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The nature and the risks of consensus

The design and the risks of consensus

Every act, including a collective act of consensus, has incentives, benefits and risks. Decentralized consensus of mixed, human and artificial, intelligence together with new technologies creates the emerging field of cryptoeconomics.

The nature of the consensus. The collective properties and consensus depends on the rules of the game. Scientific consensus is remarkable and decentralized driven by the logic and the scientific evidence. Each human brain can reproduce and get convinced that arithmetics and gravity work and are universal. Consensus in mathematics is firmer, than consensus in physics which has uncertain or unclear boundary of applicability. Phase ordering is the consensus mechanism in physics driven by thermodynamics and free energy minimization. Linguistic consensus in using English language (from Buterin) is supported naturally and decentralized logically, politically, and architecturally. *Computer Science consensus is a probabilistic (more frequently) BFT consensus, Bitcoin and Ethereum use redundantly strong, energy inefficient, probabilistic PoW consensus. *Fashions and financial markets are very soft types of consensus existing under uncertainties and no strict rules.

How to combine the firm consensus about the past, especially necessary for money, and adaptive consensus about the future, based on individual and collective utility of ecosystem? This is the essence of evolution of not forgetting history and find synergy in the future.

The different layers and different consensuses. The nature evolves through hierarchies and layers, and we,humans, seem to comprehend nature and build our own societies in hierarchical ways. Yet "more is different" (P.W. Anderson, H. Simon), and the evolution and complexity builds layers upon layers. Cryptocurrencies will create a fifth protocol layer powering the next generation of the Internet. It is critical to think about the mapping and connections between different layers. Scientific disciplines grow within layers, while emergence and reductionism are used to comprehend the connections between layers.

From determinism/certainty to probabilities to uncertainty - from bottom Internet layers to probabilististic (non-deterministic) BFT(Byzantine Fault Tolerant) layer of cryptocurrencies to human layer with essential role of uncertainty (in the sense of Knight). Decentralization and associated correlation length. Buterin distinguishes between architectural (physical computers), political (physical people and organizations), and logical (the rules and interactions) types of decentralization. The decentralization, the order parameter in physics, has scalability property, which looks similar to correlation length. Nick Szabo points out that Internet (Twitter,Facebook,etc.) increased and improved social scalability by supporting 'weak ties'. Blockchain and machine consensus help human,more valuable, socially scalable ways by buying redundant computational resources and electrical, relatively cheaper, energy. Notice that scalability has many dimensions - the number of involved machines, humans, transactions, links, colors, etc.

The human and financial risks of consensus. "Risks do not disappear,they transform". The risks are along different boundaries (for instance, between machine and human worlds). Macro-risks and micro-risks and the transformations between them. For instance, decentralized cryptocurrency escapes from the risk of printing press/quantitative easing by central government, but a human, owning cryptocurrency, is vulnerable to a local thermorectal attack, so the risks are transformed from one type to another. Insurance from local attacks by central institutions - vicious circle and a business idea?

Financial markets is a great illustration how complex consensus works in practice. Game theory, economics, fractionalized decentralized networks, and liqudity determine the capital is allocated. The micro-structure determines the volatility and inhomogeneity-in-time flows. Such consensus is characterized by macro-inefficiencies (Ed Thorp) or crashes, i.e. financial crises. Multiple machine attacks (distributed denial of service, code and wallet errors, etc,etc) are the risks. The risks mean also the volatility of value in the financial markets, so the exchange/connection BTC/USD between machine layer of cryptocurrency and human economics is the financial risk and value. How resources (capital, energy, human capital, etc.) are distributed, and the flows and liquidity of those resources are coupled. ICO is just another illustration of new allocation of capital alternative to venture capital (VC). Cryptoeconomics means new algorithms and new societal learning based on evolutionary and AI principles.

Technical differences between blockchain and its PoW consensus mechanism, PoS mechanism, IOTA and Hashgraph?
These different mechanisms are different types of infinite-range interaction models. Physics perturbations and fluctuations are similar to the attacks on the computer consensus, but no thermal bath,so T=0K. The cryptoeconomics of scaling consensus mechanisms is recognized as one of the most essential threads.
PoS is a very much capital-based consensus.
PoW is energy-wasteful but democratic computational power consensus. Cosmos, based on Tindermint, is another important effort, which creates a network of distributed ledgers.
IOTA is a cooperation consensus but not fair genesis capital. "The data structure is a directed acyclic graph, where each vertex contains the hash of its two parent vertices." is the similarity between IOTA and Hashgraph. In practice, it doesn't seem important whether the consensus is a strict mathematical BFT or a practical robust consensus.
Consensus in Hashgraph - gossip-about-gossip- is very similar to Common Knowledge concept from the game theory, while Common Knowledge also drives the human financial markets (Ben Hunt).

Risk factors of cryptoeconomy (or consensus) of particular type, in the sense of risk factors of financial theories, are the development team, the original idea, and the applications/monetisation. Important to figure out these risk factors for successful investment in cryptoeconomics. Important to figure out business models and governance models., which connect top-down (general) and bottom-up (practical synergy). The economic firm, which is changing or dying, is about the boundary between cooperation (inside the form) and competition (outside the firm), but the technology and consensus mechanisms change the economics of the human interactions and the incentives - this is the cryptoeconomics. It is important how in each application of the paradox between decentralized network/blockchain and centralized development team is resolved. The future is coming.. There is a debate about cryptocurrencies, which combines the properties of payment, store of value, means of exchange, unit of account, commodity, and asset class. The point of view depends on the vision of the future and personal approach.

The evolution of consensus. In many ways, around and around, the design and the connection between human organizations/consensuses and decentralized machine consensus are the key drivers. How to form incentives of mixed human-machine nodes? The constructive ideas are to deploy the power of decentralized consensus through Gamifying the Delivery of Money or the same idea expressed slightly differently through 'skin in the game' of discovery algorithms. Idealistically, these innovations might catch a right-tail of opportunities for large layer of human society, keeping hierarchy and improving social scalability.

The summary. Aligning human and machine incentives is the essence of cryptoeconomics. The design of consensus determines the scalability and robustness. The boundaries of the network, which aims for consensus, determine the risks. The connections between layers and the hierarchies inside the layers determine the evolutionary fitness. The synergetic restructuring of multiple boundaries within layers and between them is likely to ignite further social human and technological progress. The cryptoeconomics is the connection - the economics of machine-human interaction and the connection between the fifth protocol of crypto and the sixth protocol of humans.

Keep it simple and build something for good reason and good purpose.