Tragedy of the Commons

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Revision as of 07:16, 11 March 2012 by Ripper234 (talk | contribs) (Add Dominant Assurance Contracts)
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See Wikipedia. In Game Theory, Tragedy of the Commons is a market failure scenario where a common good is produced in lower quantities than the public desires, or consumed in greater quantities than desired. One example is pollution - it is in the public's best interest not to pollute, by every individual has incentive to pollute (e.g. because burning fossil fuel is cheap, and individually each consumer doesn't affect the environment much).

The relevance to Bitcoin is a hypothetical market failure that might happen in the far future when the block reward from mining drops near zero. In the current Bitcoin design, the only fees miners earn at this time are Transaction fees. It is possible the honest miners will be under-incentivized, and that too few miners will mine, resulting in lower difficulty than what the public desires. This might mean various 51% attacks will happen frequently, and the Bitcoin will not function correctly.

The Bitcoin protocol can be altered to combat this problem - one proposed solution is adding Proof of Stake to the existing Proof of Work used to mine blocks, another is Dominant Assurance Contracts.

This scenario was discussed on several threads:

- Tragedy of the Commons
- Disturbingly low future difficulty equilibrium
- Stack Exchange

Currently there is no consensus whether this problem is real, and if so, what is the best solution.