Game theory it is the science related to the systematization of strategic conflict and cooperation between rational actors. It was formalized in the mid-1940s by the learned genius John Von Neumann, and then supposedly made his way into all kinds of science, though the only people talking about it are VC types like Balaji Srinivasan who uses it in salads. of words to make simple things sound very complex.
When game theory gained a bit of notoriety in pop culture with the depiction of John Forbes Nash Jr. in the 2001 biographical drama “A Beautiful Mind,” it somehow became one of those things that people thought that It could be used as a life hack without even really understanding that, like nootropics and magnetic bracelets. No seriously, what are nootropics?
To be fair, you can see a lot of things just by reading his Wikipedia entries, but that doesn’t make him an international affairs expert or set theorist. Not everything is a perfect example of a prisoner’s dilemma, or a tragedy of the commons, or a chicken game. Again, unless you’re in Silicon Valley and wearing those ugly thousand dollar tennis shoes all dress.
A game requires, at a minimum:
1. Rational actors: players who have specific objectives and act to achieve them.
2. A set of finite and well-defined actions that players can perform.
3. A set of possible finite and well-defined counterattacks to those actions of all other players.
Games become challenging and / or complex by:
1. Determine a player’s goals with certainty
2. Iterate the possible “moves” of a player given an opponent’s move, especially if it is a continuous game without a clearly defined end state. This can very quickly get bogged down in probability and Bayesian theory.
3.Determining how much information each player has at any given time
This is the reason why game theory simulations, even for moderately complex systems, are often based on computers.
Enter Bitcoin. That is, enter the space where Bitcoin, Bitcoiners, and other adjacent residences. Game theory is a frequent refutation / reason, exercised with a high level of confidence, for some actor doing this or that, or for hyperbitcoinization to be an inevitability. Presumably, this is because Bitcoin has extremely hard-to-change rules that generally encourage cooperation. But it’s not that simple.
We actually have (at least) three ongoing subgames, in which the actions and outcomes of one can potentially affect the actions and outcomes of another:
1. Act inside Bitcoin. This is more like a cooperative symmetric game, where agreements are enforced by a third party, which in this case is the protocol itself, and the identity of the actors is less important, again, due to the protocol.
2. Adoption of Bitcoin. The decision to move to number 1.
3. Interact with Bitcoin outside of it.
Let’s dig deeper.
The game theory of acting inside Bitcoin is hands down the most concrete of them. It is set by code, which is extremely difficult to modify and extremely expensive to manipulate. This high cost, translated as resistance to censorship and security, is a big part of the value that people find in Bitcoin. The predictability of particular actions by particular actors is well known. As the network becomes more robust and mining becomes more decentralized, this is hardly a topic of conversation anymore. Bitcoin will soon become denser than iridium, and finding some leverage against it will be largely unfeasible.
The bitcoin adoption game, while it is true that I am using the term a little more loosely here, is where things start to get interesting. The power structures that exist within national governments and the inherited financial system have been perpetuated in large part due to immoral actions, such as predatory lending, questionable wars, the petrodollar, cronyism, and the revolving door between them all. Maximum personal freedom and the current socio-economic and political climate are mutually exclusive. Again, this is not an opinion. Hyperbitcoinization means, at the very least, a severe moderation of this climate.
Adopting Bitcoin in any capacity does not immediately benefit most nations. Not since George Washington has such a powerful leader or entity resigned from power. No one should expect a great nation to stay quiet. Hyperbitcoinization will not bring us down the hill of good fortune. We have to go up ourselves and claim it. And it will be long and steep. No country will get out of a game in which they set the rules, and they can always adjust them to their advantage, and will enter another game with steel walls guarded by those who used to be their subjects. They must be pushed in.
Critical mass is, at least in part, one of the problems. That is why El Salvador’s actions are a watershed moment. Many people correctly theorized that it would be a smaller country, under some economic control of a larger one, to adopt Bitcoin. With much diligence and good faith effort, hopefully they will prosper, and your neighbors will be encouraged to do the same. And the great nations know that there is strength in numbers. It cannot be overstated that this alters the way things are done in the modern world and that other actors will try to thwart it.
A malicious and dishonest player cannot be reasonably expected to suddenly become cooperative.
Interacting with Bitcoin outside of it is, in the humble opinion of this writer, the most troublesome of these three games. The first two games now have considerable momentum behind them. Censorship or extreme regulation of Bitcoin seems to be the cheapest way to resist it. The form it would take is less than obvious, but the options are limited. You can (try) to restrict ownership, buying, trading (i.e. streaming / routing of transactions), or mining. Now, there are “only” four avenues, but each of them is as wide as the FBI portfolio is deep.
Bitcoin, like the Constitution or the Bill of Rights, is not self-enforcing. It requires protection. And the only thing that can be done is to make Bitcoin more anti-fragile. Fungibility and censorship resistance will lead the team to hyperbitcoinization.
All of this is to say that the road is not even paved yet, and we should not be too quick to assume that the road will be easy. But at least we know where we are going.
This is a Nameless guest post. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.