The Bitcoin Dilemma – Bitcoin Magazine: Bitcoin News, Articles, Charts and Guides
The Bitcoin dilemma
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Game theory is the science of multi-agent decision making. He uses mathematics to study the strategic interaction of rational decision makers. Game theory has social, logical, and computational applications. It also has Bitcoin applications at the personal, social, business and national level.
Perfect or imperfect information
Sequential games can be organized into two categories, those with perfect information (eg, checkers) and those with imperfect information (eg, bridge). A perfect information game requires that all players know the strategies and payouts available to other players, but also the actions or moves each has already taken.
For the purposes of this essay, we will consider Bitcoin game “players” to be not only those who hold Bitcoin but also run a node. Here we will define “movements” as on-chain transactions, or the lack thereof, on the Bitcoin public ledger.
If we think of Bitcoin as an accumulation game, its information is perfect on the surface, but imperfect beyond that. It would appear that all node runners know all the strategies and payouts available to other players, for example, they can check how much Bitcoin they have, and they can even examine how many Bitcoin other addresses usually have on the big one. public book, although matching all Bitcoin addresses to specific players is an impossible task. In addition, all players can see the massive payoff from the common hodling strategy.
The reverse is also true, players are generally aware that selling sats at any time puts them at great risk of having to buy back sats at a higher or sometimes infeasible price. Most of the players who sold their hundreds and thousands of Bitcoin in the first few years will never own that much Bitcoin again. The act of hodling is an emerging strategy that takes players more or less time to adopt, although nothing has stopped someone from hodling Bitcoin from the start. Indeed, Satoshi taught us to remember our Bitcoin from the start.
Bitcoin’s offering is auditable for all players, consensus rules are publicly available for every player to verify. All the moves that have been made, chain trades are public, although assigning specific moves to specific players is often not possible.
There are also a host of more complex Bitcoin accumulation strategies that have been highlighted on the blockchain, including the wealthiest players triggering massive sales and scooping up cheap Bitcoin at a discounted price. The more complicated derivatives strategies and a host of other Bitcoin accumulation and mining strategies are not widely known, however, and not all of them have been developed. This is part of what makes the build-up of Bitcoin such a creative and to some extent individualized pursuit. All in all, you could say that Bitcoin does not meet our prerequisites for a perfect information game. Therefore, the accumulation of Bitcoin is a game of imperfect information.
Complete or incomplete information
Bitcoin could be viewed as a comprehensive information game, which only requires players to know the strategies and payouts available to other players. Indeed, all rational Bitcoin strategies boil down to increasing the rate of accumulation and not selling the accumulated Bitcoin.
A game of incomplete information becomes a game of imperfect information when one or more players perform a move by nature, or without stake in a strategic outcome, effectively generating randomness. Proof of stake titles work like this. Outside of Bitcoin, one can never really be sure of owning a cryptocurrency as it is always susceptible to confiscation or negation via a hard fork initiated by some form of governance. Bitcoin secures your ownership and doesn’t deprive players of the right to vote through upgrades. Although it can be argued that there are also many inherent movements in Bitcoin, in the sense that the markets are irrational, but they do not appear to be random.
Chess is a combinatorial game of perfect information. The combinatorial subcategory of games refers to those in which the optimal strategy is based on a myriad of possible moves. Although chess is a perfect information game, a demonstrable optimal unifying strategy for chess has not been found. A novice chess player may experience information paralysis or data overload due to the combinatorial nature of the game. If Bitcoin is combinatorial, the myriad of moves are all possible economic tradeoffs to acquire it, and the optimal strategy is to buy and hold Bitcoin and never sell it.
Alpha-beta pruning is a type of computer program that uses a search algorithm. The program stops evaluating a shot when it turns out to be worse than the one previously examined. Artificial neural networks train through reinforcement learning to make games like chess more computational. Many people who come to Bitcoin make strategic mistakes first, those with good internal alpha-beta pruning processes tend to forgo trading in stocks and other assets, buying crypto. -currencies and the purchase of almost everything besides Bitcoin.
