In a new speech this week, Ethereum creator Vitalik Buterin focused on studying so-called “cryptoeconomics,” the union of cryptography and economics at its core of public R&D on blockchain.
At the Ethereum EDCON 2017 developer conference, held over two days in Paris, Buterin used his speech to give a general overview of why he considers the study of the subject to be central to his work on Ethereum, the second largest public blockchain by market capitalization.
Topics included how pieces of a cryptographic puzzle (such as proof of work, hashes, and more complex tools like zk-SNARKS) can be combined with forms of economic engineering, including incentives and privileges .
While the topic may have seemed educational at first, the talk served to highlight the intellectual context for some of Ethereum's most necessary (and contested) ideas on how to improve its protocol.
For example, Buterin noted that this area is likely to inform its highly anticipated proof-of-stake protocol and possibly lead to the construction of more secure Oracle systems that power Ethereum smart contracts outside of data.
But before diving in, Buterin began the presentation with his own definition of the emerging concept.
Buterin then explored how he uses cryptoeconomics to analyze where blockchain-based systems can go wrong, often referring to bitcoin as a key example and reference point.
Although the main reason Ethereum is seeking proof of stake is that it could prove to be a greener and fairer alternative to Bitcoin's proof-of-work consensus mechanism, Buterin went so far as to claim that proof participation might also be safer, at least in some respects.
Proof of work, he argued, is vulnerable to something like a Attack P + epsilona way for minors to cheat the system.
“That’s one of the reasons people want to move to proof-of-stake,” he said.
These comments come months after Ethereum first revealed plans to move to a new consensus mechanism, and the question remains whether this experimental R&D can be effective. keep pace to the expectations of users and developers.
Despite claims that Proof of Stake works better, it is worth noting that Proof of Stake has not been deployed on a large-scale network and some technical experts continue to do so. doubt that it will work.
Nonetheless, Buterin emphasized that cryptoeconomics can be a mindset for finding new solutions.
Together, crypto and economics can be used to incentivize actors to act in the right way, he said. One way to do this is to punish actors who do wrong – to push them to act in a way that benefits everyone. Usually this means taking their money away.
“Note that this is a deviation from Satoshi and the holy book,” he said.
Buterin then explained how Ethereum researchers are applying the topic to invent new properties that Casper, its intended proof-of-stake algorithm, requires.
Drawing on traditional distributed systems theory, he calls for a feature that requires “verifiable security,” that is, being able to prove that a third of the validators are faulty.
Once that's proven, the system can “hit them again and again,” as Buterin put it, referring to the negative incentives a protocol can establish.
In other words, the protocol can recover a portion of the security deposits that misbehaving actors had initially stored on the network.
The second property it needs is “plausible liveness,” or confidence that the protocol won't stop or stop, he argued. In terms of Ethereum, this means that the network must continue to evolve so that transactions and smart contracts can continue to occur.
Beyond that, he highlighted other areas needing further research.
Ultimately, he ended his speech with a list of outstanding technical issues, including censorship resistance and scalable validation, both of which could emerge as obstacles to the planned proof-of-stake rollout.
Image via Pete Rizzo for CoinDesk