From selfishness to cooperation

Why IOTA is the future model

Today we live in a world of abundance, at least the Western oriented cultures. Without regard to the earth, animals, plants and even other people, resources are wasted. The ecological footprint is a nice way to show this waste. The overshoot day, the day in a year when mankind has consumed the natural annual resources of the earth, comes earlier and earlier.

Wars are waged so that the powerful retain access to the resources they need to satisfy their own society. With the resources whole peoples are soothed, consumption is gloryfied, capitalism is deified.

“Everyone is the architect of his own fortune” said the Roman politician Appius Claudius Caecus (about 300 BC). Today selfishness is held high. We live in a time in which, unfortunately, many consider themselves more than those around them. It is chic to build a reality against the outside that does not correspond in any way to what one is. We have to exist in a world full of competition. We only see what we want to see and we only show ourselves as we want others to perceive us. For me, “Make America great again” is a saying that has turned nearly half of an entire nation into narcissists. Why not “Let’s make humanity great again”?

We have arrived at a point where the question is worth asking, is man really like that?

The selfish gene and the prisoner’s dilemma

As early as 1976 the British ethologist and evolutionary biologist Richard Dawkins published his greatest work to date “The selfish gene” in which he, overstated, says that a single gene is the smallest unit of egoism. Since the basis of our life is based on egoistic particles, which are only meant to secure their own survival, this should also have implications for the behaviour of the whole organism. Even social groups therefore behave selfishly and at the expense of other groups when it comes to survival. To put it bluntly, altruistic behavior would only make sense if it serves to spread one’s own genes.

A little earlier, in 1950, Merrill Flood and Melvin Dresher developed a game at the RAND Corporation, which was formalized by Albert W. Tucker and went down in history as “The prisoner’s dilemma”. The game is so ingeniously simple that many people think that there’s more to it than that. Entire bookshelves are still filled with treatises on this game in many different variations, which are always the same. The basic principle of the game is therefore explained here (see also Wikipedia):

Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communicating with the other. The prosecutors lack sufficient evidence to convict the pair on the principal charge, but they have enough to convict both on a lesser charge. Simultaneously, the prosecutors offer each prisoner a bargain. Each prisoner is given the opportunity either to betray the other by testifying that the other committed the crime, or to cooperate with the other by remaining silent. The offer is:

If A and B each betray the other, each of them serves two years in prison

If A betrays B but B remains silent, A will be set free and B will serve three years in prison (and vice versa)

If A and B both remain silent, both of them will only serve one year in prison (on the lesser charge).

Most games are zero-sum games, which means that if a player wins something, the opponent loses exactly the equivalent of it. In a non-zero sum game, however, the win of one is not necessarily the loss of the other. The Prisoner’s Dilemma is the classic of non-zero game, because reward and punishment are not reciprocal.

It is assumed that both prisoners understand the nature of the game, have no loyalty to each other, and will have no opportunity for retribution or reward outside the game. Regardless of what the other decides, each prisoner gets a higher reward by betraying the other (“defecting”). The reasoning involves an argument by dilemma: B will either cooperate or defect. If B cooperates, A should defect, because going free is better than serving 1 year. If B defects, A should also defect, because serving 2 years is better than serving 3. So either way, A should defect. Parallel reasoning will show that B should defect.

Schematic depiction of the prisoners dilemma from Wikipedia

Because defection always results in a better payoff than cooperation regardless of the other player’s choice, it is a dominant strategy. Mutual defection is the only strong Nash equilibrium in the game (i.e. the only outcome from which each player could only do worse by unilaterally changing strategy). The dilemma, then, is that mutual cooperation yields a better outcome than mutual defection but is not the rational outcome because the choice to cooperate, from a self-interested perspective, is irrational.

In reality, however, people tend to cooperate even in a unique game. So they do not act strictly rationally.

In most cases, the game was assumed to have inexhaustible resources. But if we transfer that to the real world economy, we find that resources are not infinite. A new study on the topic of Seifi and Crowther (Seifi and Crowther, Ind Eng Manage 2018, 7:1) takes into account the impact of resource depletion on the game.

