We analyze the economic incentives generated by the proof-of-stake mechanism discussed in the Ethereum Casper upgrade proposal. Compared with proof-of-work, proof-of-stake has a different cost structure for attackers. In Budish (2018), three equations characterize the limits of Bitcoin, which has a proof-of-work mechanism. We investigate their counterparts and evaluate the risk of double-spending attack and sabotage attack. We argue that PoS is safer than PoW agaisnt double-spending attack because of the tractability of attackers, which implies a large "stock" cost for the attacker. Compared to a PoW system whose mining equipments are repurposable, PoS is also safer against a sabotage attack.
@article{arxiv.1807.09626,
title = {A Memo on the Proof-of-Stake Mechanism},
author = {George Gui and Ali Hortacsu and Jose Tudon},
journal= {arXiv preprint arXiv:1807.09626},
year = {2018}
}