Mechanism Design and Cryptoeconomics

Vlad Zamfir, one the lead developers for Ethereum, stated in a recent talk (https://www.youtube.com/watch?v=uIVnhiZKZi8&feature=youtu.be) that he's working in "crypto-economics," applying mechanism design to distributed systems problems.

So what is mechanism design? Mechanism design is the art of designing rules so that the people are motivated to report their preferences truthfully and a (socially) desirable outcome is chosen.

To give a silly example, when I (Kate) was in college, student clubs were partially funded by the college. The funds were distributed according to how large the clubs were, and how much they had spent in the previous year. So, all of the clubs 1) always spent everything they had by the end of the year so that it didn't look like they had money to spare that might be taken away next year, and 2) would ask for more money than they needed so that when the final amount was negotiated down, it was closer to what they actually wanted. This is an example of bad mechanism design! The incentive is to waste money and basically lie about how much you need! But what if we could design a system such that the student club had an incentive to be honest?

That's called "strategyproofness" in mechanism design. In proof of stake in blockchain tech, it's important that nodes have an incentive to be honest. We'll be talking about all this and more in the meetup.

Further reading:

Vitalik Buterin's talk on Mechanism Design (http://www.coindesk.com/vitalik-buterin-doubles-ethereum-incentive-strategy/) in April 2017 (and slides (http://fc17.ifca.ai/wtsc/Vitalik%20Malta.pdf))

The History of Casper (https://medium.com/@Vlad_Zamfir/the-history-of-casper-chapter-4-3855638b5f0e)(Ethereum's proof of stake implementation)