Table Of ContentCryptoeconomics
Taylor & Francis
Taylor & Francis Group
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Cryptoeconomics
Igniting a New Era of Blockchain
Jian Gong and Wei Xu
CRC Press
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Contents
Foreword ................................................................xi
Preface .................................................................xiii
Authors ..................................................................xv
1 What Is Cryptoeconomics? ................................1
1.1 The Basics of Cryptography ................................ 1
1.1.1 Hash Algorithm .......................................... 2
1.1.2 Key Encryption .......................................... 6
1.1.3 Digital Signature ........................................ 7
1.2 Basic of Economics .............................................10
1.2.1 Incentives ..................................................11
1.2.2 Punishment ...............................................12
1.3 Supply and Demand ...........................................13
2 Mechanisms of Consensus ...............................17
2.1 The Byzantine Generals Problem ......................19
2.2 CAP Theory ........................................................22
2.3 PoW (Proof-of-Work) Mechanism .......................24
2.3.1 Problem of PoW 1: Waste of Resources .....26
2.3.2 Problem of PoW 2: Environmental
Problem .................................................... 28
v
vi ◾ Contents
2.3.3 Problem of PoW 3: Centralization of
Computing Power .....................................30
2.4 PoS (Proof-of-Stake) Mechanism ........................35
2.5 LPoS (Leased Proof-of-Stake) Mechanism ..........36
2.6 DPoS (Delegated Proof-of-Stake) Mechanism ....37
3 Optimized Consensus Mechanism ...................39
3.1 Optimized Versions of PoW Mechanism ...........39
3.1.1 Litecoin’s SCRYPT Algorithm ...................40
3.1.2 Tandem and Dash ....................................41
3.1.3 Parallel Algorithm and Heavycoin ...........42
3.1.4 Primecoin ................................................. 44
3.1.5 Ethash and Ethereum ...............................47
3.1.6 Equihash and Zcash .................................49
3.2 Optimized PoS ....................................................51
3.2.1 Byzantine General and Byzantine
Fault-Tolerance Algorithm .........................51
3.2.2 Algorithm for Realizing Proof-of-Stake ....53
(1) Tendermint and PoS Based on BTF ....54
(2) CFFG ...................................................58
(3) CTFG ..................................................62
3.2.3 Trap of Proof-of-Stake ............................. 64
(1) Relations with No Interest ................ 64
(2) Remote Attack ....................................66
(3) Cartel Formation ................................68
(4) Future Work .......................................69
3.3 PBFT Optimized Version: Federal Byzantine
Agreement (FBA) ................................................70
3.4 Other: Algorand Agreement ...............................76
Contents ◾ vii
4 Game Theory and Cryptoeconomics ...............79
4.1 What Is Game Theory? .......................................79
4.2 Nash Equilibrium ................................................82
4.3 Schelling Point ................................................... 84
4.4 Bounded Rationality Model ................................85
4.5 Game Theory Mechanism Design and
Consensus Mechanism ...................................... 86
4.6 Game Theory Mechanism Design and
Blockchain Security ............................................87
4.7 Prospect of Game Theory-Based Consensus
Mechanism – Ethereum’s Casper Consensus
Algorithm ........................................................... 90
5 Behavioral Economics and Cryptoeconomics ....93
5.1 Behavioral Economics vs. Traditional
Economics: Irrational vs. Rational ......................93
5.2 Behavioral Economics in the Blockchain
World .................................................................94
5.2.1 How to Introduce Blockchain to
Friends? .....................................................94
5.2.2 Why Are You Completely Indifferent
to $10,000 Bitcoin, While Some People
Are Crazy for it? ........................................97
5.2.3 Why Do So Many Projects Like
Airdrops? .................................................100
5.2.4 DAO Is Really the Main Form
of Organization in the Future? ...............103
5.2.5 How to Control Our Impulses? Maybe
You Need a Smart Contract ....................107
viii ◾ Contents
5.2.6 Dilemma of Multiple Choices: Why
Do We Want to Participate in All
Projects? .................................................111
5.3 The Intersection of Behavioral Economics
and Cryptoeconomics .......................................113
6 Cryptoeconomics and the Security of
Blockchain. ....................................................115
6.1 Sybil Attack .......................................................116
6.1.1 Cost of Sybil Attacks on Traditional
and Blockchain Networks ......................118
6.2 Fork: Soft Fork and Hard Fork .........................120
6.2.1 Fork, Soft Fork, and Hard Fork
Concepts .................................................120
6.2.2 Main Characteristics of Soft Fork and
Hard Fork ................................................123
6.2.3 The Importance of Forks .......................123
6.3 P + ε Attack ......................................................125
6.3.1 What Is P + ε Attack ...............................126
6.3.2 Protection from P + ε Attacks ....................128
6.4 DAO Attack .......................................................129
6.4.1 The Significance of The DAO
Cryptoeconomics ....................................131
6.5 Zero-Knowledge Proof .....................................133
Summary ...................................................................135
7 Blockchain in China ......................................139
7.1 The Power of Blockchain in Real Life .............139
7.2 Real Use Cases of Blockchain in China ...........140
7.2.1 Financial Solutions ..................................140
Contents ◾ ix
7.2.2 Police and Other Governmental
Solutions ..................................................145
7.2.3 Food Safety and Supply Chain ...............147
7.3 Secret of Chinese Success ................................148
8 The Future of Cryptoeconomics ....................153
Conclusion ................................................................158
Index ...................................................................161
