Do you know any game theory tucked inside Bitcoin?

[RainbowKun]

Game theory:https://en.wikipedia.org/wiki/Game_theory
Now we learn and think about Bitcoin everyday, discussing mainly technology involved, its price and all sorts of news related. I’ve been studying Bitcoin in the last few years, too. I posted my opinions on bitcointalk to communicate with you.

Though my notion is relatively boring since it doesn’t belong to some interpretation of specific technical matter or news related to Bitcoin, and easily sparks conflict and controversy in that no standard answers ever exist, still I insist on writing it down because I put a high valuation on future. Things that Satoshi’s creating Bitcoin bring to us are definitely not limited to what we’ve seen today, it’ll refine human society where earth-shaking changes would occur consequently in the coming one to two decades.

In terms of the knowledge contained in Bitcoin, game theory is a prominent one (I’m sure many of you have already thought about it). It's not an exaggeration to say that the emergence of Bitcoin has much to do with game theory for the reason that the network of Bitcoin is dotted with knowledge from game theory. That deserves plenty attention in constructing cryptocurrency system: how to render participants of different roles in an economy to balance the interest in dynamic game and constantly enhance the flourishing of this economy.

The development of blockchain projects lies in the design of the mechanism behind, esp, economic regulation, such as the launch and deflation of tokens. And that actually rests with the knowledge system of game theory. I’m not a specialist in that theory, just to put forward these questions to trigger your radiant thinking over Bitcoin based on them.

So, what is game theory?

Game theory is a new embranchment of modern mathematics and an important subject of operations research, covering many ideas in economics. It revolves around the interaction among formulated incentive structures, mathematical theory and method of competition. It takes individual predicative behavior and actual behavior into consideration and explore their optimized strategy. It refers to the action of two or more people, by taking advantage of the strategy of the opposite party, to adjust their own tactics and finally win victory. Briefly, in an interactive game, while you’re choosing your own approach, you have to predict others’ decisions. Similarly, others’ are thinking over yours as well. It’s a multi-game process where everyone strives to maximize his own interest.

There are multitudes of classic cases and professional application situations in game theory, such as prisoner's dilemma and Nash equilibrium, you can learn more from the Internet. Then how is game theory applied to Bitcoin? For Bitcoin, the most typical case of game theory is Byzantine problem, which is used for the reference in making sure that things go smoothly when trust doesn’t exist among these participants in distributed network.

Byzantine problem, to be short, is about coordination. Byzantines attempt to conquer a city, they need to reach a consensus on the strategy adopted. However, renegades hidden in those commanders may deliver wrong orders, they spread false information to stop tasks from being correctly executed. Byzantine problem is about how to make all officers obey the same plan even though those people in different places don’t trust each other.

How did that problem exist and get settled in Bitcoin network? Bitcoin introduced the wisdom of game theory to its network, with ingenious economic incentives, it succeeded in harmonizing the interest of all participants. When it comes to miners who are safeguarding the healthy network, Bitcoin invented a kind of balance among them without the help of mutual trust by employing diversified tactics in the incentive mechanism. Provided that all miners accept the same strategy, then each of them can get the biggest reward. That guarantees the correct operation of network, decreases the final attack vectors and the possible motivation of attack.

Bitcoin is a distributed network with no centralized server, protected by miners. Miners’ verifying the effectiveness of transactions is crucial for the whole network to function normally. In the economic system of Bitcoin, miners are encouraged to do the right thing because on condition that they produce invalid blocks, their colleagues would simply ignore these blocks and continue to work in the parent chain. Hence, those who do evil things have no any profit at all, completely a waste of time, electricity and hashrate. To grab the maximum benefit, most of the miners would choose the stablest state. That maintains the steadiest status in network. Byzantine problem is obviously no threat to Bitcoin system.

Let’s have a look at the attack Bitcoin might encounter from the angle of game theory. If an evil group tends to attack Bitcoin network or temper with its date, the only way to realize that is collecting 51% hashing power, implying large amount of money is needed for the purchase of lots of mining device and sufficient electricity is required for the running of those devices. The cost is tremendously expensive.

