Lecture
Game Theory in Bitcoin
- An introduction to basic Game Theory concepts and how we can use them to analyze Bitcoin
Slides
Ch3.4 Overview
Fundamentals of Game Theory
- Who are the players?
- What actions are available to them?
- What is the timing of their interactions?
- What are the payoffs as a result of their interaction?
Are the players engaged in a perfect information game in which everyone sees the state of the game and the state of all other players?
- if players cannot see what other players are doing, they have to assume that they are doing anything possible to gain rewards in the game
Are there sunk costs to play in the game?
- this creates lock-in and incentivizes players to keep playing
Are there variable rewards for playing the game?
- this incentivizes players to keep playing because they don't know when they might win
Strategy
- the actions players can choose in a game
Dominant Strategy
- the best action a play can take, regardless of the actions of other players
Mechanism Design
- designing systems where incentives for players create desired outcomes.
Good cryptoeconomic protocol design makes following the protocol a dominant strategy.
Bitcoin mechanism design goals
- censorship resistant: all valid transactions are processed
- reversion resistant: no incentives to try to change the state of the network
Recommended Resources
Cryptocurrency Game Theory - A helpful guide by BlockGeeks.
Game Theory and Blockchain - +1 for Matthew Finestone.