Cryptoeconomics 101 | EthereumMadrid Meetup

[Music] [Applause] so everything was fine we didn't lighten it up about this this topic and we really enjoyed because we wanted to connect to the community the same as we want to do now and then we did another Weetabix gnosis together earthquake prediction markets which was really nice as well and then can you talk about an entity and so on and so forth so now there's a new topic a half and this is crypto economics and we think this is so important because it's actually going to the court it's not what is happening right now it's not enough speaking about what's happening in China what's the next ICL but we want to speak actually about the basics and we want to understand really the essence of of all this change happening and yeah if you want to join us you can come to us and anything well and introduce what we're going to talk about these afternoons an hour and a half there are three parts the first of all the first part at Sandra I myself will explain what a stupid second omits basically the main concepts and next the second one the one will go through a major is negative which is an application that actually uses these concepts and he's trying to create something looking really really amazing which is a decentralized central bank if you ever wonder how Bank really works we will see how different things that have worked and when we act this way our situation to many things it's really cool and in the last part we'll be speaking with the CEO himself conference so let's party okay so the first thing that you have to to understand or to know is that when we talk about genomics we're talking about maintaining branch in your mind okay we are not this is not about making more closely to the fact it goes the other way around it is not photography for economists it's more economics for photographers that means that all this world that we are seeing this print world is centralized system that's happening well it's based on photography as well now and you will put this Konami principles on top to sort it to make it some sort of portal this is what it is about and what especially important thing to consider is that this is to give too much supply for open door chains permission for chains private blockchains they're not so people their business doesn't apply to economics is not a syllabus so in this ecosystem we were talking there are several properties firstly they are good but as I said this is the second is the deficit relax but now that means that everybody's news network were acting their own benefit their own product they want to prop them they take decisions based on their own interests always that's why somebody creating an infusion large networks they were it has to be big no sponsorship old notes can't speak and the claims are unenforceable no chain cannot be up unfortunate so this is then this is the place where everything stands and not let me go to that so what it is cute anomalies welcome to consistent air of mystery constants ok shaking us there the first is Network my network well because we need scale it is lesson applying small place to be as we did is the distribution around the world there are churches houses in the material this worldwide spread no ownership of that so that's the first thing ok that's me anything so that there has to be an effort for that second thing is that we happen to use cryptography why if your tariff you use it to look at the past this is what we use to verify what everything everything has happened and sex the universe believes in nutrition the universe smile that means that in the small individual can easily create something by using a big corporation resources to decrypt that's the thing that reason in part but we use it for two specific this which are for signature travel history we use the public and private keys to verify the ownership this is important we have you only get points and you know the positive and a parakeet you own your horse and there's zero knowledge proof you can prove to everybody outside and after you jump from the outside they can verify that you own and the second one is Hashem actually use it to check the integrity of everything that has happened vertical trees nothing well you use it and you have so use it your eternity these tools for authorship after checking the history so this is for looking at the past which is gave you is to look at the future how I don't know you're familiar with in theory in series it's necessary process there's not more than that there are players actors one or many there's option outcomes parchment interview words and creative escape to straight how these games works I'm going to select the story about that first world war in 1914 you're in the first world war there were two sides fighting in the it was called a French and they were determined on the British lab they were at war fighting and Christmas Day in 1914 a ceasefire suddenly they were nobody that tell them to cease fire they stop shooting each other no general no commander spontaneously the both armies stopped and exchanged gifts like football NSA ladies they give every surgery but this thing happened without a central point control and we can constrain it to any Theory assistant before players game play up there - ok the game with these words and so those are our arranged incentives from how to score well licking these ladies we use the methods - so to put all the different options that we have as a British soldier you can attack or you can not attack that's your decision that's your goal you are so you have your gun but you are the ultimate sit in this room a care of that what it happen well if the Germans attack you will be at zero if you don't attack that if you if you decide to attack you decide to attack well you can earn a medal or just remain my friend so what will happen is as a British soldier you are in time you're ten turn your tendency that's what we'll do to attack because the best outcome for you okay so that's this is why do I choose the best strategy for you and that thing over that is called a Nash equilibrium and what you see in this film next for a beautiful man I mean you know that it is filled explain means there is not cooperative games even if you know the strategy of everybody you will stay with your own strategy to service so a natural tendency of the system will go to a cotillion that's what happened before what happened this was day one of the reasons they something changed because you were no longer you can't feel home per se and that made the possibility to change the incentives that we don't change any sense it from jr. which is not it's not it's not a big billboard it's just a little tiny one that change the whole thing change the game and the outcome was that nobody should wash it so what happened why the game changed well there factors that produced this change first there were clear communication Hawaii had to tell anybody that it's Christmas everybody unit everybody seen repetition this is for the name of friendship this