What is The Tragedy of the Commons in Crypto?

In addition to being an awesome band name, the Tragedy of the Commons is an economic theory that addresses what happens when individuals acting independently in their own best interest behave contrary to the communities best interest and deplete or destroying a resource.

This presents an interesting conundrum in the Bitcoin world that I excerpt from Investopedia:

“Bitcoin uses a PoW system and as such is susceptible to a potential Tragedy of Commons. The Tragedy of Commons refers to a future point in time when there will be fewer bitcoin miners available due to little to no block reward from mining. The only fees that will be earned will come from transaction fees which will also diminish over time as users opt to pay lower fees for their transactions. With fewer miners than required mining for coins, the network becomes more vulnerable to a 51% attack. A 51% attack is when a miner or mining pool controls 51% of the computational power of the network and creates fraudulent blocks of transactions for himself, while invalidating the transactions of others in the network.

With a PoS, the attacker would need to obtain 51% of the cryptocurrency to carry out a 51% attack. The proof of stake avoids this ‘tragedy’ by making it disadvantageous for a miner with a 51% stake in a cryptocurrency to attack the network. Although it would be difficult and expensive to accumulate 51% of a reputable digital coin, a miner with 51% stake in the coin would not have it in his best interest to attack a network which he holds a majority share. If the value of the cryptocurrency falls, this means that the value of his holdings would also fall, and so the majority stake owner would be more incentivized to maintain a secure network.” – INVESTOPEDIA

Read more: Proof of Stake (PoS) Definition | Investopedia https://www.investopedia.com/terms/p/proof-stake-pos.asp#ixzz50d7kVcKP
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