Incentivizing Blockchain Participation Through Task Assignment Mechanisms: Evidence From a Natural Experiment of Consensus Protocols on Ethereum

ABSTRACT This study examines how task assignment mechanisms affect the participation of workers on decentralized blockchains. In developing the theory, I highlight that blockchain represents a distinct organizational form for coordinating operations under a highly decentralized structure, in which the essential tasks of system infrastructure maintenance are assigned to third‐party crowd workers through the unique governance mechanism of consensus protocol. I specifically focus on two widely adopted consensus protocols in the context of cryptocurrency, namely, proof‐of‐work (PoW), which assigns tasks that sustain the blockchain system operation based on workers' investments in computing power, and proof‐of‐stake (PoS), which assigns these tasks based on workers' investments in the native cryptocurrency as stakes. I argue that compared with PoW, PoS increases worker participation and task decentralization because the investment requirement of task participation in the form of blockchain native assets reduces workers' transaction costs in task contracting and their tendencies for hyper‐competition. My empirical analysis leverages a natural experiment on Ethereum, namely, the “Merge” event on September 15, 2022, in which the blockchain changed the assignment rules by switching the consensus protocol from PoW to PoS. The results under a difference‐in‐differences research design confirm my arguments.