Bitcoin has been envisioned as a global digital currency, yet it has not been widely adopted. New research from NYU Stern establishes that Bitcoin’s limited adoption is inescapable due to its technical design.

 bitcoin
New research from the Stern School of Business finds that Bitcoin’s limited adoption is inescapable due to its technical design. Photo credit: BlackJack3D/Getty Images

Bitcoin has been envisioned as a global digital currency, yet it has not been widely adopted. New research from the Stern School of Business establishes that Bitcoin’s limited adoption is inescapable due to its technical design.

While some individual vendors have adopted Proof of Work (PoW) blockchains as an alternative to traditional payment systems, the platform has failed to achieve widespread adoption. Examining Bitcoin’s PoW protocol, the study’s authors, NYU Stern professor Kose John, doctoral candidate Franz Hinzen and McGill University professor Fahad Saleh, find that:

  • Bitcoin’s decentralized structure leads to payment delays as transaction demand rises because anyone can serve as a record-keeper.
  • The artificial supply constraint that PoW blockchain imposes via a fixed block rate (for example, Bitcoin processes ~7 transactions per second) induces higher fees and revenue for validators, causing more validators to enter the network.
  • A larger network of validators leads to arbitrarily slower payment confirmation times, even for the highest priority user, making Bitcoin an undesirable payment alternative.

The study also examines the possibility of a semi-centralized permissioned blockchain to obtain widespread adoption, concluding that a secure PoW payments blockchain cannot simultaneously achieve both scalability and decentralization.

“For companies and policymakers implementing blockchain solutions, it is important to understand that the limitations that we observe for Bitcoin are a consequence of its particular protocol and not of blockchains in general,” the authors write. “It is time for academics and the public to look beyond Bitcoin and consider viable blockchain alternatives.”

The paper, “Proof-of-Work’s Limited Adoption Problem,” is now available online.