Understanding the Game Theory Behind Ethereum
https://www.bitcoinmarketjournal.com/game-theory-behind-ethereum/
I recently read this article on how game theory helps secure blockchains. It solves a question I have had for a long time: since blockchains are decentralized in nature, how do people guarantee that their transactions are secured? Growing up in the era during which web2.0 developed, I am used to the existence of a central authority to mediate actions on the Internet. This article points out that by introducing Proof of Work and Proof of Stake, blockchains incentivize users to behave honestly, which leads to a more desirable payoff. Even with the possibility of the “51% attack”, people are incentivized to not attack because they want to keep a high value of the cryptocurrency. The users have no incentive to deviate from the optimal outcomes. It is fascinating that each decentralized individual is incentivized by the mechanism of game theory and collectively acts honestly.
In economics, people talk about the market economy versus the command economy a lot. Personally, I think web3, with blockchain technology, is analogous to the market economy. People are “regulated” by an underlying mechanism. Blockchains offer unique chances to study graph theories and game theories. I am curious to see more applications of game theory in blockchains. On the other hand, I think it is important to note that game theories, like the market, can have failures in predicting people’s behaviors. I am also curious to see more examples of that, and how blockchains prevent those risks.