Resource scarcity is a reality in today’s economic environment. The consequence of this irrefutable fact is that the use of resources by one company harms another company. The competitive situation for the diminishing raw materials makes a strategy of cooperation impossible. What follows are takeover battles and the monopolization of markets. In simple terms it can be said that cooperations are only entered into in dependency relationships, but in the competitive situation everyone looks at it for himself. Normally a company will not cheat a supplier and the supplier will not deliver bad goods. But companies that are looking for the same market will always be out to chase the other market share and the ways and means can be sinisterly hypocritical and vicious. As long as a competitive situation prevails among suppliers, the consumer ultimately has the opportunity to reward or punish them with his choice. If, however, the consumer is dependent on a monopolist, he is at the mercy of that monopolist. The authors of the study claim that the best strategy in the case of a scarcity of resources would actually be cooperation. But this can usually only be enforced by external pressure. A good example of this are the CO2 certificates that are traded today. They create a kind of cooperation mechanism without individual countries having to renounce their wasteful use of non-renewable energies.

If we now go back to the empirical findings in the Prisoner’s Dilemma game, people seem to include their years of life in their decision as an exhaustible resource. They do what is rationally most favourable when resources (life years) are scarce: they cooperate. Maybe this is the most misunderstood point in the prisoners dilemma, and the reason why people do have a tendence to cooperate.

And what does it look like in Crypto Space?

If we now refer these theories to the space of crypto currencies, we can see why very few currencies offer a solution for a prosperous future.

Actually, the basic idea behind crypto currencies is that the parties involved trust each other and thus cooperate. It is through this cooperation that the blockchain is made possible. And the trust is based on the fact that every transaction is publicly visible. Trust is also created by the fact that the majority decides what is a valid transaction and what is not.

For the two top dogs in crypto space proof of work (PoW) is the basis for creating new blocks and minting new Bitcoins and Ethereum. Proof of work is simply defined as to solve a cryptographic puzzle in order to verify a block. The one that first solves the puzzle will be rewarded with newly issued Bitcoins.

The BTC mining process

So, computing power is the resource needed to keep the currency alive. Those who provide computing power receive a reward for this, which is what the users of the currency are charged as transaction costs when they make a payment. Since the number of transactions per second is limited for both currencies (7 for BTC and about 20 for ETH), those transactions that pay a higher surcharge for the transaction are given preferential treatment. This system has had the effect that in times when the Bitcoin network has been overused, i.e. a lot of transactions have been entered, the transaction costs have increased to 30 USD or more and this regardless of the amount sent. In a bull market, when the price of the bitcoin rises, many miners expect an advantage and more and more provide their computing power. In such times the difficulty of the puzzle to be solved is increased. This is because the only constant in the system is the rate at which the blocks are mined. If the computing power would increase without adjusting the difficulty of the puzzle, the blocks would be mined faster. With Bitcoin the expected block time is 10 minutes, with Ethereum it is between 10 and 20 seconds.

Adjusting the difficulty of the cryptographic puzzle in BTC mining (source)

Comparison of BTC hashhrate (blue) and BTC price (green) on a log scale. The hashrate increases when price increases and remains roughly the same if the price falls or remains the same. (Hashrate, BTC Price)

In fact, a single BTC transaction in August 2018 consumed about 900 kWh, or about as much as a trip in a Tesla Model S P100D from Miami FL to Seatle WA (see here). At the moment the value is 727 kWh, which is still extremely high (for more statistics see here) and overall the Bitcoin network alone needs about as much energy as Austria.

The focus on this waste of energy is often smiled at in the discussion with Bitcoin maximalists and dismissed with the argument that in the future the energy supply should no longer be a problem. Most Bitcoin maximalists do not know the answer to the question when this future will come. As a matter of fact, the energy question will not be solved in the near future, even with the massive development of renewable energies. The climate consequences are now becoming more and more obvious, see for example the extreme forest fires in California or the accumulation of ever stronger hurricanes at the American east and south coast as well as the accumulation of heat summers and droughts coupled with heavy rainfall and flooding in Central Europe.

Simplified, the problem is that all miners solve the same puzzle to successfully create a block in the chain. All miners must have access to the entire block chain (storage capacity). So each miner is required to provide space for a complete copy of the blockchain and to consume power to solve the cryptographic puzzle. In the end, only the player who successfully solved the puzzle first wins. Successfully solved is also recorded in the consensus. This means that whoever controls more than 50% of the computing power also controls the evolution of the blockchain and determines which transactions are valid and which are not. A takeover scenario in the world of blockchains is therefore a 51% attack. With sufficient computing power, an attacker can take over a blockchain and execute transactions at will, or quickly calculate the blockchain to the end and thus produce all coins.

