
What Is Cryptocurrency Game Theory: A Basic Introduction - benten10
https://blockgeeks.com/guides/cryptocurrency-game-theory/
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dang
Sorry all, but this site is banned on Hacker News for having used a spam
service to buy fake upvotes.

Normally we err on the side of forgiveness, but this abuse is so outrageous
that until we get a proper accounting for it, we're going to keep posting what
happened at the top of the threads. I'm pretty sure there's no issue on which
HN users feel more strongly, and I agree with them.

Users vouched for the current post, which is fine, but I'm going to write
software to prevent that from working on sites that are banned for such a
reason.

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phailhaus
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.

There is no "blue chain" or "red chain", 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 "the main chain". But then the miner's transaction
in the blue chain would be ignored!

The main chain is chain with the greatest computational value, it's the chain
that takes the greatest amount of CPU power to compromise (and therefore it'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 "forked
block" the moment it's created, but you can't.

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kanzure
> because that suggests you can tell that a block is a "forked block" the
> moment it's created, but you can't.

Invalid blocks are invalid, that's one way to tell. Run the bitcoin protocol
rules and you'll get the same results as everyone else.

~~~
PretzelPirate
You often get two valid blocks at the same time, and whichever one gets the
most blocks built on top of it wins.

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vit05
There is a great class of Game Theory for free on Youtube. It is from
YaleCourses with the professor Ben Polak.

[http://oyc.yale.edu/economics/econ-159/lecture-1](http://oyc.yale.edu/economics/econ-159/lecture-1)

[https://www.youtube.com/watch?v=nM3rTU927io&list=PL6EF60E102...](https://www.youtube.com/watch?v=nM3rTU927io&list=PL6EF60E1027E1A10B)

~~~
Spellman
Probably my favorite Yale Course to date!

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saurik
I 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.

~~~
joosters
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.

~~~
saurik
A top-end graphics card has other uses and other value, and is something a
large number of people (myself included) already own; and most importantly:
they can always be used to mine a different coin, which entirely removes them
from contention as "specialized" as used in this article (as the entire
argument was based around how the hardware would not be useful for a different
coin).

As for "all things can be accelerated", the question here is more "how unique
is the thing being accelerated?" (and so I would agree the wording in my
comment was slightly off), as this argument about the grim trigger holds up if
and only if the specialized hardware being used is not valuable for other uses
(including other coins).

As an example of what you can conclude with this thought process: if you are a
small "startup coin" you should seriously considering a proof-of-work scheme
that is weirdly unique in that it forces people to not be able to reuse
hardware they have from another (particularly if more valuable) coin.

~~~
joosters
True enough, the graphics cards certainly have alternate uses while a bitcoin
miner becomes a very heavy paperweight once the difficulty increases and it
turns unprofitable to run.

Your thought process leads to another interesting game theory puzzle: There's
a benefit in creating a coin that has a unique proof of work, but as you say,
there's also value in letting miners easily switch their existing rigs to mine
your coin. I wonder which is actually the best choice?

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Klathmon
SIA is making the bet that somewhat ASIC friendly algorithms are better off.

The argument being that because ASICs are worthless for anything but mining
that one coin, you can really accurately gauge and maintain a hashrate across
the whole network. It would be crazy expensive to hoard a bunch of ASICs for a
specific algorithm but not run them in hopes to launch a secret 51% attack.

With GPUs that's not really an option. Because GPUs can be used for so much
more, it would be easy to see where you could suddenly have a flood of GPU
power hit your chain which could be massively over 51% quite easily.

And they could be gone again just as quickly, leaving the remaining users with
an impossibly high difficulty and killing off the chain (without a hard-fork
to fix it).

It's a fascinating read which actually flipped my opinions on ASICs in favor
of them now, I highly recommend it [0].

[0] [https://blog.sia.tech/choosing-asics-for-
sia-b318505b5b51](https://blog.sia.tech/choosing-asics-for-sia-b318505b5b51)

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alistproducer2
I'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.

[0]: [https://en.wikipedia.org/wiki/Proof-of-
stake](https://en.wikipedia.org/wiki/Proof-of-stake)

~~~
fiatjaf
Do you think Satoshi Nakamoto is a "game theory expert"?

~~~
EGreg
Which one of them?

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albertgoeswoof
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.

I would rather we see some more code written and less talking about game
theory and other concepts.

Good article though.

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legohead
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?

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ganwar
The quickest solution in such a case would be a POW change that can put
Russian miners at a significant disadvantage. Significant could be a factor of
10 or larger.

Also, any attempt to kill one decentralized value system would prove to be a
wasteful process in the long run since the cost to create another such system
is disproportionately smaller than the cost to attack/destroy them.

~~~
tveita
> The quickest solution in such a case would be a POW change that can put
> Russian miners at a significant disadvantage.

As in changing the POW algorithm? That puts _everyone_ at the same
disadvantage - the attacker just has to keep outspending the legitimate
miners, who will also have lost their mining power. If the miners make new
ASICs, the attacker can do so as well, at presumably the same or lesser cost.

> the cost to create another such system is disproportionately smaller than
> the cost to attack/destroy them.

I think it's the opposite. The defenders have to keep mining power up all the
time, and may have trouble coordinating on one system - the attacker only has
to spend their power while they are attacking, and they can wait until any
system gets popular until they mount the attack.

And if the attacker shows they're motivated and capable of outspending the
defenders, they don't have to actually attack. The defenders will see that any
attempt at mining is futile and never try. At least in game theory, in
practice things aren't resolved that easily. :)

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paulgb
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'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.

~~~
saurik
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).

~~~
paulgb
Fair point, the example of BCH may not have been a good one. I stand by my
more general point that grim trigger isn't a strong incentive in crypto
because a rational, selfish player can profit from pulling the trigger.

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PretzelPirate
There 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.

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fiatjaf
This is not "Cryptocurrency Game Theory", it is some game theory applied to
some cryptocurrency problems.

~~~
bllguo
What else could cryptocurrency game theory be?

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nickrf732
The prisoner'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.

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

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Tutankamon
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.

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solotronics
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

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fiatjaf
All protocols of the world were thought with "game theory" in mind. They just
didn't call it by that fancy name.

~~~
solotronics
In a way but I believe it is less direct in other examples. TCP was not built
in a way with game theory in mind to give reward to the participants. I
believe BTC will thrive because the users and miners are incentivized to
strengthen and enforce the system instead of attack it, this was an important
and purposeful part of the design.

