After being amazed to see game theory play out within the Bitcoin ecosystem, it looks like it is going to play out on global scale too. When this happens and Bitcoin can proof it’s resilience, global dominance is the most likely outcome. A bumpy road will be ahead, but when it succeeds an astronomical rise in Bitcoin price will be a certain outcome.
What is game theory?
Game theory will lead all players involved to an outcome that is positive for Bitcoin because they all act in self interest. The idea is that all players have different political stands, principles and agreements, but at the moment that their self interest get’s hurt, they all will alter their stand and shift their priority.
Agreements will be broken, principles will be put aside and standpoints will be altered when the threat of personal loss comes closer. At the last moment, the entire group of entities involved will all undertake the right action to prevent a negative outcome for themselves and this will always be positive for Bitcoin. It can really look like total mayhem is ahead, but at the last moment all the pieces of the puzzle will be put exactly in the right place by the players in the ecosystem to save their own ass.
Game theory within the Bitcoin ecosystem
The UASF event
Game theory played an obvious roll in the scaling debate of Bitcoin. Until one week ahead of the 1st of August things were looking really bad and the Bitcoin price crashed because of fear that the network would fall in pieces caused by the UASF.
It really looked like a dirty chain split was unavoidable because the majority of the miners were signaling to not upgrade to Segwit and the majority of the users would reject these miners because they would only accept Segwit enabled blocks with their nodes. The outcome would be extremely ugly, people were even expecting the end of Bitcoin to be near.
Until the last week before the UASF should be triggered the situation didn't change significantly and everyone was expecting the worse. In the last week the fear among miners to mine a coin that is rejected by the majority of the users and thus worth less became so big that they changed to Segwit at the last moment. Their standpoints and principles were put aside to save their own prosperity.
At the 1st of August the network upgraded with near 100% consensus and the price of Bitcoin skyrocketed. This day also Bcash forked off, but because they intended to create an altcoin with a different name and ticker and included replay protection and because they only had a few percent following this was a non event at that moment.
The Segwit 2x event
The next exiting event would be Segwit 2x. Because many miners didn't want to lose face they joined the Segwit x2 movement to make it look like they implemented Segwit because they wanted to make a compromise. Heading to the Segwit 2x event a split was looking very likely because the users and the miners were divided again. A staggering 95% of the miners were signaling for Segwit x2, but future markets started with a price of 0.3 sliding down to 0.1 over time. This means that only less than 20% of the users were in favor of the planned update.
To make it even more complicated: a majority of the big businesses like Coinbase, Bitpay and Shapeshift were also supporting Segwit 2x, so when a split would happen the ticker of Bitcoin would be different among different exchanges. A huge mess was coming closer every day…….
When the trigger date came closer some players shifted their view, but nothing really relevant happened. The price of the futures slowly went down, so the 95% of the miners would mine a coin after the split that is only worth 10% of its previous value and thus lose a lot of money. Also businesses would face a loss of 80 to 90% of their customers because they wouldn't sell the Bitcoin that people want to buy anymore.
8 days before the fork would take place the event was cancelled by a few prominent proponents. They knew they would lose a lot of money and this made them put their standpoints and principles aside and this time it made them even break their agreement. Again powerful players were lead to make the right decisions for Bitcoin through the amazing game theory!
Although Segwit 2x didn't go through officially, a bunch of miners decided to do the hardfork. Because of a bug in the software the newly created blockchain crashed on arrival. Game theory really saved us from a HUGE disaster!
The effect of game theory
The users are using the coin and miners and businesses are there to serve them. The dream of many powerful entities is to take control over a valuable thing like the Bitcoin network, and that is what first the miners and later the businesses tried to do.
Miners tried to block Segwit so that they could keep using Asicboost to maintain their monopoly position and support their narrative to increase block size what would give them more control over time because full nodes would decrease in amount and miners would eventually be the only nodes in the network.
Segwit 2x was a takeover attempt by the most powerful businesses. When they could forse a fork to change the rules of the network by signing agreements behind closed doors they could change other rules to benefit themselves in the future too and this will lead to control over the network eventually. Game theory led to failure of both of the takeover attempts and even made the event happen in a smooth manner.
Game theory on global scale
Game theory will also start to play out on a global scale. Enemies of Bitcoin like governments and banks will reject, try to compromise and attack it because it is against their businessmodel, but they will eventually be forced to do what is good for Bitcoin, get involved to not become irrelevant.
