Game of Cryptocurrency: How are Game Theory and Crypto Related

The study of the most effective courses of action to take in a variety of “games” falls under the purview of one of the subfields of applied mathematics known as “game theory.” It was largely due to his efforts that the fundamental notion underlying the organization of decentralized bitcoin networks was devised. And it is because of him that they do not have to worry about their safety. However, the application of game theory is not restricted to just this area; it can also be found in the fields of economics, geopolitics, sociology, psychology, and even biology. Game theory has found a place in all of these scientific fields.

Example to Understand Game Theory

Game theory is typically implemented through the use of models, sometimes known as “game situations,” which illustrate patterns of rational conduct and strategies for determining the most effective way to proceed. The Prisoner’s Dilemma is among the most typical examples of this type of scenario.

The circumstance is as described below. There are two suspects in this case. Both parties were subjected to questioning, the nature of which prevented them from reaching a consensus in advance regarding the steps they would do. If neither party speaks, they will each face a year in prison due to the lack of evidence against them.

If both of them turn in an accomplice, then the sentence for each of them will be reduced by one year. And if the first person remains silent while the second person is “injected,” the first person will serve three years in prison while the second person will be freed.

Which course of action would be most effective given the circumstances?

It is assumed that both individuals have the capacity to reason, to anticipate the actions of another, and to think in a rational manner. A modest game theoretical convention, but one that is acceptable. Therefore, freedom is, without a doubt, the most desirable outcome.

However, everyone of the players is aware of this, and as a result, the first “impulse” will be to begin placing blame on an accomplice for all that has happened. In addition to this, this is precisely what is pushed forward by “irrational behavior,” which is the fear of being punished and the tendency to deny everything in the hope that “what if it blows over?” In total, each for a period of two years. Absolutely not what was supposed to happen in the first place.

Because of this, it is important to keep in mind that “you are not the only one here so smart” and to behave in a way that takes into account the potential interests and actions of another person. This is an example of what is referred to as “rational behavior,” which is the theory that it is beneficial to rely on the rational thinking of an accomplice in order to reduce the amount of time spent in jail from two years to one.

However, as the “investigative tests” shown, logical behavior in this kind of setting is not something that is seen very frequently. Because of this, game theory is not suitable for use in all situations when making decisions.

In order for game theory to function in any way, there are a few fundamental guidelines that must be followed.

• Having many members
• Uncertainty regarding conduct (participants can choose different strategies)
• Participants’ varied objectives and interests will be considered.
• association (the actions of one person affect not only himself, but also others)
• Norms that are crystal clear and are known by all.

As a consequence of this, game theory is inapplicable in circumstances in which the participants do not hold equal power, one of the participants is unaware of the guidelines governing the game, several of the participants are constrained in their options, and one of the participants is unable to behave in a rational manner. That is to say, it discusses the interactions that take place between the governments of various nations, but interactions such as those that take place between the government and its citizens are no longer prevalent.

In terms of cryptoeconomics, it satisfies all of the prerequisite conditions in a completely satisfactory manner. Individual participants are on an equal footing with one another, are fully aware of the guidelines for interaction, are free to follow their own interests, and are required to engage in conversation with one another.

The Game Theory Approach to Cryptocurrency

Therefore, there is a peer-to-peer system that consists of a number of nodes that are all given the same level of authority. There are well-established guidelines for interaction, which is not only encouraged but also rewarded.

However, there is also the possibility of freedom of choice; each individual node has the option of following the rules or not doing so. In terms of the underlying technology, it is theoretically conceivable to forge information included within a blockchain block. But a significant amount of resources are required not just to disseminate it across the entire network but also to stay one step ahead of the ongoing “building up” of new blocks.

More than what you can obtain through the use of this fraud. The punishment meted out to nodes discovered participating in fraudulent schemes is prompt and severe. Therefore, a rational plan of conduct in this case is to act inside the framework of the system, mine honestly, and honestly confirm the receipt of fresh blocks. This will be the most effective way to proceed. There is nonetheless still a possibility to “take over control” of a system even if it is very tiny and has a limited number of nodes.

The structure of the blockchain itself makes it impossible for users to violate its guidelines. Indeed, there will always be those people who would try to acquire what they want by deceiving others. Nevertheless, the integrity and performance of the overall system are not negatively impacted by erroneous data coming from individual nodes. Byzantine Fault Tolerance (BFT) or “Byzantine Generals’ Dilemma” is the name given to this situation.