Game Theory



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Global Bitcoin Adoption: The Power of Game Theory

Two countries have already made Bitcoin legal tender. Read this blog to find out how Game Theory is affecting global Bitcoin adoption!

The wake of the annual Bitcoin conference signifies a year since the announcement of El Salvador making Bitcoin legal tender at the nation-state level. Just the thought of it alone captured the minds of many Bitcoin enthusiasts that truly believed in hyperbitcoinisation. Sure enough, there have been numerous rumours of new countries becoming the latest in making Bitcoin legal tender, demonstrating that game theory is well underway.

What Is Game Theory?

Game theory is considered the science of strategy. Depending on the social environment, competition from various players can get extremely tactical. Game Theory ultimately acts as the theoretical framework for people, institutions, and even a country’s method of navigating itself. Moreover, the intensity of the competition can range on a number of factors including rate of adoption, money at stake, and balance of power. In addition, once the race begins, fear of missing out can transpire rather quickly until you’re left with late adopters. Even at this point, game theory is still playing an important role as no one dares to become the last one on board. In summary, it becomes a game of chess for the highest proportion.

How Does Game Theory Affect Bitcoin Adoption Long Term?

Firstly, it’s essential to understand that Bitcoin has gone about its business in the same untampered way since its genesis block. This is the beauty of cryptography, mathematics, and decentralisation. It doesn’t get altered, the core functionalities cannot be manipulated, which as a result, means Bitcoin continues to churn out a block every 10 minutes. However, that doesn’t stop people from wanting to use and promote it. Its sound money principles made it merely an inevitability that a nation-state would adopt it as a form of currency. El Salvador made the brave decision and has since reaped the rewards of the first-mover advantage. At this stage, Game Theory is in its infancy but is most definitely underway.

One of the most popular criticisms spouted about Bitcoin is that it has no intrinsic value and simply relies on another person buying in at a higher price in order for the price to go up. Whether there is truth in that or not is subjective, but what isn’t subjective is that Bitcoin is a network effect. The best way to illustrate the enormity of this is through Metcalfe’s Law. “Metcalfe’s Law states that a network’s impact is the square of the number of nodes in the network. For example, if a network has 10 nodes, its inherent value is 100 (10 * 10)”. In Layman’s terms, the more people connected in the network, the stronger and more valuable the network becomes. Due to Bitcoin’s nimbleness as a digital code, its network effect is technically infinite. Therefore, Bitcoin becomes an extremely lucrative proposition if and only if, people, institutions, and countries decide to get on board. Let’s break down how Game Theory takes off.

Once Bitcoin’s antifragile, permissionless, immutable, transportable features eventually sink in, it wouldn’t surprise me if a state of anxiety about not owning this asset will kick in. And this is all before processing that an actual nation-state is already onboarding to the extent of creating its own bonds backed by the asset. Meanwhile, as more nations witness growth, innovation, and prosperity under a Bitcoin standard, it will cause a nation-state race to not be the last on board. Only days ago, the Central African Republic became the second nation to make Bitcoin legal tender. Consequently, what happens when the third, then the fourth country decide to make Bitcoin legal tender? It will then become a greater national risk for a country not owning Bitcoin than to have a little.

Finally, this level of game theory is more than underway with new countries every week embracing and loosening the restrictions on Crypto laws. For instance, in the months since El Salvador officially made Bitcoin legal tender, we have seen the state of Lugano in Switzerland declare Bitcoin as de-facto legal tender. Additionally, Dubai just introduced a law to boost Bitcoin’s exposure to become a world leader. More recently, Russia declared its interest in Crypto as an alternative means of payment. Almost immediately after, the US came out and stated they want to become the leading country in Bitcoin and Crypto.

Final Thoughts

To sum up, game theory is on and adoption is rampant. Approximately 250-300 million people own Crypto and it’s on course to hit a billion within the next few years. A few hardcore Bitcoiners view the asset as a black hole that sucks in market capitalisation from gold and stocks to the house market and bonds. Whilst that may seem farfetched, everything about Bitcoin makes it the hardest money ever existed. And who in their right mind wouldn’t want to own the hardest asset in existence. They just need to do one of two things: realise it or accept it.

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