is not by chance when you're shooting when we were shooting uh you have the same guy front of you trying to kill you every day so the game was revisited and the third is the insert the transform to a nonzero-sum game it means that they're to both sides that's the trust the other player I'm told you're I am aware of this and I think okay that's this gopher atlas as many a lot of smokers and it's just the other players well you can actually the guys that made the game so there are possible outcomes first you can trust that everybody well second is and unfortunately our tech meets the [Music] that's the introduction and now hunter will speak about how to apply all these constants we bring the telemetric source of crypto economics which is network cryptography and game series and I will speak now also with you Charlie about one father in particular and one attack because there are quite a few and we can explain [Music] yes so the heart I'm very watching but every public option because we are only speaking about public projects as you might know anything they are consignment and the talent is to say the proposal consensus algorithm in general is so loud for the secure updates of a state opponent in some specific stage should transition transition economic status so what does this mean this means that the consensus algorithm is actually the only of the most important part of the project because it helps us without any communication between us because we are not connected we don't when we are connected but we can communicate to update the state of the blockchain so without the consensus algorithm all the functionality of the will disappear and you will have double spendings and everything willing to collapse so the heart of all is expect the public blockchain where we don't have a private room but sorts of deciding on what's the choose we have to find the juice with these algorithms that help us to find consensus but the question is how can we achieve consensus and turn loose them did I want to live a short yes so I imagined the situation that to people in prison yes these two people they can't communicate communicate with each other but they have the chance to get free and the chance is they will both get a task and if they say the same answer they will get free if they choose to do pronounce are they won't get free so as you can see the incentive here when Antonio talked about before against you in the center it's one of the most important thing if to get the same answer and the task they were asked if they get this number and now that should choose a six digit number of all of these number but again the the task is not to find a number which I like the target to find the number which might also use the other person so which number the Danish and the idea well it makes you this one so why is it this one because it's special because it's sent out and the situation is if people get rewarded to agree on something but they don't have the chance to communicate as an Rx and they will look for characteristics or something special that makes us be sure that they were going to come an answer because then they will follow this this concept and it's actually showing in practice that it works and this concept of human behavior it was from Delphi or it was succeeded by Thomas Schelling which is again Syrian government and he died sadly last year because I think with the amazing to have him now faction Sony he found this out actually with the same with a stimulant human I explained he said to two people in New York okay you have a chance to get a person to it what God's will have to meet and you can't communicate so the question is where do they go and at which time again you wouldn't think what will the other two and because you think what will the other two you will not for character mystic you would look for cultural things we have a common and therefore what they choose the same per se because this is something we all have as it is a particular special culture underlying in our hand and these these kind that word focal points also sharing quarters because too much reading was dependent on this behavior and as I said if people can't in the absence of communication but they want to find a common answer they will look for this natural special or relevant to their characteristics in the game okay the lion yes - okay there was a Bitcoin image you can see you know well the thing is what else this all has to do with blockchain well the shelling points that our concept is actually a part to prefer how is this applied so you are a minor you have one intention first the work incentive is to create a block which will be hopefully the final block so what is your center you have to create a hash which is fulfilling the difficulty and also of course will be balanced so I will play with the protocol of wars before I see and then once you finalize this blog you will promote this blog to the LED bar then this work is done but now you have a Newman Center and the new incentive is I want to enter the next way the next competition as soon as I can because every second I waste I have a lower probability to find that as the first the next time so how can I enter as quick as I can the next competition well by funny lucien import and what is the selling point the shadow point is using this block and validate link block which the majority of the network is already validating because if I choose this blog I will have to watch and we want this I'm on the main chain if instead I choose a block which the majority is not validated in hynek's time because a validate block which will be enter smoke on the chain so we have here the same thing if I want everyone has another one I don't get involved so therefore we have the same in Dragon the standard centre as we've seen in our prison I example before to find something but everyone yes these are the 10 points but we can use this concept not only to in the in the context of consensus algorithms we can also use them for Archana applications like within smart contracts I don't know how familiar you are with this concept but just to let you know whenever you are just now contract immediately each of them you have to in any move and you have to connect to the off chain watch and then you have to know the truth of the optionbot and this is most of the time the most vulnerable point of any block chain because block chain is over there working well but they have to connect about various outside I have to tell the system what what's the weather in Madrid what's the wants to cut off the floor this isn't can't find power by itself and how do we do this but we use Oracle we can use centralized there are codes abroad we can use web pages we can have extra sensors and always but how can we be sure that this is the truth well as you might know already essential systems they have problems the problem is they have set of and the central point of control so anyone who wants can actually shut down the webpage or can control it so then let a decent life Walker and