Until five to six years ago this was not a big problem. The necessary computing power was still accessible to everyone with special hardware. The decentralistic ideology behind the blockchain was still fulfilled and a 51% attack would have been possible only coordinated under many miners, which would have corresponded in the actual sense of a democratic decision. Today, however, the necessary computing power exceeds the capacities of individual miners. This has led to the formation of large computer centres which sell subscriptions and provide the computing power on behalf of the subscribers. These data centres are also known as mining pools. This development is logical when everyone thinks of their profit. If I join a large mining pool, it is more likely that I will see a reward for my efforts, even if I have to share it with many others. If I dig on my own, I only need expensive hardware and consume electricity with a negligible probability of getting something back. It can be compared to participating in lottery communities. You never win the whole main prize as an individual, but you regularly win smaller amounts for it.

A simple switching on and off of one’s own computer to support or reject the development direction of a blockchain is practically no longer possible from the point of view of mining pools and democracy shifts to a party system, where the individual participant can only change parties after a certain period of time without sanction, namely when his subscription contract expires. This is also why the hash rate stays the about the same when BTC price falls. A quick exit is not possible.

The existence of mining pools now leads to a competitive situation within a currency. The larger a single pool is, the more power it has. In principle, it is the same as in politics. Whoever has the most votes determines at the end of the day where things go.

By the end of 2012, the mining pools had only absorbed 50% of the computing power of the Bitcoin network. By 2018, 4 mining pools alone account for more than 50% of the computing power and only about 6% of the computing power is of unknown origin.

Hashpower distribution among minig pools. A comparison of 2012 and 2018 (source)

The wars for computing resources have just begun (#HashWarLive)

Almost every crypto currency has made its source code public. If this is not the case, it is not trusted either. As a consequence the code can be further developed by anybody. For example, Bitcoin Cash (BCH) was created from a fork of Bitcoin in August 2017. BCH promised to solve the problem of limited transactions by enlarging the blocks to store more transactions in a single block. Bitcoin Cash wanted to become the Bitcoin that solves the scalability problem and can be used by everyone in their daily lives. If such a new currency is created (a fork from an old currency), then this currency also needs miners. However, the number of miners will not double with the fork. In such a case there will be a competition for the resources between the currencies. If the new currency is not supported by enough miners, it will not survive. This is exactly what Bitcoin Cash has been accused of in recent days. The computing power behind Bitcoin Cash decreased more and more and amounted to only 8% of the computing power of Bitcoin (see here). 60% of this is controlled by three mining pools, all of which are assigned to Craig Wright (see here). The Hashpower of Bitcoin Cash is so low that with the Hashpower of Bitcoin the entire Bitcoin Cash blockchain could be taken over within 20 days (see here).

If resources are scarce, then we have seen that it is very difficult to cooperate according to the usual economic models. In such a case, hostile takeovers and bankruptcies occur. Such a hostile takeover was also announced in the course of the Bitcoin Cash fork on November 15th 2018. There was a threat to take over Bitcoin Cash with a 51% attack and then extend this to other crypto currencies as far as possible. This is not an impossible scenario. The computing power of the Bitcoin Cash network is, as already mentioned, relatively low, so a successful 51% attack is quite conceivable (see here). So we have arrived in the imperialistic age of the crypto currency culture, respectively the wars for computing resources have just begun. This is due to the fact that the most common crypto currencies have been built on the basis of today’s economic models.

In view of the narcissistic “When Lambo” culture of the whole crypto space, there is no way around the fact that the displacement fight of crypto currencies also takes place. The bubble must burst, because too many egoists have enriched themselves with the egoism of the late beginners. The market was deliberately manipulated by those who play with big stakes and who are commonly known as whales. Towards the end of 2017 the fear was stirred up that something could be missed (Fear Of Missing Out FOMO). The brains of the newcomers were completely out of control and blind investments were made. The whales now feast on the money of these newcomers when they take their winnings home.

The last question we need to ask ourselves now is:

Is man really like that, or is there another way?

There is hope

Yes, there is another way and IOTA shows how it is possible. Behind IOTA stands the idea of cooperation. Anyone who wants to carry out a transaction confirms with his transaction two previous ones. The puzzle, which must be calculated as proof of the validity of the transaction, is relatively simple and does not have to be calculated unnecessarily countless times. This small proof of work can be outsourced by low-resource devices. In tomorrow’s house, for example, it will be possible to have a computer that can do the math for all the residents’ devices. A company can also operate a computer centre independently and have its own centre calculate the proof of work for the transactions in its business. The main principle, however, is that each transaction is linked to two previous ones and thus helps to confirm them. This results in the IOTA characteristic Directed Acyclic Graph DAG.

