Is Bitcoin just a financial game?

Overnight, Bitcoin (BTC) continued to fluctuate below 30k and lingered. Today is May 25, 2022, the 14th day of Bitcoin's sideways fluctuations.

It is said that a man named JP Koning once thought that Bitcoin was just a financial game packaged as digital currency.

He named this game chained letters.

The rules of the game are very simple: everyone who enters the game will receive a letter with a task list on it. The task is to transfer $10 to each of the five people before you, and then develop five new people and mail them the task list. After completing the task, your number will be eligible to enter the first place on the payment list of the task list of the five new people you developed, and the second place on the payment list of the new people they developed, and so on. In the end, if new people continue to pour in, you will get $6,250. In other words, 624 times the "income".

This assumes that no one can cheat, such as pretending to complete the task, or tampering with the payment list, etc.

So JPK said that Bitcoin is very similar to the chain letter scam mentioned above. Every early participant in Bitcoin relies on developing new people to take over in order to maintain it. The entire system is a zero-sum game: the money earned by those who exit comes entirely from new entrants.

He was completely wrong. He had no understanding of what Bitcoin actually was.

From the perspective of the dollar standard, the Bitcoin system as a whole, the dollars invested by all participants in the system and the dollars flowing out of the system are always constant. It looks like a "zero-sum game": everyone invests money and then divides the money according to the rules of the game.

The most significant difference lies in the rules of the game. Unlike so-called financial games, Bitcoin does not contain an institutional arrangement that ensures that early participants will profit. (Until the game is no longer viable and no one can continue to profit.)

The fundamental characteristic of financial games like the one above - or to put it bluntly, financial scams - is that there is an institutional arrangement that ensures that the money earned by exiters comes entirely from new entrants.

Without this institutional arrangement, Bitcoin does not ensure that the exiter will make money. In other words, the exiter may make a profit or a loss!

When the exiter makes a profit, his so-called "profit" is apparently paid to him by the counterparty.

But when the exiter loses money, where does his so-called "loss" come from? On the surface, it comes from himself!

In other words, Bitcoin does not provide any institutional guarantee to ensure that those who enter first will definitely make a profit. Those who enter first may make money from those who enter later, and those who enter later may also make money from those who enter first. The opportunities are completely equal.

Just like those who entered the market in 2021 may not be able to make as much money as those who entered the market now. Because the price of Bitcoin today is lower than almost all the time in 2021.

Some people will bring up those who entered the market early many years ago and have persisted until now, saying, look at these people, holding such cheap chips, they are just exploiting us latecomers.

This is nothing more than survivor bias.

What you see are the very few who have persisted until now and have not been thrown off the train. The vast majority of early participants have been buried in the dust of history.

Bitcoin’s growth over the past decade has come entirely from its value proposition being discovered and recognized by more people, rather than from any institutional arrangements or power guarantees.

Its values ​​are defensive: as long as we do not over-issue currency to dilute the value, then as labor creates more wealth, the value of a currency unit will inevitably increase. Therefore, the most important thing is not to pursue the increase in the amount of currency on the surface, but the growth of the real wealth represented by the currency unit.