From Bitcoin to Solana: IMF Outlines Blockchain Consensus Risks for Supervisors

The International Monetary Fund, working in collaboration with academic research from institutions such as Imperial College London, the University of Sussex, and others, has released a 2025 update on blockchain consensus mechanisms. The paper, authored by Parma Bains, makes clear that consensus models are not just technical protocols hidden in code, they are the foundation of digital trust in financial systems. How blockchains achieve agreement on a single ledger defines not only the resilience of networks like Bitcoin, Ethereum, and Solana but also the supervisory challenges that regulators must now confront. With distributed ledger technology spreading into regulated markets and banks experimenting with blockchain-based infrastructure, supervisors must grasp both the promise and the pitfalls of these consensus models.

Bitcoin’s Proof-of-Work: Resilient but Costly

Bitcoin remains the benchmark, running on the Proof-of-Work system introduced by its mysterious creator, Satoshi Nakamoto. In this model, miners compete to solve cryptographic puzzles, and the longest chain of validated transactions becomes the network’s truth. The system has shown remarkable durability, Bitcoin’s uptime exceeds 99.99 percent, but its drawbacks are widely debated. Mining power is concentrated in a few pools, with four of them controlling nearly three-quarters of the hashrate. This concentration raises concerns about whether coordinated actors could manipulate settlements or disrupt finality, particularly if the network were to become deeply entwined with mainstream finance. Another challenge is energy consumption. Although renewable sources power an increasing share of mining, global cost dynamics and local energy policies still determine whether Bitcoin’s carbon footprint shrinks or expands. Supervisors are reminded that Proof-of-Work, for all its reliability, demands constant vigilance against both environmental and concentration risks.

Ethereum and the Promise of Proof-of-Stake

Ethereum’s move to Proof-of-Stake in 2022 was a turning point. Instead of expending energy, validators are chosen based on the amount of ether they lock into the network. The system, called Gasper, combines elements of Nakamoto-style consensus with Byzantine Fault Tolerance voting. This dramatically reduces energy usage, but it also introduces new supervisory puzzles. Larger holders enjoy a higher chance of being selected, raising the specter of a “rich get richer” cycle. Evidence of lasting concentration is still mixed, but exchanges and professional staking services clearly hold disproportionate influence. Another problem, the so-called “nothing at stake” dilemma, has been addressed through slashing, where dishonest validators lose part of their staked tokens and face temporary suspension. Liquidity lockups also present a systemic issue, as staked tokens reduce market responsiveness. The rise of liquid staking, which creates tokenized versions of staked assets that can circulate freely, alleviates this but introduces its own risks. These liquid tokens can be rehypothecated, creating layers of leverage that may amplify volatility in stressed conditions. Ethereum thus shows that greener technology does not necessarily mean simpler supervision.

Solana’s Race for Speed

Solana has pursued a different path, focusing on speed and scale. Its architecture combines Proof-of-Stake with an innovation called Proof-of-History, a cryptographic clock that pre-orders transactions before validation. By doing so, Solana achieves a throughput of around 4,000 transactions per second, compared to Bitcoin’s five and Ethereum’s fifteen. For consumer applications and decentralized finance, this efficiency is highly attractive. Yet speed comes at a cost. The validator set is relatively small and more centralized, and penalties for misconduct are weaker. In practice, this means the network sacrifices some decentralization for the sake of performance. Supervisors are left asking whether the trade-off is acceptable, especially if Solana or networks like it become critical infrastructure for financial markets. The blockchain trilemma, balancing scalability, security, and decentralization, remains unsolved, but Solana’s design highlights how networks lean toward one side of the triangle.

The Scalability Trilemma and Layer 2 Innovations

As adoption widens, scalability has become the central battleground. Bitcoin, for example, processes only about seven transactions per second, creating high fees and congestion during peak periods. This has led to the rise of so-called layer two solutions. State channels like the Lightning Network now process a significant portion of Bitcoin payments off-chain before settling final balances on the main blockchain. Ethereum has embraced rollups, where transactions are bundled and either assumed valid subject to fraud proofs (optimistic rollups) or proven valid through cryptography (zero-knowledge rollups). By mid-2024, these systems had processed more than $200 billion in value. Sidechains, such as Polygon, offer another solution by running parallel blockchains linked via bridges. But bridges have proven vulnerable, with the 2022 Ronin hack draining more than $600 million. Each of these solutions lowers costs and increases efficiency, but also adds complexity. Rollup operators could front-run transactions, while sidechain bridges create single points of failure. For supervisors, understanding these additional layers is as important as monitoring the base chains themselves.

Regulators Walking a Tightrope

The IMF cautions that regulators should not attempt to directly police blockchain networks, which are global, decentralized, and often beyond national jurisdiction. Instead, the focus must remain on the firms that build on them, exchanges, custodians, banks, and fintechs. Still, supervisors must upgrade their tools. Policy sandboxes in the United Kingdom and the European Union are already testing blockchain settlement models in controlled environments. Embedded supervision, where regulators connect directly as nodes within networks, is being studied, though it remains experimental. What is clear is that regulators must refine their horizon scanning to catch emerging risks early, combining on-chain data with off-chain reporting. The paper closes with a warning: whether or not blockchains become the backbone of global finance, supervisors cannot afford to be passive. The global financial crisis of 2008 remains a stark reminder of the dangers of unchecked innovation. Consensus mechanisms are not mere technicalities; they are the architecture of digital trust. For regulators, mastering their design and trade-offs is now essential to safeguarding markets, protecting consumers, and ensuring that innovation does not outrun oversight.