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A significant challenge intrinsic to various forms of consensus architectures is that while they can be engineered to be resilient against adversaries or collusions up to a certain threshold, should an attacker amass sufficient power, they remain fundamentally vulnerable. In a proof of work framework, if assailants possess less than 25% of mining capabilities while all other participants are non-colluding and rational, it can be demonstrated that proof of work is secure; conversely, if an attacker grows substantial enough to prevail, then the costs associated with the attack become negligible\u2014leading other miners to have a vested interest in supporting the assault. As we observed, SchellingCoin is exposed to a so-called P + epsilon attack<\/a> when faced with an assailant willing to bribe a sufficiently large sum, and is easily manipulable by a controlling majority attacker much like in proof of work.<\/p>\n <\/p>\n An inquiry that we might pose is whether there is a possibility of improvement. Especially if a pseudonymous cryptocurrency such as Bitcoin triumphs, and arguably even if it fails, there certainly exists some<\/i> obscure venture capital sector prepared to invest the billions required to execute such assaults, provided they can confidently anticipate swift profits from their endeavors. Therefore, what we ideally need are cryptoeconomic mechanisms that are not solely stable<\/em>, in the sense that there is a considerable threshold of minimum “magnitude” an attacker must possess, but also unexploitable<\/em>\u2014although we can never fully ascertain all the extrinsic<\/i> methods one could profit from assaulting a protocol, we aspire to ensure that the protocol provides no intrinsic<\/i> potential for profit through an attack, and ideally imposes a maximally high inherent cost.<\/p>\n <\/p>\n Certain types of protocols offer such potential; for instance, with proof of stake, we can penalize double-signing, and even in the event of a successful hostile fork, participants in the fork would still forfeit their deposits (note that to achieve this effectively, we need to incorporate a specific rule stating that forks that do not include evidence of double-signing for a designated duration are deemed invalid). Regrettably, for SchellingCoin-style mechanisms in their current state, such a possibility does not exist. There is no cryptographic means to distinguish between a SchellingCoin instance voting for the temperature in San Francisco being 4000000000’C because it genuinely is that hot, and one that votes for that temperature due to an assailant bribing individuals to do so. Voting-based DAOs, lacking a corresponding form of shareholder regulation, are susceptible to attacks where 51% of participants collude to appropriate all of the DAO’s assets. So what can be done?<\/p>\n <\/p>\n <\/p>\n A crucial characteristic shared by all these mechanisms is that they can be characterized as being objective<\/em>: the protocol’s functioning and consensus can be perpetuated at all times using merely nodes that possess nothing but the entire set of data published and the protocol’s rules themselves. There is no requisite “external information” (e.g., recent block hashes from block explorers, specifics regarding certain forking events, knowledge of external realities, reputation, etc.) necessary for securely interacting with the protocol. This contrasts with what we will refer to as subjective<\/em> mechanisms\u2014those that require external information to securely engage with them.<\/p>\n <\/p>\n When multiple tiers of the cryptoeconomic application stack<\/a> exist, each tier can independently be objective or subjective: Codius<\/a> facilitates subjectively determined scoring of oracles for smart contract validation atop objective blockchains (as each user must individually ascertain whether a specific oracle is reliable), and Ripple’s decentralized exchange offers objective execution over a primarily subjective blockchain. Generally, however, cryptoeconomic protocols to date strive to be as objective as possible.<\/p>\n <\/p>\n Objectivity has frequently been celebrated as one of the principal attributes of Bitcoin, and indeed it offers numerous advantages. However, simultaneously, it can also be a drawback. The core dilemma is as follows: as soon as you attempt to introduce something beyond the cryptoeconomic realm\u2014be it real-world currency rates, temperatures, events, reputations, or even time\u2014from the external world into the cryptoeconomic domain, you are trying to forge a connection where none previously existed. To illustrate this issue, contemplate the following two scenarios:<\/p>\n <\/p>\n <\/p>\n From the protocol’s standpoint, these two situations are entirely indistinguishable; between truth and lies, the protocol is exactly symmetrical. As a result, epistemic takeovers (the assailant persuading others that they’ve convinced everyone else to support an attack, potentially flipping an equilibrium at zero expense), P + epsilon assaults, profitable 51% attacks from extremely affluent individuals, and so forth, all come into play. Although one might initially conclude that objective systems, relying solely on information furnished by the protocol, are straightforward to analyze, this array of issues reveals that to a substantial extent, the reality is quite the opposite: objective protocols are susceptible to takeovers\u2014and potentially costless takeovers\u2014while standard economics and game theory are inadequately equipped to assess equilibrium shifts. The closest approximation we currently possess to a scientific discipline that attempts to analyze the complexity of equilibrium shifts is chaos theory, and it will be fascinating when crypto-protocols begin to be promoted as “chaos-theoretically guaranteed to safeguard your grandma’s funds.” <\/p>\n <\/p>\n Thus, we turn to subjectivity. The strength of subjectivity stems from the fact that concepts such as manipulation, takeovers, and deceit\u2014often