The banking industry is evolved to a kartel because governments disallow competition without license. Because the extremely wealthy banking industry has lobbied for centuries they were able to influence the decision over what the rules to comply for the license would be. This way they could keep out competition with the result that the entire system is corrupted and became very inefficient over time (quantitive easing, fractional reserve banking, bail outs).
Bitcoin is the first competition to the banking kartel in more than a century and will really make their entire business model obsolete. Of course they will start with denial and try to figure out how they can stop it, but when they find out they can’t, they will be led by game theory.
When it becomes clear that this is the future, they will realize that they only will survive and even get rich when they join their biggest enemy (Bitcoin) early as early as possible and that they will go under when they don’t. Now they have to reconsider all their principles and agreements and weight it against the gains and losses they could get through their decision, and these are huge in this case.
Banks can use their current dominant position to be ahead when they are the first one to start a big Bitcoin trading desk or other related service and governments can really enrich themselves and even get rid of their huge dept when they start hoarding or mining Bitcoin first before others do.
The fact that they kill the other banks (even if it is a part of the kartel and they might have agreements) or disadvantage other governments becomes a lower priority when they see huge opportunity in combination with an increasing threat when they don't act. When a few of them move first it will increase the value and resilience of Bitcoin and make the situation for the others even worse. There will probably be a tipping point where all the entities drop there principles and rush into Bitcoin.
JP Morgan and Goldman Sachs
Jamie Dimon was a few months ago still in the denial phase and held strong to his principles by calling Bitcoin a fraud and saying that his employees would be fired when they are stupid enough to trade it, Goldman Sachs announced this week that Bitcoin is not a fraud and they will get involved.
This could be huge, because it is the first sign that game theory start to play out globally. The fact that the first Wallstreet bank that is one of the most important members of the banking kartel act by greed instead of principles can be very well a trigger to force others to follow because otherwise they will lose out big.
Once banks and governments start to jump on the Bitcoin train, it will be heavily rewarding to get involved in Bitcoin and entities that deny will be punished hard (Bitcoin skyrockets and all regular assets will be dumped). In this stage Bitcoin will suck up everything like a black hol.
Critical ingredients to enable game theory
Bitcoin is an unique asset, there is nothing else in this world that can create the same scenario as described above. For the game theory to play out and succeed you simply need a special set of features, that isn't found anywhere else, also not in other cryptocurrencies. It is important to know that these features are critical, when one is missing or weak it will certainly lead to failure. In the years to come they will all be tested on an extremely high level.
Valuable and limited in amount:
This is the most obvious one, when an asset is not valuable different entities will not compete to own or control an as big as possible part of the total supply.
Decentralized
When Bitcoin was not decentralized the strongest government on earth would take control over it using violence or the wealthiest entity on earth would buy it. Now this entity would control the money flow and supply and there would be no game to play for everyone else involved. When Ripple for example was the first cryptocurrency, the company should be seized and the CEO threatened or bribed to hand over control.
Indestructible and secure
Before the current elite will get involved they will first try to destroy it. When they figure out that this is not possible, they will realize that the only way to remain relevant is to own an as big as possible part. If you can’t beat it, join it!
Possibility to store and transfer in a not psychical form
Since you can keep a wallet in your brain, in the cloud or in a painting and send it everywhere in the world while nobody will be able to stop it, it will be impossible for governments to confiscate or disallow it. When a government tries to ban Bitcoin, citizen will still use it while the government will miss out on all the innovation and created wealth.
The ultimate test
It is very likely that the the ultimate test is near and will happen over the coming years in the proces that Bitcoin goes mainstream. Legacy rulers will try to stop Bitcoin in every single way, but when they fail they will lose a lot and Bitcoin will become stronger. When you think the scaling war was rough, I will say that I expect that the worse part could still come.
In the scaling war social media was used to mislead people, now it will be mainstream media. In the scaling war millions were used for manipulation, now it will be billions. In the scaling war the enemy was tweeting bad about Bitcoiners, now real violence and imprisonment could be used.
But if Bitcoin proves resilience during these tests, it will gain in value much more than it did after every internal attack that we have seen already and will be heading to mass adoption. All entities, no matter how hostile they are will jump on the Bitcoin train to not become irrelevant
Game theory is like an invisible hand that magically pushes all players in the right direction to make Bitcoin prevail!
Just found a website where people are mentioned who suddenly change their view:
https://99bitcoins.com/fiat-defectors/
Disclaimer
This is no financial advice, just my view on the market.
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