If someone really has the wealth to do things above, I don’t think he’ll choose to do that in view of the fact that his success in attacking Bitcoin network would devalue Bitcoin instantly and gravely for the premise of the existence of Bitcoin is the temper-proof feature of data in blockchain. Otherwise, the value of Bitcoin would go zero directly, then the one who suffers biggest loss is absolutely hacker who spent great cost in attack.

At last, those attackers would figure out that adhering to the rules of this system is the best way to gain profit. That’s the function of game theory in Bitcoin.

Undoubtedly, the advantage game theory contains is far more than what I mentioned above, it is one of the core thought in Bitcoin, which is also widely applied to the design of economy system and management fabric of other blockchain projects. That’s why I’ve been emphasizing it. Bitcoin is not merely a kind of technology or currency. Something more valuable is the thought and philosophy behind Bitcoin, they lead us to forge ahead towards a new human civilization.

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[DooMAD]

I've seen situations arise where people have attempted to cheat other aspects of game theory relating to Bitcoin.  In the past, some have spoofed their full node client version or name to make it appear as though it is a different client.  This was an, almost geopolitical, attempt to manipulate consensus, but relating to demographics instead of a physical locale.

[ranochigo]

Bitcoin is a distributed network with no centralized server, protected by miners. Miners’ verifying the effectiveness of transactions is crucial for the whole network to function normally. In the economic system of Bitcoin, miners are encouraged to do the right thing because on condition that they produce invalid blocks, their colleagues would simply ignore these blocks and continue to work in the parent chain. Hence, those who do evil things have no any profit at all, completely a waste of time, electricity and hashrate.

Nodes will reject invalid blocks, no matter how many miners are complicit in that. Every full node in the network validates both the transaction as well as the blocks.

I've seen situations arise where people have attempted to cheat other aspects of game theory relating to Bitcoin.  In the past, some have spoofed their full node client version or name to make it appear as though it is a different client.  This was an, almost geopolitical, attempt to manipulate consensus, but relating to demographics instead of a physical locale.

How would the UA of the clients affect anything?

Actually, with regards of a 51% attack, it depends. A state sponsored attack doesn't care about the profits or the economics of it and the seizure of mining sites should suffice for a significant proportion of the hashrate that can be used for an attack. Whether it makes sense for them to execute an attack like this, that is specific to each individuals. Pools can execute a 51% attack as well, the profits from an attack by a rogue pool far outweighs the costs. That is why Ghash.io faced a huge controversy in the past.

[DooMAD]

I'm not sure what event you're talking about, but is it related with user activated soft fork (UASF) or user activated hard fork (UAHF)?

A little earlier than that.  When all that controversy first arose over the "Bitcoin XT" client.  I can see why it was rejected by the community, but still felt a small minority went about it in a decidedly underhand and deceptive way.  Deliberately fudging the numbers to alter perceptions and such.

[ranochigo]

A little earlier than that.  When all that controversy first arose over the "Bitcoin XT" client.  I can see why it was rejected by the community, but still felt a small minority went about it in a decidedly underhand and deceptive way.  Deliberately fudging the numbers to alter perceptions and such.

It's quite trivial to fool the full node trackers (bitnodes, etc) with your UA. You don't even have to run a node to do so.

Might be an attempt to fool those that don't know better, but nodes generally don't represent the sentiments of the community. That is precisely due to the ease of manipulating it, which is why most people didn't really gave much attention to it. Except those with a certain agenda of course .

[maisao1991]

I have been a member of cryptocurrency for about two years and in my own opinion BTC is a game where the person who waits patiently will be the winner. Because prices go up and down and never have an uptrend forever, there will be downs. The rule of the game in this market is to be patient and patient. my own opinion.

[RainbowKun]

If someone really has the wealth to do things above, I don’t think he’ll choose to do that in view of the fact that his success in attacking Bitcoin network would devalue Bitcoin instantly and gravely for the premise of the existence of Bitcoin is the temper-proof feature of data in blockchain. Otherwise, the value of Bitcoin would go zero directly, then the one who suffers biggest loss is absolutely hacker who spent great cost in attack.

As long as the attacker is being rational. It's different case if the attacker don't care about loss-loss situation, although i think it's very unlikely.

