Collective Action, Regulatory Capture, and Constitutional Governance in Proof-of-Work Blockchain Protocols A Public Choice Analysis of Transaction Cost Equilibrium and Dynamic Legitimacy

Abstract

This paper applies public choice theory to the governance of proof-of-work (PoW) blockchain systems, treating consensus mechanism design as constitutional political economy. The argument proceeds in two stages. The first establishes a feasibility constraint: under four conditions characterising permissionless systems-anonymity, permissionlessness, Sybil resistance, and oracle independence-identity-based governance is structurally infeasible, and any viable mechanism must weight participation by a costly, rivalrous signal (Propositions 1 and 2). The second establishes the normative content of that constraint. Through five constitutional axioms derived from Buchanan and Tullock (1962) and Brennan and Buchanan (1985), we prove that dynamic legitimacy-governance authority proportional to current productive commitment-is the uniquely required standard (Proposition 3). In a scaled PoW system, governance authority is structurally inseparable from productive participation: a miner cannot govern the network without running it. Proof of stake violates the temporal non-persistence axiom at the protocol level, creating the rent-seeking structure Krueger (1974) identifies, which regulatory capture dynamics documented by Stigler (1971), Peltzman (2022), and Fitzgerald (2024) then entrench endogenously. The paper derives five testable predictions and situates PoW governance within the constitutional economics and rent-seeking traditions of public choice theory.