Incentives Dont Solve Blockchains Problems People need a motive to use and maintain a system. In many of the systems we use today, financial rewards and punishments provide a key incentive to participate and abide by the rules. From salaries to traffic tickets, financial motives are often closely tied to a systemu0027s viability. Distributed systems such as blockchain also need a mechanism to motivate good behavior. A blockchain must encourage users to maintain the system while preventing a minority of these users from colluding and gaining disproportionate control. Many popular public blockchains use monetary incentives to encourage users to participate and behave appropriately. But these same incentive schemes create more problems than they solve. Mining rewards cause centralization in proof of work chains such as Bitcoin. Validator rewards and punishments invite attacks in proof of stake chains. This paper argues why these incentive schemes are detrimental to blockchain. It also considers a range of other systemsxe2x80x94some of which incorporate monetary incentives, some of which do notxe2x80x94to confirm that monetary incentives may be neither necessary nor sufficient for good user behavior.

Pooled Mining is Driving Blockchains Toward Centralized Systems The decentralization property of blockchains stems from the fact that each miner accepts or refuses transactions and blocks based on its own verification results. However, pooled mining causes blockchains to evolve into centralized systems because pool participants delegate their decisionmaking rights to pool managers. In this paper, we established and validated a model for ProofofWork mining, introduced the concept of equivalent blocks, and quantitatively derived that pooling effectively lowers the income variance of miners. We also analyzed Bitcoin and Ethereum data to prove that pooled mining has become prevalent in the real world. The percentage of poolmined blocks increased from 49.91% to 91.12% within four months in Bitcoin and from 76.9% to 92.2% within five months in Ethereum. In July 2018, Bitcoin and Ethereum mining were dominated by only six and five pools respectively.