Yes, this is why I think Bitcoin is so powerful. In the Bitcoin ecosystem, it is not only the Bitcoin code that plays a role, but also the game theory's grasp of human nature. Game theory takes human nature into consideration in the Bitcoin system. When human beings do anything, they generally seek to maximize their benefits. All follow rationality. And rarely do things that are harmful to others and not good for oneself.

[Aliceooo78]

Let’s have a look at the attack Bitcoin might encounter from the angle of game theory. If an evil group tends to attack Bitcoin network or temper with its date, the only way to realize that is collecting 51% hashing power, implying large amount of money is needed for the purchase of lots of mining device and sufficient electricity is required for the running of those devices. The cost is tremendously expensive.

If there is a malicious unit or a certain individual who is not hindered by profit or cost and decides to attack the Bitcoin network. It is possible to destroy it simply, but don’t assume that no one ignores your attack.

Bitcoin miners and nodes distributed around the world will quickly reach a consensus in the event of an absolute crisis, and Bitcoin procedures and protocol settings will quickly respond to timely revisions and adjust the attack. In addition to the high cost, there is a global consensus, so I think this kind of behavior that harms others and disadvantages oneself cannot be realized.

[RainbowKun]

The game theory applied to  Bitcoin (word's first symbol  is a capital) is all about decision making among miners - i.e. what  transactions include into blocks, what chain to continue etc. The good reading on this is ^{over there.}

The game theory applied to bitcoin (word's first symbol  is the  lowercase letter)   is all about decision making among bulls and bears.  If you  took to  mathematics  like a duck to water then read the   following paper ^{"Establishing cryptocurrency equilibria through game theory"} to learn how it works.

Thank you for your wonderful reply and information. To be honest, my math is really average, and I can't handle complicated calculations. Now I can only think about the game theory knowledge in bitcoin network from the ideological level. I still have too much knowledge to keep learning.

[Liamttw]

Bitcoin game theory and incentive system can prevent malicious attacks on the Bitcoin network system. When having 51% of the computing power, can obtain high profits by performing the mining of the bitcoin system normally. The introduction of game theory enables the network to operate correctly and directs the behavior of participants to the desired result. By using incentive mechanisms, bitcoin successfully coordinated the interests of untrusted actors in a distributed network.

[RainbowKun]

Bitcoin game theory and incentive system can prevent malicious attacks on the Bitcoin network system. When having 51% of the computing power, can obtain high profits by performing the mining of the bitcoin system normally. The introduction of game theory enables the network to operate correctly and directs the behavior of participants to the desired result. By using incentive mechanisms, bitcoin successfully coordinated the interests of untrusted actors in a distributed network.

Let’s have a look at the attack Bitcoin might encounter from the angle of game theory. If an evil group tends to attack Bitcoin network or temper with its date, the only way to realize that is collecting 51% hashing power, implying large amount of money is needed for the purchase of lots of mining device and sufficient electricity is required for the running of those devices. The cost is tremendously expensive.

If there is a malicious unit or a certain individual who is not hindered by profit or cost and decides to attack the Bitcoin network. It is possible to destroy it simply, but don’t assume that no one ignores your attack.

Bitcoin miners and nodes distributed around the world will quickly reach a consensus in the event of an absolute crisis, and Bitcoin procedures and protocol settings will quickly respond to timely revisions and adjust the attack. In addition to the high cost, there is a global consensus, so I think this kind of behavior that harms others and disadvantages oneself cannot be realized.

Yes, game theory has many application scenarios in the Bitcoin network. It is the knowledge of game theory that balances the different stakeholders in the Bitcoin network. Let participants from different backgrounds work together for a unified goal without trusting each other.