Snapshot of IOTA’s tangle (DAG) as presented by tangle.glumb.de (2018–10–16)

At the moment, transactions are additionally confirmed every minute by the central coordinator. Only transactions that have been confirmed by this instance are considered accepted. This is a device that is necessary to protect the system from manipulation and takeover at an early stage, similar to a bicycle with supporting wheels. With sufficient computing power, it would also be possible to take over the tangle. And in a hostile environment full of narcissists such an act is not inconceivable. However, as soon as the IOTA network is large enough and enough transactions are generated, the declared goal of the IOTA Foundation is to shut down the Central Coordinator (coordicide.iota.org). As soon as the network is large enough, a takeover supported by computing power will be nearly impossible. By then at the latest, IOTA will be completely decentralized if not distributed (read here the path to coordicide).

IOTA has not acquired many mathematicians and game theorists by chance (IOTA team). During the implementation it is important to know the parameters, which are decisive for keeping the trust in the network high when the coordinator is switched off.

For example, the IOTA Foundation is currently conducting research into economic incentive systems and also into the switch-off of the coordinator (IOTA’s research roadmap)

In general, it has been recognized by many that the path IOTA takes has many advantages (Dr. Richard Mark Soley of OMG — Object Management Group: IOTA is the obvious solution and standardization will make it stronger; or Die Deutsche Bank AG: IOTA has solved the most im portant problems oft he blockchain)

IOTA is scalable, meaning that the theoretical limit of the number of transactions per second is based on the physical properties of the underlying technology on which the transactions are performed. Cooperation in such a way that all involved jointly confirm existing transactions, makes the tangle scalable.

Transaction fees are eliminated because the system of mining is missing.

Microtransactions are possible because there are no transaction fees.

Resource-saving: No devastating computer power is required to participate in the IOTA network.

In addition, IOTA does not simply offer a payment system, it is not simply a crypto currency, but a modern protocol, which is also quantum resistant and sets new standards in connection with Masked Authenticated Messaging MAM and Qubic (yet to be finished), comparable to the introduction of the hypertext transfer protocol http by Tim Berners Lee at the beginning of the 1990s in the last century, which founded the era of the world wide web www.

Tim Berners Lee answering to the question whether he had mixed feelings about “cashing in” on the web:

«Not really. It was simply that had the technology been proprietary, and in my total control, it would probably not have taken off. The decision to make the Web an open system was necessary for it to be universal. You can’t propose that something be a universal space and at the same time keep control of it.» Tim Berners Lee (source)

Interestingly, Dominik Schiener, co-founder of IOTA , also speaks of a charitable idea:

«We realized that the potential of technology is simply too great to be limited by patents — this is a conflict of interest. That’s why this foundation idea makes so much sense, because of course the base layer, IOTA, should be freely usable and open source. It should be used as much as possible. In our opinion, the foundation is the best way to promote dissemination. That’s why I came up with this charitable idea. We want to bring the big companies, start-ups and governments together to form and invest in an ecosystem.» Dominik Schiener (11 January 2018) interview with Jannik Hüls, Codecentric (translated from german)

And he clearly distances himself and the IOTA Foundation from crypto hype.

«We created the IOTA token to allow value transfer, but we distance ourselves from the crypto hype. We’re just focusing on being productive.» Dominik Schiener at Business Summit November 2018 Süddeutsche Zeitung

My opinion is that those who foster competition in a situation with resource depletion are doomed to fail. More than ever, we live in a time where cooperation must take the place of competition. If we, humanity, do not take this step, we will ruin ourselves. In this sence I conclude that great developments are made for humanity, not for selfishness. And IOTA is such a great product.

«Let’s make humanity great again»

Further information about IOTA

IOTA Homepage

IOTA Qubic

IOTA for developers

IOTA Wallet

A descriptive introduction to the functioning of the tangle (by Alon Gal)

The IOTA Chronicle (by Tangleblog)

The IOTA Ecosystem

The IOTA Data Marketplace

IOTA Directory

Tangle Visualizations:

https://tanglemonitor.com

http://tangle.glumb.de

Disclosure

The Author declares that the content of this article is his own perspective on the topic. The author is member of IOTA Evangelist Network IEN and holds some investments in IOTA. The content of this article shall by no way be an investment guide. The author encourages the readers to do their own research (DYOR) especially when it comes to invest into cryptocurrencies.

IOTA donations are welcome (even tiny ones, which is possible with IOTA because there are no fees):

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