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ROOTS OF THE TOKEN ECONOMY

THE MAGIC SAUCE

MODELS AND ATTACKS

APPLICATIONS

Cryptography for Economists

Economics for Cryptographers

Open
Decentralized
Participants are rational (almost)
Large networks
No Censorship
Nodes speak freely
Claims are unforceable

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THE ROOTS OF THE TOKEN ECONOMY

THE MAGIC SAUCE

MODELS AND ATTACKS

APPLICATIONS

NETWORK

+ CRYPTOGRAPHY

+ GAME THEORY

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NETWORK

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CRYPTOGRAPHY

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But we discovered something. A strange property of the physical universe that we live in.

The universe believes in encryption.

It is easier to encrypt information than it is to decrypt it.

Julian Assange

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Cryptographic Tools

PUBLIC-PRIVATE KEYS

(SIGNATURES)

HASHING

(HISTORY)

GAME THEORY

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Main Components

PLAYERS - GAME - OUTCOMES

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“A Christmas Truce between Opposing Trenches” Illustration by AC Michael.

Published in The Illustrated London News, January 9th 1915.

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British Army vs German Army

10

-10

WAR

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Attack

Don't attack

(0, 0)

British Army vs German Army

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Nash Equilibrium

In a non-cooperative game involving two or more players, in which each player is assumed to know the strategies of the other players, no player has any incentive to change his own strategy.

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Attack

Don't attack

(0, 0)

British Army vs German Army

on Christmas Day

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Game Changers

Clear communication
Game Repetition
Non-zero sum game (win-win)

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Can I trust the players?

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Bitcoin Hashrate Distribution, August 2017

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Security Models

Honest mayority
Uncoordinated mayority
Coordinated mayority
Institutions

(scenarios)

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THE ROOTS OF THE TOKEN ECONOMY

THE MAGIC SAUCE

MODELS AND ATTACKS

APPLICATIONS

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At the heart of every blockchain are consensus algorithms.

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"The purpose of a consensus algorithm, in general, is to allow for the secure updating of a state according to some specific state transition rules, where the right to perform the state transitions is distributed among some economic set."

Vitalik, 2014

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How can we achieve consensus?

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2 people in prison, no communication, if responding equally they get free.

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14237 59049 76241 81259 90215 100000 132156 157604

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14237 59049 76241 81259 90215 100000 132156 157604

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If people get rewarded to agree on something, without giving them the possibility to exchange directly, they will look for characteristics which leads to a single common answer and they believe everyone follows the same rules, which in practice actually happens.

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Thomas Schelling

Game theory economist

1921- 2016

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You and other person are in NY

you can't communicate,

but if you find each other you get a present.

Where and when do you go?

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Central Station - 12pm

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Application in Proof of Work?

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Blockchain A

Blockchain B

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Which blockchain to choose?

	You choose Block A	You choose Block B
Others choose Blockchain A		0
Others chain Blockchain B	0

Reward - main chain

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Which blockchain to choose?

	You choose Block A	You choose Block B
Others choose Blockchain A		0
Others chain Blockchain B	0

Reward - main chain

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On-chain applications need to know the

off-chain truth.

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Centralised Oracle

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Webpages, experts, sensors

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Central point of failure and control.

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Decentralised Oracle

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Wisdom of the crowd.

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Schelling Coin Concept.

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Schelling Coin is a mechanism based on the game, that if you choose the answer, which everyone else has chosen, you get a Schelling.

Hence the Schelling Point will be the truth.

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"The truth is arguably the most powerful Schelling point out there. Everyone wants to provide the correct answer because everyone expects that everyone else will provide the correct answer and the protocol encourages everyone to provide what everyone else provides."

Vitalik, Schelling Coin Protocol 2014

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Who won the US election?

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Choose Hillary or Trump
If you choose what the majority says you get a Schelling.

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Trump as being the truth is the Schelling Point.

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But ...

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Bribing attacker model.

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Same game - New rules.

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Choose Hillary or Trump
If you choose what the majority says you get a Schelling.
If you choose Hillary, but the majority chooses Trump you'll get the bribe.

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If you choose Hillary you win in any case.

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Costs vs. Budget

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Bribing attacker model in Proof of Work.

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Without attack.

	You choose Block A	You choose Block B
Others choose Blockchain A		0
Others chain Blockchain B	0

Reward - main chain

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In the attacker model.

	You choose Block A	You choose Block B
Others choose Blockchain A		Bribe
Others chain Blockchain B	0

Reward - main chain

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In the attacker model.

	You choose Block A	You choose Block B
Others choose Blockchain A		Bribe
Others chain Blockchain B	0

Reward - main chain

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What about PoS?

... to be continued

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THE ROOTS OF THE TOKEN ECONOMY

THE MAGIC SAUCE

MODELS AND ATTACKS

APPLICATIONS

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21 million?
12,5 BTC reward?
Halving?
10 minutes?
ASICS?
51% attack?
...

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21 million?
12,5 BTC reward?
Halving?
10 minutes?
ASICS?
51% attack?
...

PLAYERS - GAME - OUTCOMES

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Mechanism Design

21 million?
12,5 BTC reward?
Halving?
10 minutes?
ASICS?
51% attack?
...

PLAYERS - GAME - OUTCOMES

Cryptoeconomics 101

Stablecoins

Cryptoeconomics meet-up, 07/09 madrid

Antonio GonzaLO & Sandra Becker

& Laurent Hardy

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Cryptoeconomics 101

ANTONIO GONZALO & SANDRA BECKER

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ROOTS OF THE TOKEN ECONOMY

THE MAGIC SAUCE

MODELS AND ATTACKS

APPLICATIONS

Cryptography for Economists

Economics for Cryptographers

Open

Decentralized

Participants are rational (almost)

Large networks

No Censorship

Nodes speak freely

Claims are unforceable

ethereummadrid

ethereummadrid

THE ROOTS OF THE TOKEN ECONOMY

THE MAGIC SAUCE

MODELS AND ATTACKS

APPLICATIONS

NETWORK

+ CRYPTOGRAPHY

+ GAME THEORY

ethereummadrid

ethereummadrid

NETWORK

ethereummadrid

CRYPTOGRAPHY

ethereummadrid

But we discovered something. A strange property of the physical universe that we live in.

The universe believes in encryption.

It is easier to encrypt information than it is to decrypt it.

ethereummadrid

Cryptographic Tools

PUBLIC-PRIVATE KEYS

(SIGNATURES)

HASHING

(HISTORY)

GAME THEORY

ethereummadrid

Main Components

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ethereummadrid

British Army vs German Army

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British Army vs German Army

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Nash Equilibrium

In a non-cooperative game involving two or more players, in which each player is assumed to know the strategies of the other players, no player has any incentive to change his own strategy.

ethereummadrid

British Army vs German Army

ethereummadrid

Game Changers

Clear communication

Game Repetition

Non-zero sum game (win-win)

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Can I trust the players?

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ethereummadrid

ethereummadrid

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Security Models

Honest mayority

Uncoordinated mayority

Coordinated mayority

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THE ROOTS OF THE TOKEN ECONOMY

THE MAGIC SAUCE

Game theory economist