What Is Cryptocurrency Game Theory: A Basic Introduction

Sorry all, but this site is banned on Hacker News for having used a spam service to buy fake upvotes.<p>Normally we err on the side of forgiveness, but this abuse is so outrageous that until we get a proper accounting for it, we&#x27;re going to keep posting what happened at the top of the threads. I&#x27;m pretty sure there&#x27;s no issue on which HN users feel more strongly, and I agree with them.<p>Users vouched for the current post, which is fine, but I&#x27;m going to write software to prevent that from working on sites that are banned for such a reason.

Ooh, he was doing so well but his explanation for why users use the main chain instead of a forked chain betrays a fundamental misunderstanding of the blockchain.<p>There is no &quot;blue chain&quot; or &quot;red chain&quot;, there are just blocks that point to other blocks. Branches happen all the time, and sometimes those branches become the main chain. So actually, if the red chain was grown faster than the blue chain, it would become &quot;the main chain&quot;. But then the miner&#x27;s transaction in the blue chain would be ignored!<p>The main chain is chain with the greatest computational value, it&#x27;s the chain that takes the greatest amount of CPU power to compromise (and therefore it&#x27;s the most trustable). It has nothing to do with Schelling point or bounded rationality, because that suggests you can tell that a block is a &quot;forked block&quot; the moment it&#x27;s created, but you can&#x27;t.

There is a great class of Game Theory for free on Youtube. It is from YaleCourses with the professor Ben Polak.<p><a href="http:&#x2F;&#x2F;oyc.yale.edu&#x2F;economics&#x2F;econ-159&#x2F;lecture-1" rel="nofollow">http:&#x2F;&#x2F;oyc.yale.edu&#x2F;economics&#x2F;econ-159&#x2F;lecture-1</a><p><a href="https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=nM3rTU927io&amp;list=PL6EF60E1027E1A10B" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=nM3rTU927io&amp;list=PL6EF60E102...</a>

I was really glad to see this article specifically point out that proof-of-work schemes that allow for &quot;specialized ASICs&quot; 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.

I&#x27;m glad to see this. With many systems trying to move to proof-of-stake[0] algos to secure their chains, I&#x27;ve been lamenting the lack of game theory experts in a lot of these projects.<p>[0]: <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Proof-of-stake" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Proof-of-stake</a>

In the crypto world I feel like there is a LOT of talk about theoretical concepts, but nowhere near enough actual implementation. This is really obvious with the ICO craze lately.<p>I would rather we see some more code written and less talking about game theory and other concepts.<p>Good article though.

What if a country, like Russia, decided it wanted to destroy bitcoin because of a threat to its currency? They have the resources to build up huge mining power and attack the chain for majority, and cause havoc. Is there any kind of protection for this scenario? Would all the other miners just decide to ignore these new jerky miners?

Good 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&#x27;s crypto collapsing. As long as the defectors can cash out to fiat before the collapse they are better for it.<p>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 &quot;defect&quot;, the more profitable it is to defect. So BCH is now #4 by market cap.

There is a mistake in the wording of a sentence (the table is fine):<p>&quot;If they both confess, then the payoff matrix says that the outcome is (4,4).&quot;<p>Is actually talking about the scenario where neither Rob nor Ben confess.

This is not &quot;Cryptocurrency Game Theory&quot;, it is some game theory applied to some cryptocurrency problems.

The prisoner&#x27;s dilemma example is wrong. It should be globally optimal for both not to confess, but knowing the other player can get a better sentence by confessing, each player will also confess in order to at least get the somewhat reduced sentence.

Game solved: the only winning move is not to play.

I 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.