Game Theory: Bitcoin’s nuclear shield - past, present and future

Game Theory, despite its playful name, was developed primarily for the needs of military strategy (especially in the nuclear conflict during the Cold War). Bitcoin is, by design, firmly grounded in Game Theory, giving financial incentives to miners and full nodes to make uncensorable, pseudonymous transactions with hard money. Thus Bitcoin was made to be resilient, robust, flexible, and utterly antifragile. However, while “blockchain”, as the underlying technology of Bitcoin, has been given much attention by the media, Bitcoin’s unprecedented innovation in applied Game Theory has remained largely unnoticed by the outside world and not widely discussed.

In this talk, Dr. Sabina Sachtachtinskagia will summarise the role of Game Theory in the Bitcoin’s ecosystem in the past, present and future. She will reveal Game Theory as the invisible force that coordinates the decentralised behaviour of multiple agents, prevents any external pressure on Bitcoin and allows the counter-attack.

As one of the important examples, the role of electricity usage in creation of hard money with Proof of Work will be discussed.

The more recent developments in the Bitcoin ecosystem, such as the Lightning Network and the smart contracts over Bitcoin (RGB protocol), are also extensively based on Game Theory and provide tools for further expansion of Bitcoin-related projects.

An overview of projects that become now possible will be provided: using game-theoretic approach, one can now transfer to Bitcoin large sectors of real economy, including: any financial instrument (e.g. stocks, bonds), arbiter dispute resolution (i.e. voluntary, customisable legal system), data storage, messaging and uncensorable social media, production (e.g. decentralised computing & A.I.).

Last but not least, this talk will also examine the challenges that any project in the Bitcoin ecosystem faces when designing its economic incentives, business model and resilience strategy. Methodology of how to overcome these challenges will be presented. Careful design is essential, since alterations can be very hard once deployed on blockchain, and strategic or economic “hacks and exploits” can be as deadly for a project as hacks in its code.

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