Can cryptocurrency work without incentives?


Algorand uses Byzantine Agreement (BA) to achieve consensus. Basic arguments of how it can remain secure:

It claims there is no need for incentives, no need to bond coins to the protocol yet still remain decentralised and secure.

BitTorrent is pointed as the example of a system where incentives aren’t needed for people to share files. Playing devil’s advocate to Ethereum embedding incentives front and centre. Do you guys think that a cryptocurrency could work without incentives and what could make it work?


Fun question!

It’s important to note that Silvio did not say that participants in decentralized consensus protocols have no incentives. Instead he said that it was simply too difficult to reason about these incentives. I personally find this a bit of a defeatist outlook, which is why my focus is on analyzing and developing cryptoeconomic mechanisms in which we analyze incentives to the best of our ability.

First I think we should try to define what incentives are. According to our overload Google, incentives are “a thing that motivates or encourages one to do something”. From this definition, claiming that there is no incentive for people to share files is clearly false. Let’s look at the incentives for a user downloading a movie:

  1. User wants to watch movie, motivating them to find the torrent hash.
  2. User wants to easily download movie, motivating them to download a popular torrenting client.
  3. Torrenting client developer wants a healthy torrent network, motivating them to automatically seed movies as users download them.

Result: User gets to watch movie, user shares movies to other users.

In Bittorrent the stakes are low. We don’t have millions of dollars on the line held up in a single smart contract. This means while there are incentives (which I just outlined), they aren’t on the order of millions or billions of dollars. However, in blockchains this is not the case.

Recently Bitcoin Gold suffered a 51% attack which stole something like 18 million dollars. That’s high stakes. When we are building systems which need to be trusted with millions of dollars, analyzing financial incentives is a necessity. I would not feel comfortable condoning any software which is entrusted with large sums of money without strong justifications for why that money is safe.

That said, even Algorand provides justifications for why their money is safe. They make a particular honesty assumption which includes honest users running full nodes without direct financial compensation. I think this property is what you meant when you asked “can cryptocurrency work without incentives?”. From their honesty assumptions & protocol specification, their security properties can be derived and proved correct. That’s great but the harder question is: do you personally believe their world view is realistic? Next question: does their analysis convince everyone else? If the answer to both is yes, then they’ve done their job!

If you were to ask me if I think their world view is realistic, I would probably say no. However, that’s not so important–I could be wrong! What is more important is improving how we analyze what security properties our internet protocols actually provide, so that we have compelling justifications for why everyone can feel safe when using them. That means I strongly disagree with Silvio’s defeatist outlook and instead believe we need to develop our methods for analyzing incentives. Right now the tools we use to analyze incentives within our protocols are quite limited. However, thankfully there’s a lot of research being done in this area under the heading “cryptoeconomics” and that’s clearly what I’m interested in.

So specifically regarding Algorand, I tend to agree with the sentiments expressed by Vitalik, Vlad, and Emin in the article you linked. Still, even if I am wrong what is important is the fact that we are talking about incentives in the first place. If we are to build complex systems which many humans & bots rely on, we are going to need to develop the tools for reasoning about these complex systems. We need cryptoeconomics (dot study) :smile: !


I am skeptical about incentive-free designs in mature cryptocurrencies. Even in Bitcoin, mining pools use all sorts of sketchy techniques (eg. SPV mining, spy mining…) against each other to get an edge on revenue, and in any mature blockchain there will definitely be resource-optimizing and lazy actors.

BitTorrent by itself isn’t incentive-free; there are incentives where clients are more likely to share files to clients that are seeding other files, they’re just not monetary. Cryptocurrency based on non-monetary incentive seems hard to make work right, because the set of participants with economic resources capable of securing a public chain and the set of users is different, so it seems like some kind of money-like thing is required to give the securing parties a reward which is not just usage rights that they will never use.


Hmmm… I made a chart based on @vbuterin and @karl thoughts. We can do direct vs indirect economic incentives as the x-axis. The y-axis is the gains (positive and negative).

The direct economic incentive is when there is some monetary reward. The indirect economic incentive is where there is no monetary benefit but there is some positive gain in terms of the user gaining something he or she wanted.

As you can see, there is no monetary benefit for BitTorrent (duh). But there is an economic reward/gain. You get something for free where as normally, you’d have to pay for it… You are still spending something, even if that is $0.

I challenge all others reading this thread to think of something to add to the bottom 2 quadrants. What is your incentive for doing this challenge? You tell me!

#5 Is an interesting article. I think this addresses the question of do we need incentives in a permissionless blockchain.

I also think the question is a bit more nuanced than “do we need incentives”. In a permissioned setting you may not need monetary incentives if the participants want to store the data and do the computation anyway. In a consortium, the different companies running nodes have an implicit incentive to store all the data and maintain the blockchain because they want to validate it, need the data and they don’t trust the others. Algorand plans to be a permissioned blockchain.

All that said, I think incentives can be more than just monetary/ token based. They can be reputation based as well. I think there has been a lot of focus on economic incentives. I think it would be interesting to understand what are other incentive structures that we can benefit from :slight_smile:


The reputation based system seems interesting, and I think it will be very helpful. But I also can’t help but be a little scared of them IoI.