Overview
Named after mathematician John Nash, a Nash Equilibrium is a 'stable' state in a strategic game. In the context of blockchain, developers aim to design protocols where 'following the rules' is a Nash Equilibrium for all participants.
Example in Bitcoin
In Bitcoin mining, the Nash Equilibrium is for miners to work on the longest chain. If a miner tries to mine on a different chain, they risk their blocks being rejected and losing their rewards. As long as the majority of miners follow the rules, it is in every individual miner's best interest to do the same.
Significance
Understanding Nash Equilibria helps cryptoeconomists identify potential weaknesses in a protocol where participants might find it more profitable to collude or attack the system.