Should Bitcoin be considered a zero-sum game?

In principle, you can use Bitcoin to pay for things electronically. Bitcoin turns out to be a clunky, slow, costly, and – due to its volatility – a very uncertain means of payment. A lot of work is still to be done to improve the Bitcoin as a practical means of payment, but what remains is that for now Bitcoin can only be considered to be an asset, i.e. a “value store”.

A Bitcoin is a very peculiar type of asset though. It has no intrinsic value at all: you cannot eat it, nor live in it, nor use it as a half-product in something else, nor refine it. Bitcoin has no physical existence and has no other purpose, consisting of nothing but a digital record stored on computers. As a result, Bitcoin is an ’empty’ asset whose price is purely speculative.

The value of a bitcoin as an asset is based on the trust of its participants in the technical bitcoin construction itself. But more important is the belief that somebody else out there will buy your bitcoin against, at least, the current rates for real money or equivalents in goods/services in the future who in turn is believing the same ad infinitum. If you do not believe these two premises to hold you will not buy into bitcoin or sell your bitcoin as soon as possible. So, buying into bitcoin is all based on a crucial assumption: somebody out there will buy your bitcoin.

You and all other participants cannot do anything else with bitcoin then to hold them or sell them. If somebody buys bitcoin this automatically implies somebody else is selling it. Or when somebody uses the bitcoin to buy goods or services it is selling the bitcoin for these goods and services. The seller now has become a bitcoin holder. These goods and services represent a value that can be expressed in a currency as well. So directly or indirectly the bitcoin is exchanged for money and vice versa.

So, if all participants can only exchange bitcoins amongst each other for currency does than not automatically imply that the gain of one participant is the loss of another? Is Bitcoin a multi-player (infinite) zero-sum game?

If the zero-sum game hypothesis holds it implies that for every gain of one participant an equal loss will be incurred by other participants (s) at some time. The gains and losses will balance each other out: if somebody wins (i.e. has more money after holding bitcoin than initially invested), others will have lost the same amount.

Bitcoin is all about the redistribution of wealth between the losers and the winners of the scheme.

In a follow-up post, I will explore whether the premises of a zero-sum game are indeed applicable for Bitcoin.

2018-01-31T11:33:50+00:00January 30th, 2018|Categories: Against the tide, Bitcoin|Tags: , , |