The Bank of Canada (BoC) has revealed a 13-page report entitled the ‘Incentive Compatibility on the Blockchain’ that concludes double spending on the open ledger technology is “unrealistic”.
Jonathan Chiu of the Funds Management and Banking Department of the Bank of Canada and Thorsten V. Koeppl of the Department of Economics at Queen’s University authored the study. They analyse the probability of double spending focusing on the 51% attacks and the proof of work (PoW) protocol.
Chiu and Koeppl highlight that the main innovation of blockchain technology is making users – not institutions or governments – responsible for the system.
“For simplicity, we have modelled secret mining as an exponential race for each update against a group of honest miners,” the researchers say. “In order to double spend, a user had to win the race N times in a row, but keep his result secret. This is not entirely accurate when looking at actual PoW protocols employed for blockchain technology.”
After a meticulous analysis of all possibilities, they say that “from an economic point of view, this requires that a dishonest miner has deep pockets and is risk neutral. These assumptions tend to be unrealistic and, in practice, users have little economic incentives to launch such an attack, especially when the computational investment by other miners is large”.
The new study refutes a statement by BoC Senior Research Director of the Funds Management and Banking Department James Chapman, who questioned the efficiency and security of blockchain technology in banking institutions.
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