In this class, a major and applicable concept we learned was Game Theory. Tying it to something that is quite relevant in today’s society would be Crypto. But how do these two topics collide? The fact that the Bitcoin blockchain was designed in a way that enforced a Nash Equilibrium by default. An actor of this system would be a a miner. The system incentivizes these people to follow the rules by reinforcing their actions with rewards. If the miner decides to not follow the rules, miners will waste their power and time.
If a miner decides to defect and create an invalid block on the blockchain, then the other miners would simply ignore the “bad block” to keep on doing their work. This is how the blockchain system implies a Nash Equilibrium.
Another example of game theory would be when white hat hackers stole $85MM worth of cryptocurrency to “save” it from other thieves that stole Ethereum. They realized that if they didn’t act, then the losses would spread. These white hat hackers also stole it to send the stolen funds back to the original wallets. This would be an example of incentives to cooperate. Even though the white hat hackers could have stolen it for themselves (the rational play), they took the hit and gave it back.
Sources
https://medium.com/hackernoon/beginners-guide-to-game-theory-31e3e6adcec9
https://mashable.com/article/ethereum-stolen-white-hat-group-rescued
One reply on “Game Theory and Crypto”
Interesting example. This shows that utilizing nash equliibrium would be an effective techinque to affect people’s behaviours without introducing a centralized authority.