delvingbitcoin

Can Game Theory Secure Scaling?

Can Game Theory Secure Scaling?

Original Postby harding

Posted on: April 17, 2024 15:13 UTC

The correspondence highlights a critical analysis of a proposed protocol in comparison to the LN-Symmetry (eltoo) mechanism, particularly focusing on the implications for honest parties in transactions.

In LN-Symmetry, the primary risk an honest party faces is the potential loss of transaction fees when updating the latest state on the blockchain. This cost is relatively minor, especially in the context of high-value channels, thereby minimizing the financial impact on the involved parties.

The critique extends to the proposed system's significant financial risk for honest participants who aim to penalize dishonesty. Specifically, the proposal suggests that an honest receiver, such as Bob, would only be inclined to accept a UTXO (Unspent Transaction Output) from a sender like Alice at a discounted rate. This discount compensates for the higher risks compared to other enforcement mechanisms which are cheaper and less risky. Conversely, for the sender or spender, Alice, the necessity to offer UTXOs at a risk premium above standard market rates for less-risky investments is emphasized. This requirement arises because the proposed system imposes a substantial fraction of funds at risk to deter dishonest actions.

The communication articulates concerns regarding the feasibility of finding a market match given these dynamics. The successful operation of the Lightning Network (LN) is attributed to the minimal expected loss for honest participants, which does not necessitate premiums or discounts in transactions. The skepticism towards the proposed system stems from the inherent high risk of loss, questioning its viability unless there's absolute certainty in the game theory predicting universal adherence to cooperative strategies without defection. This comparative analysis underscores the challenges in designing systems where the penalties for dishonesty do not disproportionately burden honest users, potentially hindering market compatibility and the overall functionality of such protocols.