decentralized oracle they do this they use the wisdom of the crowd towards this this is actually instead of just acting one expert we can use may be the collective intelligence we have here in the rock in the room and I'll call the people because if I just have one one person is a shiny in in Madrid this person my life but if I ask you with the shuttlepod concept you will tell me the truth and now I tell you why because the chain concept which lives in this pyramid service protocol it's a mechanism it's a ten game where I say to you I ask you a question for some basic training with it and I tell you if you tell me an answer which the majority of the people attorney in this room you get a reward so then you look again for a characteristic which might everyone will say and what is the most obvious characteristic well tell the truth because it's so much easier to agree on the juice then to agree on the life and therefore well as we've seen you and your judgement is expressing unity news world what we don't think envisioned after it I just make a quick example let's say you have the connection to - you need to know who won the election so it's in your trunk and the victor in this game again you can choose I can say you know your chance but if you say again but the majority will say why don't you get the challenge so with what will you what will you say because we sit drunk because want to change and you know that everyone else will say the truth but there and the problem is you can attack this one with avoiding attack come on so what is the body attack inaudible it mean I actually Undertaker and I want that within the work chain or whatever there's the differences I want even though it's shiny in the middle I want them in the blockchain it's it's called it's its way so how do I do it I use the right and I say if you say the long term and everyone else is not my judges not saying this monster you get a right okay next there are images you can see them well it's the same game it's Hillary against Trump and now we have new rules because now we are nature but at the same game you can choose to say hello me a chump and again if you say well everyone else say you get a challenge but now they're the new condition and I wanted their system things Hilary wonder what the in action so what I do now is I say to you if you say Hillary but everyone else will say chunk you will get a new maggot right so what this what might happen you would choose Hillary because this is giving you a reward in any case you can't lose because if the majority will say Hillary you will make a channel and if the majority is not saying Hillary you will get back right and what are the costs of these projects versus the budget well the costs are zero what does this mean if the attack will really succeed I don't have to pay anything as that checker because it's big what happened and everyone will say Hillary I don't have to pay anything because you just said Bertha my judgment but the one with is the budget if my tech is not working and this can happen because some people might think no an ethic an ethical person I would say the truth whatever happened oh my attack has communication problems from people that we know about their tech so if my attack for any but played and in the end not the my job to display easily I have to pay them all out so I have to pay to the people in my garage and this can be expensive so this there's the picture now so this can also be applied to the proof of growth in the same in the same way we have the motor before so if you choose to grow everyone choose it you can walk you on the main chain now with their check I want that the convey is in the main chain so what I do is I say if you choose from P but everyone else is choosing okay I would get your device and what will happen well if they try to succeed we may end up here because everyone will do this but if this is not succeeding I have to pay the people the bribe and this might be also the reason right actually not happens in Bitcoin already because this budget can be really hard we know that the different network is growing we know the Bitcoin price is so high and it means that I actually have to offer right which is higher than the main chain watch and 12 it colors today is quite a good month so this might be the reason whether attack actually didn't happen so far it could it could work but the budget the whiskey Bachchan is by height and well we have still things to talk about but we won't today but of course input mistake let's talk about this attack and they created a mechanism to already possibility even to have this technology and how do you take all these concepts and why should you care well have you ever wondered all these figures were a couple don't know why don't know what why there's 2.5 meters as a reward for helping what white is speed why is it like that wait a minute why is like that okay thing by an attack what everybody talks about is that everybody's familiar about that yeah and just how the networking compared it against World Vision attack and all these together is in theory everything together has to do with players yeah if you want to attack the game that's what my new love this game and the outcomes that have rewards in two minutes or not I will be managed by consuming electricity so everything together has been designed to create this numbers will be convenient in random but I quietly tougher because it's very well thought that's what mechanism design it's a reversal you go to the end find the end ok I wanted the network they are government network to behave this way so I choose carefully all the incentives became they're playing only pleasure on me and more all different scenarios there are different so many things that will happen and once you got everything figured out you decided sometimes this is what you should do when you create an SEO you create an open I see your token this is the same customers in SES versus venture capital ICS madness I mean when back in February remember the first one I see you every two months there's four for his use of the day it's completely mad because as you see nobody is paying attention to all these concepts came up creating a token you make it into the big world open world who what you're doing is creating an economy our draft and you started shooting and you start playing my engine and put it into a car wouldn't go fast oh yeah it will go fast this is where people that know a word they have no clue what they're doing and they create things like this that they usually stop the week they say you know Monica's measurement this is to be there's no there's no there's no actors progress are we thinking through taking into account how do we create determines all these destroyed tokens I use that are doing trading the markets see what was happening the market goes up now taking all screaming all these fears together and creating a product there are some there are some now today we're going to talk about one that this is this is the next section [Applause]