Proof of Work and Proof of Stake consensus protocols: a blockchain application for local complementary currencies

This paper examines, with the help of a theoretical setting, the properties of two blockchain consensus protocols, namely the Proof of Work (PoW) and the Proof of Stake (PoS) protocol in the management of a digital local complementary currency or a network of digital local currencies. The model includes a control (by the issuer of the currency) of advantages derived from the use of a local currency by heterogeneous consumers and a determination of rewards for heterogeneous validators and miners. It also considers the resilience of these protocols to attacks conducted by an individual or a pool of validators or miners. Our results share similarities with an ordinary crypto-currency system and show that there is support for the PoS protocol for small communities of local complementary currencies, whereas the PoW appears to be more advantageous when the size of the communities is significantly large. JEL Classification: E42, D91, L86, O31