What the NFL and Blockchain Have in Common
The National Football Leauge is back in action. Millions of Americans gather around their televisions every Sunday, watching their favorite teams battle it out on the gridiron. Part of this tradition includes yelling at the televised referee, thinking it will influence their outcome.
Most people familiar with Blockchain have heard of some form of consensus protocol. Typically, the word blockchain is associated with Proof of Work, or what Bitcoin uses to verify transactions. This involves incentivized miners, operating a node to verify transactions in hopes of receiving an award. What most people don’t realize, is that countless new incentive systems have been architected, each with new use cases for decentralized applications. Proof of Stake is the consensus of Etherium, with similarities to protocols in the NFL.
Consensus in the NFL
Every football game includes three major agents. The two opposing teams, and the “neutral” third party referees. Imagine a controversial first down without a referee. The offensive team will always call it good, the defensive team will always call it short. This never-ending friction would lead to increased delays, more commercial breaks, and less viewership. Each call would take hours for a consensus to be reached in which both teams can agree. With the advent of referees, the third party is able to make the call, expediting the pace of play in the process.
If one team does not agree with the referee’s call, then they are able to throw a challenge. Each team is limited to two challenges per half, and they must stake a timeout if they are to call it. When a challenge flag is thrown, the referees must review their initial call. If the challenging team is successful, they receive the reward of the play being reversed in their favor. If their challenge is denied after further review, the ruling on the field stands, and their staked timeout is forfeited.
This incentive architecture is designed to tackle 3 key issues. The pace of play, rule validation, and trust. If there were no penalties or limits for challenging a call, every team would maximize their utility through attempts to overturn calls in their favor. Every call would be challenged, and without referees in place, the game would drag on forever. This protocol also establishes trust in the process. Football is a game designed to follow a set of protocols defined in the official rulebook. If teams are dishonest, they will not trust the other team’s judgment, and the game would fail. 3rd party validators establish trust as a mechanism to validate rules. With this comes a system to enforce their contractual obligations to play by the rules, or else face negative consequences such as losing a critical timeout, or financial penalties in other circumstances.
Consensus in Blockchain
A growing consensus protocol in blockchain is Proof of Stake. In this tokeneconomic model, agents must stake their claim with a deposit. Ethereum is the most commonly used protocol to enforce these forms of smart contracts. In this design, a user’s voting power is tied to the size of their stake. This follows the notion of high-risk, high-reward to some extent. By wagering a higher stake, the node is entitled to a larger portion of the transaction fees. In this protocol, users with a higher stake are incentivized to act honestly in line with the rules of the protocol. If the user acts dishonest, they forfeit their stake, which is then distributed through the network. This is different than Proof of Work, which requires a large net waste of resources to garnish a similar outcome. Although PoS favors wealthy users in terms of the staked tokens, it is more socialized than Proof of Work. This favors nodes with higher hash power, resulting in increased capital expenditure.
One great model of this mechanism is Doges on Trial. For those who don’t recall, Dogecoin is a “shitcoin,” built on top of Litecoin as a joke around a dog meme. In the Doges on Trial game, users are able to submit a Doge meme with a deposit, which is then validated by the protocol. A timer exists for if that no challenge is made after x number of days, then the meme is accepted, and the deposit is returned. If a prosecutor demes it not a Doge, then they must stake an equal amount of Ethereum to challenge the post. If they win the challenge, then .03 ETH is awarded. The ruling is determined by a random selection of judges. For a judge to be selected, they must stake at least 800 PNK (Pinakoin) into the Kleros contract. The more PNK a potential juror stakes, the higher their chances of being selected as a juror. The incentive to be a juror is in receiving arbitration fees provided by the losing party. In terms of running a blockchain application, the jurors are considered oracles who verify both party’s inputs. An oracle on the blockchain is a third party system that incorporates information from outside the network. In this case, the external information is the jurors own intuition and judgment. A player in this game is allowed to appeal a decision once, which increases the time to verification, which leads to increased security of the transaction.
How they relate
In football, teams compete against one another with the incentive to win each game. Winning provides a multitude of benefits. As the incentive to win increases, so does the incentive to cheat (i.e. deflategate), building the need for 3rd party validation in a system. Looking back to the example of a controversial first down, let’s build out a scenario where Tom Brady completes a pass to Gronk for a 10-yard gain, on a 4th down conversion attempt. Gronk’s knee touches down 1 yard before the marker, and he drops the ball 1 yard past the marker before he gets up. The ruling is that where ever the ball is when his knee touches down, is where the ball is down. However, he is incentivized to place it further than where is considered accurate within the rules. Patriots will call it a first down, and the Jaguars will call it short where his knee touched. During this, a referee operating as a third-party witness with a strong understanding of the rules calling it inches short, and a turnover on downs. Here we have a game similar to Doges on Trial, with the referees operating as the jurors. Now with a strong incentive to appeal, the Patriots stake a timeout in hopes of overturning the call to regain possession.
As jurors, referees want to make accurate calls to support their reputation. When a referee establishes themselves as trustworthy, their stake in the system goes up, increasing their chances of being called upon to officiate high stakes games like the super bowl. Similar to jurors in Doges on Trial, the incentive network in which they prove their stake, is separate from the rest of the game. They gain utility by providing accurate calls during each game, where each game outcome is tied to their market value in the referee network.
In both examples, bribery is possible to beat the architecture of their protocols. A team could theoretically bribe a referee to make calls in their favor. However, this is economically not viable assuming that referees can think rationally. For the bribe to make sense, it must be greater than the risk an individual agent will face from being ostracized from the referee network. In an Etherium application, a user could bribe validators at an exponential cost. The other aspect that makes bribing the outcome of an Ethereium contract more difficult than a football game, is the issue of democratized scale. As the number of users on a blockchain network increases, the economically viable probability, of bribing all actors to constitute a democratic majority falls with it.
It can be difficult making sense of tokeneconomic structures. The goal of these articles, is to bring more awareness into the space, identifying the benefits of Internet 3.0 on the blockchain.
