Tradeoff of Immutability in Blockchain

Abstract

Broad adoption and frequent use of Blockchain technology, nevertheless, a priori requires the sustainability of consensus among users. Most of the research in blockchain economics by far seems to focus on the deterrence mechanism from the ex post moral hazard such as double spending, deviation from the chain, manipulation, and so on. Immutability can, though allegedly, block posterior fabrication, reduce the cost of monitoring, and maintain the consensus without deviation via the credibility of the record in the distributed ledger . This paper, however, claims immutability is just a necessary condition but not a sufficient condition for the maintenance of consensus. Truthfulness of information ex-ante is imperative for consensus sustainability. Information cannot be immaculate just because it is recorded in a block and appended to a chain. Information may turn out to be untrue later on, or some people may even have a motive to record distorted information. Thus some records surely need correction at any moment. As the incentives and motives are the key features in shaping the feature of the economy under the information asymmetry, the quality of information loaded on the blockchain should vary with the users of different motives. Thus the sustainability of consensus could be undermined to the extent of falsehood of information, i.e. adverse selection. Though the ex-post fabrication, moral hazard, is blocked perfectly due to the immutability, the ex-ante flawed information needs to be corrected. Thus, the efficacy of Blockchain protocol requires the following criteria; Cost efficiency (moderate seignorage), Immutability (censor-free information), and Resilience (rectifiable data).