Canada’s Central Bank (BOC) released a working paper this month, Incentive Compatibility on the Blockchain. In it, BOC seems to argue the world’s most popular cryptocurrency, Bitcoin, is safe from a 51% attack, double spend scenario through the right incentive structure and proof of work (POW).
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Bank of Canada Study Argues Bitcoin Can Withstand 51%, Double Spend Attack
This month, the Bank of Canada released a working paper, Incentive Compatibility on the Blockchain, authored by Jonathan Chiu, Thorsten Koeppl. Mr. Chiu works directly with the BOC in its Funds Management and Banking Department, while Mr. Koeppl is an economist from Queen’s University.
The study appears to conclude Bitcoin is protected against a 51% attack, double spending scenario — long thought to be the decentralized currency’s gravest threat. Mr. Chiu and Mr. Koeppl arrive at this conclusion through the traditional formula familiar to bitcoiners: correct incentives align with proof of work.
Mr. Chiu
The Bank of Canada, as the country’s central bank, formulates the nation’s monetary policy. It does so, according to its charter, while promoting safe, sound financial decisions. As the only legal authority capable of issuing government paper, it not only manages fiscal policy for Canada but it also exists as a lender of last resort for private banks.
The working paper it published online also discusses seigniorage as something of a free rider problem, admitting issuing fiat currency in the manner it does can be used to offset taxes. Under the heading, “The Costs of Cryptocurrencies,” the authors quip, “Keeping records on a blockchain is not a free lunch.” Distributed ledger costs can rise, they argue, when rewards are offered to
