Matt Weinberg: A Mechanism Designer’s View on Cryptocurrency, Incentives, Trust, and Human Nature

Policy Punchline

Matt Weinberg is an assistant professor of Computer Science at Princeton University. His primary research interest is in Algorithmic Mechanism Design: auction design, cryptocurrency, voting systems, and more. In this interview, Prof. Weinberg provides both a detailed overview of mechanism design and its philosophical implications, and he discusses his latest research in the mechanism design of cryptocurrency. We go over the mining process of Bitcoin, the proof of stake innovations that are happening with Ethereum 2.0 and other blockchain projects, why Prof. Weinberg is optimistic about Algorand (a cryptocurrency project founded by Turing Award winner Silvio Micali), and other issues in the crypto space and beyond. One can intuitively interpret mechanism design as the reverse of game theory. Game theory is about what the agents should do given the environment, while mechanism design is about how the environment should be structured in the first place. Prof. Weinberg is a mechanism and algorithm designer. He refines system designs so that they can adapt to more settings over time. The fact that some of these theoretical settings might not model reality perfectly doesn’t bother Prof. Weinberg, as his mission is to narrow in on specific problems and shed light on how we can improve our thinking for them. Prof. Weinberg provides an overview of blockchain economics and computing mechanism? Namely, what is “a mechanism designer’s view on cryptocurrency?” It seems that a central tenet of cryptocurrency is that it removes trust from the financial system. The thinking goes that right now, the value of the currency is built upon trust in the government and banks. With crypto, however, the value of the currency is guaranteed by the very nature of the technology. How is this achieved? And what are the mechanism design issues that arise from this process? It strikes us that the value of crypto and DeFi (Decentralized Finance) is still built upon trust. Instead of trusting the financial system, users have to trust blockchains. We understand why computers and blockchains might theoretically be more trustworthy than centralized financial institutions like banks, but the widespread use of crypto is still predicated on trust, and, as we’ve seen with vaccines, public trust in science is not a guarantee. Why would this be any different for crypto? Blockchain tech is really about "taking away the human component" by empowering smart contracts (essentially apps built on blockchains) and decentralized decision-making mechanisms to guarantee the algorithms run smoothly. Consequently, we will not rely on human and counterparty risks but trust the algorithms. Is this vision a promising one to solve many of the human-centered problems, or in fact just another process that will end up getting muddled by the centralization of human power as shown in Bitcoin mining? Prof. Weinberg also explains the differences between proof of work vs. proof of stake. He talks about why he believes proof of stake and the Ethereum 2.0 future could represent a better future for blockchain mechanisms than the current proof of work mining process.