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Cryptoeconomics: Economic framework of bitcoin and blockchains
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School of Business |
Bachelor's thesis
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en
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28
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This thesis analyses the intricate incentive structures and mechanisms behind proof-of-work blockchain protocols. After the introduction, this thesis introduces cryptocurrencies and their basic principles. Then the thesis looks at the economics of blockchains as well as what makes them function securely. Subsequently, the thesis studies the economics of miners, who mine new blocks to the chain guaranteeing a functioning blockchain, and the incentives that make miners behave honestly and in the interest of the blockchain. Lastly the thesis studies the limits and faults of bitcoin and cryptocurrencies, and discusses their future.
The thesis unpacks bitcoin’s Proof-of-Work protocol, which incentivizes miners to behave honorably and compete with the amount of energy usage, at the cost of the environment. The thesis studies the trendy phenomenon of decentralization and its alleged dissapearance as a result of mining pools. It is shown that there are various ways of attacking the blockchain that might make it vulnerable, if attacking is a dominant strategy for miners. It is apparent that the future of bitcoin and cryptocurrencies has many questions that need answering for them to be beneficial in the future. It might require more research, studies and policies to govern the intricate environment effectively, but the apparent potential of the emerging technology and its applications are something that should not be cast aside.