[franky1]

User nodes can delete blockchains. change their user agent.. .. all meaningless
they just become useless to the network

the actual economic nodes (exchanges/merchants) that people actually spend funds with are more important. whatever direction, block, transaction format economic nodes choose:
pools follow them else pools cant spend their rewards/convert their rewards on exchanges.
Users cant spend funds if merchants/exchanges are not on the same ruleset so users follow merchants/exchanges

so the merchants/exchanges are the generals(making orders). pools are the sergeants(organising the grunts). and users are the grunts

[RainbowKun]

User nodes can delete blockchains. change their user agent.. .. all meaningless
they just become useless to the network

the actual economic nodes (exchanges/merchants) that people actually spend funds with are more important. whatever direction, block, transaction format economic nodes choose:
pools follow them else pools cant spend their rewards/convert their rewards on exchanges.
Users cant spend funds if merchants/exchanges are not on the same ruleset so users follow merchants/exchanges

so the merchants/exchanges are the generals(making orders). pools are the sergeants(organising the grunts). and users are the grunts

I have been in the cryptocurrency world for a long time and this is what we might call a game, namely a game that will test our patience in doing business to get such sweet results for the future and I don't think this is anything new in the world. an investment that we will make and all types of investments have their respective games and it depends on us whether we are able to be patient or not by leaving for good from the business

In the game of the crypto world, participants will definitely choose the option that maximizes their own interests, which is determined by the rules of the game. When the collective benefit is maximized, so will the individual benefit. Therefore, everyone tends to maintain the stability of the entire network, rather than destroy the network.

[ARTURVH]

Although I don’t understand Bitcoin technology, I have a very clear understanding of the relationship between Bitcoin and game theory after reading this post.Also know the consensus and Byzantine problem.How Bitcoin can avoid 51% computing power attacks because of consensus. I believe that Mr RainbowKun is a wise person.This is about the high cognition of Bitcoin technology.Also is the thought and philosophy behind Bitcoinis.These require knowledge of multiple disciplines.

[leea-1334]

In the game of the crypto world, participants will definitely choose the option that maximizes their own interests, which is determined by the rules of the game. When the collective benefit is maximized, so will the individual benefit. Therefore, everyone tends to maintain the stability of the entire network, rather than destroy the network.

Very interesting to read your posts more and more RainbowKun, I put some merit to show appreciation. I wish I have the wits and means of writing to explain some of these thoughts, in our local circles we do discuss a lot and it is similar I guess to a form of game theory where the simplest equation is that "if everybody plays nice everybody wins something" but "if just one person does not, then everybody loses a bit".

And this works a lot like during toilet paper time, when there was enough but just a few greedy people made it so most people did not have enough,,, thankfully Bitcoin is far too decentralized for that type of angle to work out and collective benefit is still significantly big even though not everybody plays nice.

[RainbowKun]

In the game of the crypto world, participants will definitely choose the option that maximizes their own interests, which is determined by the rules of the game. When the collective benefit is maximized, so will the individual benefit. Therefore, everyone tends to maintain the stability of the entire network, rather than destroy the network.

Very interesting to read your posts more and more RainbowKun, I put some merit to show appreciation. I wish I have the wits and means of writing to explain some of these thoughts, in our local circles we do discuss a lot and it is similar I guess to a form of game theory where the simplest equation is that "if everybody plays nice everybody wins something" but "if just one person does not, then everybody loses a bit".

And this works a lot like during toilet paper time, when there was enough but just a few greedy people made it so most people did not have enough,,, thankfully Bitcoin is far too decentralized for that type of angle to work out and collective benefit is still significantly big even though not everybody plays nice.

Thank you very much for your support and recognition of these articles. I am trying my best to make some thinking output in my own way. I have always believed that the greatness of Bitcoin is not just its technology itself, but more importantly the ideas behind these technologies. Bitcoin itself is full of wisdom, and game theory is just one of its core supporting theories. Game theory realizes a community of interests among participants in an economy, and drives all participants to maintain the economy.

[RainbowKun]

This is in terms of bitcoin (as software and server) security
But from the point of view of protecting Bitcoin (as money ) from monopoly and controlling it, it remains a problem
Because we are now moving from the idea of ​​decentralization to centralization
We need to protect it from people who don't belong to humanity
Anyway, they are idiots they will monopolize it until it becomes worthless ( And this is a theory maybe )

I believe that Bitcoin will become more and more decentralized in the future. Although there are now many big players monopolizing Bitcoin. But I believe that as the global consensus of Bitcoin becomes stronger and stronger, more and more users will hold Bitcoin. Bitcoin will become increasingly decentralized. In this way, there is even less power to control Bitcoin.