What Is Cryptocurrency Game Theory: A Basic Introduction
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What Is Cryptocurrency Game Theory: A Basic Introduction
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Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#2I never realized just how useful game theory could be to cryptocurrency. Strategy is really important when evaluating the security of a particular crypto, or trying to optimally invest.
Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#3I never realized just how useful game theory could be to cryptocurrency. Strategy is really important when evaluating the security of a particular crypto, or trying to optimally invest.
its entirely game theory because the only way to secure these distributed systems is if the participants all benefit most by enforcing the code and not deviating
Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#4I never realized just how useful game theory could be to cryptocurrency. Strategy is really important when evaluating the security of a particular crypto, or trying to optimally invest.
So true. You have to think of every little action a potential malicious attacker could use and find a way to counter it. It's like a chess game, but with much higher stakes.
Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#5I'm glad to see this. With many systems trying to move to proof-of-stake[0] algos to secure their chains, I've been lamenting the lack of game theory experts in a lot of these projects.
Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#6There is a mistake in the wording of a sentence (the table is fine):
"If they both confess, then the payoff matrix says that the outcome is (4,4)."
Is actually talking about the scenario where neither Rob nor Ben confess.
Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#7I was really glad to see this article specifically point out that proof-of-work schemes that allow for "specialized ASICs" to be designed to accelerate them--which in the high-level concept of proof-of-work is usually seen as a problem (as it creates an elite class of invested and thereby slightly more centralized miners instead of a diverse population of decentralized users)--has a game theory benefit that is related to proof-of-stake (as it incentivizes people to think past short term gains that can be made by cheating the system, leading to a form of loyalty to the one currency and even a fear of escalating tactics); this is something I (and I am sure many others) had noticed while analyzing the Bitcoin Cash debacle, but it has never really been well stated.
Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#8Good overview and I agree with most of it, but I think the power of the grim trigger is overrated here. In the monarchy metaphor, the threat of defection is death. In the crypto example, it's crypto collapsing. As long as the defectors can cash out to fiat before the collapse they are better for it.
This is roughly the dynamic that seems to have played out with BCH. Every exchange would be better off (according to the grim trigger argument) if Bitcoin never forked, but individually they can profit from being a place to exchange BCH. The fewer exchanges "defect", the more profitable it is to defect. So BCH is now #4 by market cap.
Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#9I was really glad to see this article specifically point out that proof-of-work schemes that allow for "specialized ASICs" to be designed to accelerate them--which in the high-level concept of proof-of-work is usually seen as a problem (as it creates an elite class of invested and thereby slightly more centralized miners instead of a diverse population of decentralized users)--has a game theory benefit that is relate…
All proof-of-work algorithms can be accelerated by specific hardware of some kind or another. Bitcoin is perhaps the extreme example, with ASIC miners. But coins using other algorithms are mined by using top-end graphics cards, which is still a form of specialized hardware. There's no algorithm that can't improve upon a standard computer.
Other forms of proof-of-work have been mooted, e.g. algorithms that require lots of memory, or lots of storage, but again, specialized equipment will accelerate this too, it's just that the coins aren't worth enough for people to invest in designing the hardware so far.
Re: What Is Cryptocurrency Game Theory: A Basic Introduction
#10Good overview and I agree with most of it, but I think the power of the grim trigger is overrated here. In the monarchy metaphor, the threat of defection is death. In the crypto example, it's crypto collapsing. As long as the defectors can cash out to fiat before the collapse they are better for it. This is roughly the dynamic that seems to have played out with BCH. Every exchange would be better off (according to th…
That section is talking about miners, not exchanges; and it specifically notes the limitations and assumptions that even make that possible: in this case, that the Bitcoin proof of work is subject to acceleration using ASICs. Even then, that was a response to a specific attack: using >50% of the mining power to do a takeover of the blockchain, which was itself made more possible (as otherwise it would fizzle) using the takeover contract specified by Vitalik. It was an interesting analysis of a specific scenario that the model seems to provide protect against.
In the very different case of Bitcoin Cash, what you saw were miners perceiving segwit as a protocol fork which would devalue the future potential of their investment in specialized mining equipment, as it changes the proof-of-work parts of Bitcoin into a form of contract verification for payment channels rather than as the one true way a transaction can be performed, so we would have expected them to revolt to maintain the rules they had invested assuming (and in fact once they were already dealing with a fork, they went ahead and made their own rule changes to benefit them: larger blocks).