A game is cooperative if the players can form alliances which are enforced from the outside. Accumulating Bitcoin is in a broader sense cooperative. For the record, you can probably stack more Bitcoin by working for a Bitcoin company, which offers other opportunities to work with more people who have Bitcoin than working in a grocery store, which probably doesn’t present any opportunity to growth, at an inflated salary. The Bitcoin network is full of businesses and mining companies reallocating capital in ways that are mutually beneficial for employers and employees. In this way, the accumulation of Bitcoin prompts Bitcoin holders to work together to bring valuable products to market.
Games in which players can make deals but only through self-enforcement (eg, a credible threat) are not cooperative. Cooperative games can be studied with predictions of coalition formation, joint group actions, and collective gains. Bitcoin exchanges, miners, mining pools, and businesses are all diligently studied in this way.
The prisoner’s dilemma
The Prisoner’s Dilemma is a game that proves why two rational individuals acting in their own interests may not cooperate to achieve an optimal result. This theoretical game is played as follows: Two friends are arrested for a crime. They are held in solitary confinement with no means of communication between them. Prosecutors don’t have enough evidence to jail the two on the main count, but they can both be jailed on less serious counts. Each person is offered the same business, in their own cell, at the same time. They each have the opportunity to cooperate with each other while remaining silent, or to betray, and to testify that the other person has committed the crime.
In this game, there are four possible outcomes *:
1) A and B both betray each other and each serve two years in prison.
2) A betrays B, but B remains silent. A is released, while B is serving three years in prison.
3) A remains silent, but B betrays A. A serves three years in prison, while B is released.
4) A and B remain silent. Both will only serve one year in prison for any charge.
* It is implied that the decision to betray or remain silent will not affect a player’s reputation or well-being in the future. Imagine that there are no repercussions apart from possible prison sentences. The strategy of this game changes when players play multiple times in a row, but that’s a topic for another try.
Below is the payoff matrix for the Prisoner’s Dilemma.
We can see from this payoff matrix that in order to get the optimal outcome, one player has to betray the other. This means that two purely rational players will betray each other. While there is a slight advantage in both players staying silent (a shorter prison sentence), the risk of your partner defecting is very high. Prisoner’s Dilemma is a non-cooperative game, as players have no information about the respective choice of the other player. The Prisoner’s Dilemma is a complete information game in the sense that each knows the gains and strategies available to the other, but also a flawed information game, because, at the decisive moment, it is not known whether its co -player is silent or betrayed. .
The Bitcoin dilemma
How does this apply to Bitcoin? A similar pattern can be found at any scale in our Bitcoin game. If you take two individuals, companies, competing nations, large corporations, all entities for which the goal is to acquire more capital and get richer, they are all conscious participants or not in the Bitcoin dilemma. Players can choose to accumulate Bitcoin at any time or rely on a higher price.
On September 7, El Salvador became the first country to make Bitcoin legal tender. The world is watching this experience, and Bitcoiners are eager to see which country will be the next to adopt Bitcoin as nations are forced to compete by accumulating or being left behind.
In September, Edward Snowden took to Twitter to urge nations to embrace Bitcoin. After El Salvador made Bitcoin legal tender, the game theory prisoner’s dilemma regarding the nation’s adoption of Bitcoin began to manifest itself in global geopolitics. The famous whistleblower pointed out that Bitcoin favors entities (at all levels) who adopt it early, thereby putting pressure on other parties, who will be penalized for falling behind.
Adoption works so at the individual level as well, any island community unaware of Bitcoin can live for some time without noticing the effects of not owning Bitcoin, although as soon as a community member starts owning the hardest money. that we know, and that The stack begins to appreciate, those who notice their success are offered at every moment the choice to buy Bitcoin now or to postpone the purchase of Bitcoin, to buy it later at a price higher.
October 31, 2021
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