The Bank of Canada (BoC) has published a study on the ‘incentive compatibility’ of blockchain technology this week, finding that double spending is an unlikely result.
The new BoC study centres around a proof-of-work (PoW) protocol for blockchain technology, displaying the practices of an ‘honest miner’ and a ‘dishonest miner.’
A system was modeled by Canadian bank’s analysts to check whether a digital ledger like blockchain was resistant to types of swindling such as double spending when clients change records in the ledger for their own gain.
The study composes that the main innovation of a digital ledger technology like blockchain is to make the users within the system responsible for the guarding of the system itself. For blockchain technology, the system supports new transactions when an update is settled upon by all users in the system.
The study finds that if one miner controls the greater part of all the computational power, the miner would speculatively have the capacity to stage a ’51 percent attack’, where
“Confirmation straggles, in theory, lose their capacity in controlling double-spending incentives. The dishonest miner makes an entry rate that is larger than those of the other honest miners combined and, in this manner, can simply cheat by double spending.”
In any case, the study notes that in order for this to occur from a financial point of view, a dishonest miner must have profound pockets and be ‘risk unbiased,’ concluding that these presumptions have a tendency to be unreasonable and, in practice, users have minimal economic incentives to launch such an attack, particularly when the computational investment by other miners is substantial.
As reported by Cointelegraph, the effectiveness and security of using blockchain tech in banking was already scrutinized by James Chapman, senior research director at the BoC’s fund management and banking division.
Major global management consultancy firm Bain and Company also conducted a study and found that the usage of distributed ledger tech like blockchain ‘can revolutionize transaction banking.’[The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and/or the official policy of the website. ]