Blockchain consensus mechanisms and fragmentation

Key takeaways 

• While all permissionless blockchains use token-based incentives to sustain honest validation, differences in how validator rewards, coordination and participation are structured lead to distinct equilibria and trade-offs between decentralisation, security and scalability.
• These trade-offs underpin the emergence of multiple layer 1 networks and the expansion of layer 2 solutions, resulting in fragmentation of infrastructure, liquidity and assets across and within chains.
• Tools to mitigate fragmentation – eg bridges and native multi-chain issuance – can reduce frictions, but they reintroduce new dependencies on trust, governance and operational resilience.

The views expressed in this publication are those of the authors and do not necessarily reflect the views of the BIS or its member central banks.