The Mutually Assured Destruction model: Can it be used to spread the adoption of Bitcoin?

Remember the cold war between the USA and the USSR? It was a time of great tension for those in power with continuous reminders that if someone had a bad day in office, one slip up might lead to the end of civilization. This was because both the USSR and USA had such large arsenals that a single strike would lead to a counterstrike and would generate enough radiation to destroy the planet more than a dozen times over. The world almost came to an end in this way the month my little sister was born in 1962.

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This realization created an incentive change in military strategy known as MAD (Mutually Assured Destruction) and became a centerpiece in diplomacy during the 60’s up until the early 1990’s. The only way to “win” such an engagement was to make sure to not play. There were a couple of false alarms which alerted the authorities to the weakness of lack of consensus where one “authority” makes a grave mistake. Alternative checks were then built in to make sure accidents don't happen.

We have a similar safety mechanism built into Bitcoin and it’s called “multisig transactions” which stands for “multiple signature transactions”. It works by reducing the chances that a mistake or malice could lead to something undesirable by forcing a certain level of consensus using smart contracts. The following scene from Star Trek demonstrates this concept…

Let that be your last Battlefield

It occurred to me that we might be able to use a similar idea to help advance the use of nationless, borderless and censorship resistant cryptocurrencies by baking into the technology the incentive not to attack individual HODL’ers falling within the jurisdiction of a central authority. How do we do this while using voluntarist principles of nonaggression?

I’ve been working on understanding how government might break down the use of cryptocurrencies with regulation. There’s something known as Metcalfe’s Law that’s used as a predictor of the spread of network effect. Once critical mass in a network is reached, growth tends to be exponential. Within bitcoin and several other cryptocurrencies, the base formula doesn’t respond normally because of the scaling issue. Steem, Bitshares (and soon to be EOS) however lack this problem and might follow the adoption curve much more closely.

The Dunbar Number and its Effect in Cryptocurrency Adoption

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When hierarchical systems break down, there’s a tendency for the fracturing of communities to revert back to what’s known as the Dunbar number which is the idea that social organization tends to retain a group size between 100 and 250 people.

In my last article, I failed to mention that if the onramps and offramps are closed between national fiat and cryptocurrencies, there will be a significant decision to be made. Does one continue to use the resources of centralized fiat currency or does one stop accepting such flag money in favor of crypto? This decision is most likely going to break down along lines of merchant adoption. Those merchants that accept crypto then become the force in the direction of the choice to stay on board in cryptoland and never exit fiat. Those who stay with flag money will become a force for the status quo.

What happens when government regulators hold crypto? Will they be so eager to regulate their own holdings? This sort of thing tends to happen in small groups or pockets of the population and gradually expands. This first spread among the libertarians and anarchists but now we’re even seeing some government officials and bankers get in on the action. Once they do, their loyalty to the “system” will be tested.

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I bring up the Dunbar number here because this is the most likely breakdown scenario. The wildcard seems to be the point at which regulation starts to come into the picture. Does it happen before or after critical mass is reached? Once regulation is proposed, who will be on the side of the state and who will be on the side of decentralization?

It's practically certain that there will not be a uniform front on this issue and that an elite civil war will erupt. Why? Because of the incredible opportunities it offers budding psychopaths who've failed to achieve power. They can claim to have freed humanity, stab the opposition in the back, and get rich at the same time.

The Proof of Work Algorithm

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Effective means of dealing with bad actors is how effective game theoretical algorithms solve the problem of achieving consensus. The first such algorithm to bring bad actors in line is called the "proof of work" algorithm. It works in a way very similar to those Captcha's you see that try to differentiate between human and non human actions when filling out web forms.

In the case of proof of work, an encryption problem has to be solved in reverse. A "random" number called the "nonce" must be found. It's very easy to verify if the nonce has been found correctly, but very difficult to find that number because it involves a long process of trying random numbers to see if they can find a number below a certain threshold that solves the cryptographic puzzle.

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The reason you know cheating is unlikely has to do with the size of the network and everyone else checking the public values of the hashes to see if the nonce is correct. If a bad actor decides to fake it and claim the block reward, they can start a fork, but then they have to keep it up against the hash power of the entire network. Failure is practically certain and at the end, the network reverts back to "truth" and the cheater has a million dollar electric bill with nothing to show for it.

So how do we incentivize regulators to not do damage to the network? What incentive can you give such individuals to not collude with each other the way that they have for the past several centuries (really since the beginning of history)? It used to be the case that payoffs were made at certain critical moments to change the course of history. Perhaps Satoshi Nakamoto has one last ace up his sleeve when the critical time comes...

But just in case, it never hurts to have a "plan B". I believe there's a way to tame authority back into good behavior that involves voluntarist principles using blockchain. The truth as I've said before in many posts is that no control means no blame. At the same time retaining control will eventually lead to the destruction of all civilization. If authority cannot be made to see this fact logically, then a game theoretical incentive involving blockchain may be the last option.

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