# Encryption currency and game theory

Editor’s note: originally from blue fox notes (micro signal: lanhubiji Karnjanaprakorn), the author, the daily planet authorized reprint.

Objective: to construct the mechanism of system of implicit in the game theory of encryption currency, such as the Nash equilibrium self strengthen mechanism behind the design of bitcoin, to encourage participants to network with positive behavior. The design of a new crypto currency or block chain project must also be in-depth consideration of game theory, design a self operating mechanism to encourage positive behavior. Finally, mechanism design of persistent block chain project depends on its back. This is the most simple introduction to the game theory, suitable for beginners to read, this paper introduces the game theory is not in-depth, interested students can access to information, in-depth study, also welcomed the application you found in the study area: game on the chain in the process of the project. Author Michael Karnjanaprakorn, from medium.com, the blue fox notes public number realthinkbit translation.

“One day, each of the game theory textbooks will have a chapter on the block chain.” Naval Ravikant

To understand the block chain and encryption currency, strategy and decision-making, game theory is one of the most important concepts.

Game theory is the study of how people make decisions in a competitive environment, why make such a decision, and consider the competitors’ moves. You can take the game theory as research on strategic decision making.

But the game theory is not only about the game, in any two people must consider the rewards and consequences of the decision may, game theory is applicable. The ultimate goal is to find the specific game whether the existence of the “best” strategy.

Poker game is a very good example of game theory, because the other game player choice will affect your game. For example, when your opponent gets loose when you should be tight? (Translation: loose / tight playing style refers to the term) you should not be bluffing? You should raise or fold?

In order to further understand the game theory, the following are some of the more important basic concepts:

1. refers to a prisoner’s dilemma — completely rational individuals may choose not to cooperate, even when cooperation is in the best interests of both. This is the classic choice between self interests and common interests.

2. coordination game — a game the two sides through cooperation and benefit. No one will cheat motivation, because it leads to worse than cooperation is not the result of cooperation. For example: drivers driving on the right-hand side of the road. (Translation: only on the right country or region)

3. the free rider problem (tragedy) – everyone is trying to get the maximum benefit from the given resources, it will harm the interests of all the people. For example: environmental pollution, overfishing, marine garbage.

4. zero sum game — can only benefit from other individuals or groups of individuals or groups of loss. For example: Poker and gambling.

5. the principal-agent problem — allows agents on behalf of the client to make a decision. In this case, agents often do not consider the long-term best interests of clients, and will pursue their goals. For example: the term agent decision. Including the occupation managers, politicians and other decisions.

6. – Nash equilibrium when considering the other choice, participants had no motive to betray him has been the strategy of choice, the best results achieved at this time. For example: red light.

7. – this is the severe trigger in the non cooperative game strategy in duplicate. As long as everyone choose to cooperate, in view of the history of cooperation, will continue to choose cooperation. However, if someone betrays you, the strategy is never cooperation.

8. Schelling point – when people lack options usually communication situations. Because it looks more natural, special or related people. For example: two people meet at noon meet somewhere in New York, Xie Lin is the central station. (Translation: the central station is no two personal communication situations are most likely to choose the location. Here, the central station represents a non maximum consensus agreed in advance).

9. – (Translation: Keynes beauty quiz contest, it is said that in order to win the final contest, you may tend to guess other people’s idea of beauty, and not in the eyes of their own beauty.) The investment in a similar phenomenon, investors will have to guess how to think of other investors, not just their own ideas in mind. (Translation: This is the reason. What opinion leaders will produce influence on the market price)

10. – in a given limited rational choice, people usually follow a simple path or they have used the program, even if it is not the best choice. (Translation: This is the majority of the path dependence or prejudice, it is very difficult to break, can break the most people are not, there is a chance a person.)

11. the Byzantine Generals to avoid failure in general, all participants must agree to a unified strategy, but some participants are corrupt, or spread false information or other unreliable behavior. (this problem is by assuming the generals need decided to unify the attack or retreat, and must be decided to convey to its lieutenants. There are a certain number of traitors these hands, they may not convey the correct command).

Then the game theory is applied to the encryption currency? The design of bitcoin is a self reinforcing Nash equilibrium. It encourages participants maintain agreement, and avoid the Byzantine Generals problem.

The miners were doing good incentive in the network. If they want to get rewards, it must comply with the rules. Otherwise, the miners lost time, power and force (cost). This is because the mining system is to punish recursive.

For example, the node control miners is free to choose evil and output invalid block, the miners would not choose to do so, because other nodes follow the same strategy will be punished and excluded from the system.

If the miners output invalid block, the other miners will simply ignore the invalid block and continue mining in the main chain. As a result, the miners will choose the most stable state (Nash equilibrium). Because most of the miners collaborative maintenance of the most stable state of the network, so the system has the ability of Byzantine fault tolerance.

The success of the game theory and the incentive mechanism of consensus to the coordination of real estate, people make the best results of the decision network. This is only the beginning!