Understanding Decentralization in Proof-of-Stake Blockchains: An Agent-Based Simulation Approach

Blockchain systems allow for securely keeping shared records of transactions in a decentralized way. This is enabled by consensus mechanisms. Proof-of-work is the most prominent consensus mechanism but environmentally unsustainable. In this paper, we focus on proof-of-stake, its best-known alternative. Importantly, decentralized decision-making power is not an inherent feature of blockchain systems, but a technological possibility. Numerous security incidents illustrate decentralization cannot be taken for granted. We therefore study how key parameters affect the degree of decentralization in proof-of-stake blockchains. Based on a real-world implementation of a proof-of-stake blockchain system, we conduct an agent-based simulation to study how a range of parameter manipulations impact the degree of decentralization. The results suggest that a high number of initial potential validator nodes, large transactions, and a high number of transactions increase the degree of decentralization. They also suggest that a very high or very low positive validator network growth rate increases the degree of decentralization. We only find weak support for an impact of changes in transaction fees and initial stake distributions. Our findings contribute to understanding the mechanisms leading to decentralization in proof-of-stake blockchains as well as to designing proof-of-stake blockchains that are prone to decentralization and therefore more secure.