Cryptodynamic Principles

Cryptodynamics is a term coined here for the purpose of easily referring to the fundamental principles of Bitcoin. This is intended to both inform understanding of Bitcoin and differentiate it from other technologies. The principles are the minimal subset of cryptoeconomic principles necessary to achieve this objective.

While the choice of name is not essential, a rationale for it is provided below.

Crypto

“A crypto currency is a [money] that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of [units].” - Wikipedia

Dynamics

“Dynamics is the branch of applied mathematics ... concerned with the study of forces ... and their effect on motion.” - Wikipedia

Crypto + Dynamics

Cryptodynamics is the set of forces that secure Bitcoin transactions by controlling (1) definition of units, and (2) transfer of units.

Principles

Security force is entirely human in nature. People must act to secure anything, including Bitcoin. As an economic system, Bitcoin security can only expect people to act in an economically-rational manner (self interest). As such Bitcoin security forces are entirely based on the self-interested actions of individual persons, specifically:

• Risk Sharing
• Energy Sinking
• Power Regulating

These forces depend upon each other in order. Without risk sharing energy cannot be sunk into the system to balance the power of a censor. With these three forces intact Bitcoin can be secure. Without any one of them a technology is not Bitcoin.

It cannot be assumed that, given the incorporation of these forces that a Bitcoin is secure. Furthermore one may be more secure than another. It is only the case that given the incorporation of these forces a technology is a Bitcoin and that without them it is not.

The possibility of security afforded by these forces can be referred to as “cryptodynamic security”. So, for example, a proof-of-stake (PoS) technology violates the energy sinking principle, and is therefore not cryptodynamically secure, although a technology incorporating proof-of-work (PoW) and PoS may be, however the PoS aspect adds nothing to cryptodynamic security. Similarly a “permissioned blockchain” violates the risk sharing principle, and a money that relies entirely on subsidy for confirmation compensation violates the power balancing principle.