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Litecoin's Game Theory Gambit: Overcoming Crypto's Prisoner's Dilemma

Updated: Feb 20



In the heat of the Cuban Missile Crisis in 1962, Premier Khrushchev and President John F. Kennedy stood at a crossroads reminiscent of the Prisoner's Dilemma. The daunting choice between cooperation and escalation loomed, and despite their ideological differences, both parties chose cooperation. Deliberately weighing the risks and consequences, they recognized that the potential gains from betrayal weren't worth the peril of nuclear war.


The prisoner's dilemma, rooted in the world of game theory, illustrates the strategic interactions between rational parties. While predicting human behavior remains a challenge, dissecting risks and payoffs provides a lens into potential outcomes.


One of the current challenges in crypto is participants pursuing the betrayal option of the prisoner's dilemma to the great detriment of the overall asset class. While many of these same individuals would state that they became interested in crypto out of an interest in decentralization and human rights, the notion of economics as a zero-sum game is based on Marxist principles. The free market believes that the pie increases in size rather than remaining permanently fixed, and one party's loss is not necessarily another's gain.


Enter Litecoin, a standout asset that embraced cooperation over betrayal in the crypto iteration of the prisoner's dilemma. From pioneering the Lightning Network with the first payment channel to integrating SegWit when bitcoin hesitated, Litecoin exemplifies collaborative development in the face of both criticisms and challenges.


While many people might associate bitcoin with the Lightning Network, Litecoin paved the way for its brother with the first payment channel between Charlie Lee and Jack Mallers.


Likewise, Litecoin integrated SegWit at a time when bitcoin had cold feet on the matter, demonstrating that it could be safely implemented. This was also an example of cooperation in game theory; as Charlie Lee recounted in his history of Litecoin,


"Testnet can test out the technical function of the blockchain, but it can't test out the game theory of the blockchain. That's because there's no real value in testnet coins, so there's no reason for attackers to attack the chain if they can't profit from it. Litecoin changes that. If SegWit is on Litecoin, there will be incentives for people to attack it. If miners can steal millions from anyone-can-spend coins, they would. So, I had my mind set on getting SegWit on Litecoin."


Litecoin demonstrated mutually beneficial cooperation by advocating for merge-mining with Dogecoin. This strategic decision ensured the security of Dogecoin during a vulnerable period while also granting Litecoin a continuous minimum issuance, known as tail emissions, that will incentivize miners to secure the network long after $LTC's initial supply has been mined.


Additionally, Litecoin took a risk in pursuing fungibility with the addition of MWeb, which provides optional privacy. Should bitcoin ever decide to add this revolutionary feature, it will be because Litecoin spent years of development on the matter. This commitment to innovation stands out, especially when facing unwarranted attacks from maximalists, while unintentionally reinforcing Litecoin's dedication to responsible and successful development.


When OPEC meets this June in Vienna, they will set limits on how much each member can produce. Cooperation influences oil prices in a mutually beneficial direction, while betrayal provides a fleeting advantage with long-term negative repercussions. Likewise, petty attacks against reputable digital assets like Litecoin hinder overall asset growth and paint the asset class as immature to traditional investors. There is an old expression, "If you cut a king, you better cut him to the quick." In other words, cooperation becomes the wiser path when it's evident your adversary cannot be easily defeated. Litecoin has proven its resilience and ability to weather challenges and the crucible of time with over twelve years of 100% uptime.


Imagine a united front among proof of work digital currencies against centralized, VC-created projects, prioritizing cooperation over short-term advantage. Maximalists have chosen to violate their principles despite claiming to value decentralization and an understanding that economic growth is flexible. Believing that economics is a zero-sum game denies the reality of increased investment and capital accumulation, greater asset participation, market dynamics, changes in governmental and institutional policies, education and skill development, technological advancements, and better utilization of the asset itself. In short, maximalism is a denial of reality and one's stated values, an intellectual failing.


Reflecting on the Cuban Missile Crisis, Kennedy consulted game theorist Thomas Schelling, leveraging game theory to navigate potential outcomes. Firm resolve allowed Kennedy to find a solution, emphasizing cooperation over conflict. Cooperation came in the promise of the United States not to invade Cuba, while the Soviet Union committed to removing its missiles. The world sighed in relief as both parties stepped away from the brink of nuclear war.


As sound money standard-bearers, it's time to pursue cooperation against more significant threats, such as hostile government actors and traditional asset-class adversaries. If we do indeed value decentralization, freedom, and privacy, then let us embrace the wisdom of Solomon, who wrote:


"Though one may be overpowered, two can defend themselves. A cord of three strands is not quickly broken." - Ecclesiastes 4:12

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