undetectable or in some cases even indefinable within pure cryptography\u2014can be comprehended by the human community<\/i> surrounding the protocol quite effectively. To illustrate how subjectivity may function in practice, let us jump directly to an example. The example provided here will outline a new, third, hypothetical form of blockchain or DAO governance, which can be instrumental in complementing futarchy<\/a> and democracy: subjectivocracy. Pure subjectivocracy is defined quite simply:<\/p>\n <\/p>\n <\/p>\n All branches are permitted to coexist; it is left to the surrounding community to determine which branches they find significant. Subjectivocracy represents, in a manner, the ultimate non-coercive style of governance; no individual is ever compelled to endure a scenario where they do not get their preferred outcome, the sole caveat being that if your policy inclinations are unpopular, then you will find yourself on a branch with just a few others willing to engage with you. Perhaps, in some advanced society where nearly all resources have taken a digital form and everything tangible and beneficial is too inexpensive to meter, subjectivocracy could emerge as the favored governance method; but until that time arrives, the cryptoeconomy appears to be an ideal initial application.<\/p>\n <\/p>\n As another illustration, we can also examine how to implement subjectivocracy in SchellingCoin. First, let us articulate our “objective” rendition of SchellingCoin for contrast:<\/p>\n <\/p>\n <\/p>\n It is important to note that, as referenced in the article on P + epsilon attacks<\/a>, there exists a refinement by Paul Sztorc in which minority voters forfeit some of their tokens, and the more “disputed” a question becomes, the more tokens minority voters relinquish, even to the extent where at a 51\/49 split, minority voters lose all<\/em> their tokens to the majority. This effectively elevates the threshold for a P + epsilon attack. Nonetheless, raising the threshold is not entirely satisfactory; we are focused on achieving zero exploitability (once more, we formally define “exploitability” as “the protocol provides inherent opportunities for lucrative assaults”) altogether. Therefore, let\u2019s explore how subjectivity could assist. We will omit unchanged aspects:<\/p>\n <\/p>\n <\/p>\n Each version of the system possesses its own sub-currency and can be engaged with independently. It is up to the individual to choose which branch is more worthy of inquiry. The premise is that if a division occurs, the branch reflecting the correct answer will see an increased stake from those advocating for the truth, while the branch reflecting the incorrect answer will see an increase in stake from those misrepresenting, and users will hence favor asking questions in the branch where truth-seekers have a greater impact.<\/p>\n <\/p>\n Upon close examination, this reveals itself as merely an ingenious formalization for a reputation system. The system primarily records the votes of all participants, allowing each user wishing to make an inquiry to review the history of each respondent and subsequently select which cohort of participants to approach. A rather mundane, conventional, and seemingly not particularly cryptoeconomic method of addressing the issue. Now, where do we head next?<\/p>\n <\/p>\n <\/p>\n Absolute subjectivocracy, as outlined previously, encounters two significant challenges. Firstly, in most practical scenarios, there are simply too many decisions to make for it to be feasible for users to determine which branch they wish to be on for each decision. To mitigate overwhelming cognitive burdens and prevent storage overload, it is critical for the collection of subjectively-determined decisions to be kept as minimal as achievable.<\/p>\n <\/p>\n Secondly, if a particular user lacks a strong conviction regarding how a specific decision should be resolved (or alternatively, does not know what the rightful choice is), then they will struggle to identify which branch to follow. This challenge is especially pronounced within a category that may be termed “very uninformed users” (VUUs) – think not of Homer Simpson, but Homer Simpson’s refrigerator<\/a>. Instances include internet-of-things\/smart property applications (e.g., SUVs), other cryptoeconomic mechanisms (e.g., Ethereum contracts, distinct blockchains, etc.), hardware devices governed by DAOs, independently functioning autonomous agents, etc. In summary, machines that possess (i) no means of obtaining updated social information, and (ii) no intelligence beyond simply adhering to a predetermined protocol. VUUs are present, and it would be beneficial to devise a method of managing them.<\/p>\n <\/p>\n The initial problem is, surprisingly, essentially isomorphic to another well-known issue: the blockchain<\/a> scalability<\/a> problem<\/a>. The task is precisely the same: we aim to achieve a level of strength analogous to all users performing a certain type of validation on a system, but without necessitating that degree of effort being exerted each time. And in blockchain scalability, a recognized solution exists: try utilizing less intense strategies, like randomly selected consensus groups, to address problems by default, relying on full validation only as a contingency to be employed if a warning has been triggered. Here, we will employ a similar strategy: aim to utilize traditional governance to settle relatively non-controversial matters, using subjectivocracy as a fallback and last-resort incentive.<\/p>\n <\/p>\n Thus, let us define another alternative version of SchellingCoin:<\/p>\n <\/p>\n <\/p>\n Assuming an extremely generous premise whereby, in the case of a split, the incorrect branch rapidly diminishes and is disregarded, the (partial) payoff matrix begins to resemble the following (assuming the truth is A):<\/p>\n <\/p>\nBetween Truth and Lies<\/h3>\n
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Transitioning To Practicality<\/h3>\n
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