Game Theory in Cryptocurrency
Do you know about the tool to analyze economic competition and economic phenomenon? It is the Game theory that is applied for determining different strategies in the business world. Does it have any relevance in cryptocurrency and blockchain? Yes, it has. When applied to blockchain, this model has an important role when designing a secure and trustless cryptocurrency platform like Bitcoin. It is not only applicable in Bitcoin, but in almost all cryptocurrencies.
What is the Game Theory?
Firstly, let’s understand what actually game theory is and its basics. It was formed by John Von Neumann and Osker Morgenstern in 1944. Game theory is the process of forming a strategic interaction between players. The strategies are modeled in a situation containing set rules and outcomes. So that’s the definition of game theory. Now, below given are the components of game theory.
- Objectives: it’s very important to make sure if the games that are planned to be included are based on your initial objectives.
- Rules: Effective rules are a vital part and let others know what they are expected to do and how the game is played in order to succeed.
- Interaction: interaction is a valuable and experiential tool to see the results of your decisions in real time.
- Players: they are the decision makers
- Feedback: this is the payoff or the outcome of a strategic decision taken by the players.
Zero sum game and non zero sum game are the two types of games in game theory. In a zero sum game , the gain of one player comes at the expense of another player and in a non zero sum game it doesn’t come at the expense of another player.
What is the Cryptocurrency Game Theory?
Cryptocurrency and blockchain platforms have made a breakthrough in this century and undoubtedly, this is by the incorporation of game theory. It helps to make strategic decisions while keeping in mind the actions that their competitors will take. Blockchain is a complex technology that is based on a peer-to-peer topology. It is a distributed ledger technology that allows data to be stored globally on thousands of servers while letting anyone on the network see everyone else’s entries in near real-time. These individual data are stored in a series of blocks and each block also contains the hash of the previous block and this, in turn, links each subsequent block to the previous block making a chain. Well, what is the relation between blockchain and cryptocurrency game theory? Let’s see. The game theory model is something that makes blockchain so special. It makes the cryptocurrency, a secure and transparent digital asset without any internal corruptions.
Bitcoin, the king of cryptocurrency is the most popular and secure cryptocurrency existing now. It is because of blockchain technology and the extra security features are enabled in the blockchain platform due to the game theory concept. It is a solution for everyone who is involved in cryptocurrency to choose their optimal strategy.