Evolutionary dynamics of sustainable blockchains

Abstract

The energy sustainability of blockchains, whose consensus protocol rests on the Proof-of-Work, nourishes a heated debate. The underlying issue lies in a highly energy-consuming process, defined as mining, required to validate crypto-asset transactions. Mining is the process of solving a cryptographic puzzle, incentivized by the possibility of gaining a reward. The higher the number of users performing mining, i.e. miners, the higher the overall electricity consumption of a blockchain. For that reason, mining constitutes a negative environmental externality. Here, we study whether miners’ interests can meet the collective need to curb energy consumption. To this end, we introduce the Crypto-Asset Game, namely a model based on the framework of Evolutionary Game Theory devised for studying the dynamics of a population whose agents can play as crypto-asset users or as miners. The proposed model, studied via numerical simulations, reveals a rich spectrum of possible steady states. Interestingly, by setting the miners’ reward in the function of the population size, agents reach a strategy profile that optimizes global energy consumption. To conclude, can a Proof-of-Work-based blockchain become energetically sustainable? Our results suggest that blockchain protocol parameters could have a relevant role in the global energy consumption of this technology.