Employing Game Theory in Cryptocurrency Security Design
According to this (https://www.bitcoinmarketjournal.com/game-theory-behind-ethereum/) article published in an online cryptocurrency news journal, the foundation for the functionality and security for the cryptocurrency Ethereum is a system designed using game theory. Much like the way the prisoner’s dilemma is engineered to always steer players towards confess (which is the only logical choice in that matrix), the back end of Ethereum is constructed to incentivize good behavior on the part of participants in the system and disincentivize malicious activity, thus “[ensuring] all the players are aligned to keep the network secure.” This is especially critical in the case of a decentralized cryptocurrency like Ethereum, which by design lacks any sort of central control mechanism or entity.
Very basically, the Ethereum system is a collection of decentralized server nodes “storing the entire history of transactions” associated with the cryptocurrency. Each node is operated independently of the others and in order for a new transaction to be logged in the system’s history chain, every node in the system must agree to validate the new data. Importantly, anyone with enough ability could “spin up a malicious node,” meaning each node in the system, much like the prisoners in the Prisoner’s Dilemma, “cannot trust” any of the others.
To facilitate security and good behavior, Ethereum is built with in such a way that the system keeps “it in your [and all users’] best interest to keep the game running well.” One such element of the system is its new “Proof of Stake” system for ETH node holders, which requires a node operator to stake a large sum of the cryptocurrency (and $50,000 worth currently) on the node’s continued compliant operation, with the punishment for malfeasance amounting to the disoperation of the node and the surrender of the stake. Users also earn more of the currency for operating a validator node in compliance with the system rules, providing both a positive incentive for good behavior and a negative incentive away from bad behavior.
Furthermore, the article explains that Ethereum is also protected from a type of hostile takeover where a single user buys up a voting majority of the network’s nodes (51% or more) by game theory. This would allow a single user to dictate whatever they wanted onto the blockchain and would therefore ruin the security and fairness of the system (which is meant to operate in a decentralized manner). Buying up a controlling share of nodes would be extremely expensive, but it would be possible. However, in doing so, the hostile entity would cripple confidence in the currency and thus crash its value. Doing so would amount to a massive loss for that hostile entity since ETH nodes must be staked with ETH. Thus, the system again makes malicious behavior undesirable purely by its structure.
The author of this post is no fan of cryptocurrency in general, however this case is a very compelling and interesting use of game theory in the modern world. The actual article linked in this post, which appeared in a crypotrader journal several days ago, fawns over the genius of the Ethereum system to a degree that makes it appear completely impervious to destructive behavior, but this is to be expected from such a publication. The piece further reads like it is very desperately trying to convince the reader that ETH is a safe and stable investment option. However, even if Ethereum’s game theory-based internal structure is not as impervious to malfeasance as the article makes it seem, it is still a very interesting study into the use of game theory to drive behavior.