blockchain and Bitcoin centralisation | �� Governance
Take-home messages
Limits of blockchain and Bitcoin centralisation | �� Take-home messages
Take-home messages ��
⌅ Blockchain is indeed a technological breakthrough⌅ Incentive placement is indeed crucial⌅ Outcome far different from expected
⌅ This is a complex socio-technical system� Design cannot be
technocratic� but co-evolutionary
Limits of blockchain and Bitcoin centralisation | �� Take-home messages
Take-home messages ��
⌅ Blockchain is indeed a technological breakthrough⌅ Incentive placement is indeed crucial⌅ Outcome far different from expected⌅ This is a complex socio-technical system� Design cannot be
technocratic� but co-evolutionary
Limits of blockchain and Bitcoin centralisation | �� Take-home messages
Claudio J� Tessone
URPP Social Networks
B claudio�tessone@uzh�ch
m h�p�//www�socialnetworks�uzh�ch