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Securing Incentives: Cryptoeconomics & PoS - Coggle Diagram
Securing Incentives:
Cryptoeconomics & PoS
cryptoeconomics
high level design abstractions
to analyze, incentivize, and secure decisions for peers in a decentralized system
a fundamentally different way to analyze blockchain systems
functions
to understand and prove the quality of a blockchain system architecture
core rationales
making a decision to act on
understanding the situation
two steps of making a decision and act without modification later
2nd step: secure the decision
use physical devices to secure the decision
signature for commitment
bank cheque
use cryptography to secure in the virtual world
to understand and analyze the facts from the situation , and make a judgment and decision
rational choice theory: best option to yourself
cryptoeconomics
the analysis of virtual decision making from incentivizing actors to make the best decision for a given goal from ensuring that the history of decisions is maintained honestly
to understand the decision making by unknown and untrusting peers
e.g. Bitcoin, nodes come to agree on the updated transaction history
actors are incentivized to earn profit
Nakomoto's design rationales
avoid unfaiir gain
avoid inequitable gain
profit goes to those who deserve
reward proportional to the input of computational power to the network
strategy
time
past
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present
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future
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two pillars for establishing protocols
cryptography
for dealing with those who are unknown, and potential adversary actors in the network
ensure the integrity and confidentiality of the information
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a cryptographic hash function is not same as a hash function
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economic primitives or building blocks
Economics
how to determine the best way to make use of limited resources to earn the max profit?
how to design a system which motivates actors behave in a certain way?
economics and game theory
condition
actors in decentralized system make decision altogether
cryptography ensures to secure the decisions made without modifications
how to motivate actors to make a decision to benefit all in the group
reward the honest behaviors
punish malicious deeds
attack
blacklisting
feather forking
suppose the malicious miner owns q proportion of total mining power
successful % of orphaning the other block is q^2
other miners would consider the chance of receiving reward could be (1-q^2)*(block reward + transaction fee)
give up forking if the blacklist one received k confirmations
Proof of Stake
tie to financial resources
PoW drawbacks
high consumption of electrical power for computations
51% attacks
make double spending
individual miners tends to centralized mining pools
no penalty to malicious behaviors
cost of being honest is equal to that of being malicious
no explicit disincentive to malicious behaviors
ASICS can be bought
voting power
proportional to economic stake locked up to the network
defender's advantage
penalize the malicious behaviors
security comes from locking up the capitals for a long period
stake cannot be easily accumulated
one sell and one buy
expensive
shortages
rich gets richer
with higher stake, easier to be selected as a validator to propose a new block
Ethereum's Casper Protocol
enforces with a lower level of required stake for being a qualified validator
stakes of liquidity flow is reduced
rate of native currency turns high
may rewrite the history
the nothing at stake attack
weak subjectivity
off time long and back nodes do not which is the main chain
long range attack
Stake Grinding Attack
the issue of how a validator is randomly selected