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Research questions and notes (MT) - Optimal consensus

not finished, in progress (april 2018)!

Buterin-Larimer debate raises many important questions about cryptoeconomics and the realities of the crypto-technology.

  • what are conceptually new and sustainable governance (whether off- and on-chain) mechanisms, which can be achieved by cryptography,technology and blockchain?

  • consensus about the past is absolutely necessary for the money. What is optimal and goodness adaptable consensus mechanism for the future?

Multiple languages. See our earlier thoughts about the blockchain consensus

  • For the future, we might consider utility functions - the language of the mathematical economists.... and Vitalik?I simply replied "I gave each agent a utility function and let them independently act to maximize their own objectives".

  • For the past and the future, we might consider how consensus mechanisms deal with the enthropy of the different parts of the system. Example: on-chain entropy is decreasing when miners seal a block, but miners' computers increase the entropy and heat the environment. The running time is the running frontier of the phase transition between the past and the future - the language of the physicists.

  • The design of different "blockchains" should fit different purposes! The design of Bitcoin by Satoshi has a chance of becoming digital gold, because it seems that human involvement is minimized. Different markets and their economics require different design of the elements of Information asymmetry,"Markets for lemons", liquidity, signalling, etc. Behavioural economics points towards behavioural crypto-economics biases, prospect theory, emotional and physiological reactions - the language of applied economists

  • Networks, blockchains and markets everywhere. Adaptive markets of Andrew Lo, yet his theory is in the development stage. The evolutionary funding mechanisms and their sustainability are going to evolve especially as we've seen several cycles of Bitcoin and ICOs. Forking is really a novel mechanism of the evolution for open-source monetary systems. Evolution - the language of biologists.

  • the minimization of regret/mistakes is a core approach, which is honed by the well-known investors and businessman. See Charlie Munger, Bent Hunt, Jeff Bezos

  • Successful practitioners use intuition, rules of thumb, and strategic thinking. How to deal with uncertainty, see Richard Zeckhauser Investing into Unknown and Unknowable. For the future, we have to consider both, risk and uncertainty. Skin in the game, "too big to fail", etc.... all realistic concepts, which perhaps do not have elegant theory - the language of multidisciplinary practitioners.

Vitalik insists for Casper PoS on the concept of “in order for guarantee X to be violated, at least these people need to misbehave in this way, which means the minimum amount of penalties or foregone revenue that the participants suffer is Y”. This seems to be similar to VAR (value at risk) for 5%(X) chance of the unexpected losses. Similarities with the banking system and the value-blockchain money system.

  • how does Casper PoS control VAR internally and by coupling to the externalities of chain economics? what is the backstop? Too much theory,the design can be adapted as we and Vitalik go along and evolve? In other words, Vitalik is addressing only idiosyncratic risk (risk of various and plausible attacks by sizable sub-communities, but not all possible attacks?) of Ethereum, but not systemic risk of crypto-space (because this is really a off-chain governance issue?)

  • how does behavioural economics (Thaler) affect PoS based on utility functions? Strong effects?

  • will we have a DOMINANT chain (likely Bitcoin) and therefore "too big to fail" systemic risk? Or should we have many chains/banks, which are allowed to fail? Notice that physical gold does not have a problem of "too big to fail", yet it does have an objective price.

  • are there going to be one dominant or many-about-equal-value chains? Which chains require the thinking as the matching markets and the matching chains of value, see Alvin Roth

  • how can investors and speculators coexist in some sense optimally? And notice that PoS can be with how long th coin is held in the past or/and in the future (by Larimer)? Should there be a balance between the rigidity (hard consensus)and flexibility (soft Vitalik's Casper consensus) in the past and the future, any constraints?

  • what is the risk-return for the consensus? How can crypto consensus/incentives work from the beginning and through the (finite?) life of the coin-project? Crypto-consensus as a living object with off-chain and on-chain governance/design/mechanisms - this is the essence of the debate.