Part 3: The Implications

Satoshi: "This is my gift to you, World đź’•"

How Bitcoin Solves the Byzantine Generals Problem

In the previous section, we examined how Bitcoin addresses the Byzantine Generals Problem through game theory. But let’s dig a little deeper.

Increased Trust

One of the biggest challenges to creating a distributed system like Bitcoin is building trust between users. It’s challenging to create a system in which all users can trust each other even when communication between them is compromised by malicious actors. Fortunately, by leveraging game theory to incentivize honest behavior, and by introducing Bitcoin’s unique consensus mechanism that is Blockchain and distributed ledger technology, Bitcoin does just that.

Resilience to Malicious Attacks

Another challenge of creating distributed systems is designing them so they are resilient to malicious attacks. By rewarding honest behavior and penalizing malicious behavior, the Bitcoin protocol can remain secure (even as a half-trillion-dollar honey pot–the largest such incentive of its kind in human history–for bad actors to attack). It’s another way that Bitcoin builds resilience by leveraging game theory to incentivize honest behavior.

Competing Interests

One of the challenges of distributed systems is that they often have competing interests among their users (Bitcoin users versus Bitcoin node operators vs. Bitcoin miners–for example). Different network participants may want different things out of the system, and it can be difficult to maintain an ecosystem that satisfies everyone's needs. Fortunately, once again, leveraging game theory to incentivize ethical behavior and create a beneficial system for all parties–Bitcoin and its consensus participants win because they are all incentivized to cooperate.

Proof of Work

One of the most important functions of game theory in Bitcoin is how it’s used in its proof of work consensus mechanism. The PoW function is what allows Bitcoin to remain resilient against malicious attacks. Without it, an attacker could easily mount a 51% attack and bring down the system (of course, even if they somehow succeeded, Bitcoin would be worthless. Another disincentive to attack!). However, by leveraging game theory, the system can remain resilient and secure.

Mining Rewards

Mining keeps the network secure which requires significant computational power. So, miners are incentivized to use as much electricity as they can to increase their mining rewards–and this is energy spent towards securing the longest ledger available, the longer chain of blocks. This perpetuates an incentive to do good by the network and not mess around and be malicious.

However, this could potentially lead to destructive behaviors like mining with excessive amounts of electricity. Fortunately, Bitcoin’s “Difficulty Adjustment” incentivizes miners to only use as much electricity as they need to remain competitive and profitable. By doing so, it ensures that the network remains secure with minimal impact on the environment. (Bitcoin computational mining algorithm adjusts every two weeks to match the computational hash power directed at the network. The more computers compete for Bitcoin, the harder it gets to mine it. The less computers compete to mine Bitcoin, the easier it gets. It’s like Satoshi just knew or something! 🤔)

Nash Equilibrium

Bitcoin uses a game theoretical model called the Nash equilibrium. In the Nash equilibrium, each general can choose to either cooperate or not cooperate. If all of the generals cooperate, then they will be able to successfully attack the city. However, if even one general does not cooperate, the entire plan will fail. This means that it’s in each general's best interest to cooperate. Except that because of its consensus mechanism, the fate of the bitcoin network is never in the hands of any single general(s).

The Nash equilibrium allows Bitcoin to solve the Byzantine General's Problem: By using game theory, Bitcoin allows cooperation without the need for trust. Trustlessness. This makes it possible for them to successfully attack the city and win the battle.

What Are the Implications of Bitcoin, Game Theory, and Solving the Byzantine Generals Problem?

Bitcoin uses game theory to help solve the Byzantine Generals Problem, which is a problem that has plagued computer scientists for years. Essentially, the problem is that there is no way to know whether or not a message sent over a network is truly from the person it claims to be from. This can lead to problems like someone impersonating someone else and stealing their money.

Bitcoin introduced a solution to this problem: By using game theory, Bitcoin ensures that messages are coming from where they say they're coming from. By solving the Byzantine Generals' Problem, Bitcoin ensures that everyone on the network can trust each other–or more specifically–that they don’t even need to.

And while Bitcoin's solution to the Byzantine Generals' Problem isn’t perfect, it’s a step in the right direction. The Bitcoin blockchain has already begun revolutionizing how we interact with each other and will, in time, lead to a more trustless world.


Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.