CRYPTOECONOMICS#1

DESIGN FOR THE DECENTRALISED WORLD Lisbon 08/2018

 

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INCENTIVE STRUCTURES TRANSFORM SOCIETY.

INTRO

 

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WHO AM I

2010 MASTER IN ECONOMIC SCIENCE - STATISTICS

2015  DISCOVERED THE WORLD COMPUTER IDEA - ETHEREUM

2016  CONNECTING WITH LIKEWISE MINDS - COMMUNITY ETHEREUMMADRID

2017  SPREADING THE IDEA - TEACHING CONCEPTS (BITCOIN & ETHEREUM)

2018  COLLECTIVE RESEARCH - CRYPTOECONOMICS.HUB WITH LAURENT

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INTRO

 

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INTRODUCTION

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Vlad Zamfir, Ethereum Foundation 2015

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CRYPTOECONOMICS

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IS A FUNCTION OF ALREADY EXISTING INFORMATION.

 

TOKEN & PREVILIGES

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CRYPTOELEMENTS

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CRYPTOGRAPHY

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HOW TO PROOVE IDENTITY

 

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HOW TO PROOVE CORRECTNESS

 

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HOW TO PROOVE TIME HAS PASSED

 

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GAMETHEORY

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JOHN NASH

MATHEMATICIAN

1928-2015

 

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Cooperate Defect
Cooperate  1,1 -1,2
Defect 2,-1 0,0

You

Your game partner

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Boxing  Cooking
Boxing 1,2 0,0
Cooking 0,0 2,1

Cooking lover

Boxing lover

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Hawk  Dove
Hawk (50-100)*0.5 = -25 50
Dove 0 (0.5*50)-10=15

Attacker

Opponent

V= 50     D= -100     T= -10

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MECHANISMDESIGN

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AUCTIONDESIGN

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AUCTION + STAKING

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BEHAVIOURALECONOMICS

ULTIMATUM GAME

You get 100€
​You have to offer something to your partner
If your partner accepts you get the remaining part
If your partner reject both get nothing

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SURPRISINGLYPOPULAR

Ultimatum Game

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NETWORKSCIENCE

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METCLAFE'S LAW

PROBLEMS OF OVER-CONNECTON

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HIGH SPEED CONTAGION

 

 

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NO INNOVATION

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RESEARCHGROUPS

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CONSENSUSPROTOCOLS

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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LET'S PLAY A GAME...

 

14237 59049 76241 81259 90215 100000 132156 157604

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14237 59049 76241 81259 90215 100000 132156 157604

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THOMAS SCHELLING

GAME THEORY ECONOMIST

1921-2016

 

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ONCHAIN APP'S NEED TO KNOW THE OFF-CHAIN TRUTH.

 

Oracles - central point of failure and control

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Oracles decentralised

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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.

 

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Who won the election?

 

 

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Choose Hillary or Trump

 

If you choose

what the majority says

you get a Schelling.

 

 

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Hillary

Trump

Hillary 

Schelling

0

Trump

0

Schelling

Majority

You

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Trump as being the truth

is the Schelling Point.

 

 

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Centralisation

 

 

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Energy Waste

 

 

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1. Randomly choose a validator based on the proportional stake invested from the group of already existing validators.
2. The chosen validator creates a block which points to some previously created block.
3. The chosen validator gets the block reward and the transaction fees.

BF based

 

 

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1. Randomly choose a validator based on the proportional stake
invested from the group of already existing validators.
2. The chosen validator proposes a block
3. All the other validators vote yes if they think it is a valid block
4. If ⅔ or more voting power votes yes, the block is included in the blockchain. Otherwise a new proposer is chosen and we go to 1.
5. The chosen validator gets the block reward and the transaction fees

Chain based

 

 

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Rich get Richer

 

 

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Low participation

can cause centralisation

 

 

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GAMEATTACKS

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SAME GAME

NEW RULES

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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Hillary

Trump

Hillary 

Schelling

Attacker 

Trump

0

Schelling

Majority

You

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If you choose Hillary

you win in any case.

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Costs = 0

Budget = ?

 

 

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Crucial to the success of any PoW attack

is the amount of hashing power.

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Carlos wants to buy an iPhone from Carla for 1 BTC, but he actually does not want to spend this money and tries a double spend attack.

 

 

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What should Carla do to protect herself from a double spend attack?

 

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Carla should wait for

a certain amount of confirmations.  

 

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Carla defines 2 transactions are needed

before she sends the iphone.

 

 

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Carlos creates a secret chain including a new transaction which is going to transfer the money back to him.

 

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Transaction: Carlos to Carla 1BTC

1 confirmation 

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2 confirmations 

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Transaction: Carlos to Carla 1BTC

1 confirmation 

2 confirmations 

Transaction: Carlos to Carla 1BTC

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What are the reasons for doing such an attack?

 

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One double spend, which only you can do.

How high can this be?

 

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Destroying Bitcoin so that the confidence in the currency hence its value will drop massively.

Competitor in crypto or fiat (government)

 

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To go short on Bitcoin.

 

 

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What are the risks of an attack?

 

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In the case of no attack:

You can effectively get 100% of the mining reward.

 

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What is more beneficial to do an attack

or to play by the rules?

 

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The reason for doing a censorship attack in blockchains is similar to those in any other system, to exclude certain people/entities as well as blackmailing.

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We want to censor any transaction from Alex.

 

 

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1. Strategy

Tell the network to not include the transaction from Alex.

 

 

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2. Strategy

We have 51% hashing power - we can do a punitive forking.

 

 

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3. Strategy

If we have less than 51% we can do  

Feather Forking.

 

 

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Let q equal the proportion of mining power you have, 0 < q < 1

Let k = 1: You will give up after 1 confirmation (one additional block)

Chance of successfully orphaning (invalidating) the block = q2

If q = 20%, then q2 = 4% chance of orphaning block.

 

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Now you are a miner and

you have these 2 options:

 

 

 

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1. EV(include) = (1 - q2) * BlockReward + Alex's tx fee

2. EV(don't include) = BlockReward

 

 

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Unless Alex pays q2 * the BlockReward in fees for his transaction, other miners will mine on the malicious chain

4% * 12.5 BTC = 0.5 BTC

 

 

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Crucial to the success of a PoS attack

 is the amount of voting power.

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How would this look like in PoW?

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STATECHANNELS

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TOKENMODELS

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TOKEN SALES

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STABLECOINS

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TOKEN CURATED REGISTERIES

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REPUTATION

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Vlad Zamfir, Ethereum Foundation

BLOCKCHAIN ARE NOT TOYS.

THEY AREN'T GET RICH QUICK SCHEMES.

THEY AREN'T A SHONY TOOL FOR AUTOMATING YOUR BUSINESS PROCESS.

THEY ARE POWERFUL TECHNOLOGY THAT HAVE THE POTENTIAL TO DO UNSPEAKABLE HARM.

BUT THEY CAN ALSO PROVIDE THE BASIS FOR SOLUTIONS TO SERIOUS GLOBAL PROBLEMS.

CRYPTOECONOMICS

By Sandra Becker

CRYPTOECONOMICS

I gave a presentation at the block cafe in Lisbon https://www.youtube.com/watch?v=_1S2VwTpRBk&feature=youtu.be

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