Gaming Bitcoins
This article paints bitcoin and the competition between mining pools as a version of the prisoners’ dilemma. Mining pools race each other to “mine” bitcoins by writing to the bitcoin blockchain. With money on the line, many mining pools have resorted to shady tactics, such as initiating DDoS attacks on competitors, giving an advantage over them. Each mining pool therefore has 2 strategies: invest their resources in increasing their own compute power or invest their resources in attacking competitors. Both mining pools in this theoretical prisoners’ dilemma would be better off if they increased their compute power, but if one increases their compute power and the other attacks, the attacking pool enjoys a monopoly over the blockchain. However, if both pools attack, neither gets to mine any bitcoins. The payoffs vary based on the size of the mining pools, i.e. a smaller mining pool may have increased incentive to attack a larger pool. The expected outcome of this game is that attacks are prevalent and the functional compute power is only a fraction of its total capacity.
I believe this is a very good model to view the bitcoin world from, although there is some discrepancy with the expected outcome and the real world. The author states that only a handful of the large mining pools experienced attacks, different from the expected outcome of the game. This is likely due to the fact that these attacks are illegal, and mining pools could get in serious legal trouble from these attacks. Obviously this is a simple model to help explain the current state of mining pools, but if an accurate model was to be made, I would adjust the payoffs of attacking based upon predicted legal risk. This could better explain mining pool behavior, and allow for accurate prediction of the future.
In class, we discussed the prisoners’ dilemma, and explored the expected outcomes based upon changing payoffs. In a more general sense, cryptocurrency ties in very closely with game theory overall, due to its economic nature. Game models could be thought of for a variety of cases, including which currency to mine, which blockchain to write to, and even which coins to attempt to mine. Cryptocurrency is a prime example of a network, and an interesting one at that. Miners are connected together, but do not know each other. Competing miners can be “enemies” and not even know it. I foresee many interesting studies being performed upon cryptocurrency in the future.