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On Crypto: Ponzi Schemes, Game Theory, and Positive Sum Games

There are plenty of people who say Bitcoin is a ponzi scheme. While I disagree, I can understand where they’re coming from.

They’re convinced the only value Bitcoin has comes from the belief that one day someone else will come along and pay you more than what you paid, also known as the greater fool theory.

I understand where these people are coming from because anyone who’s actually tried using Bitcoin will see how horrible the user experience is compared to Venmo, Paypal or Cashapp.

Chances are most people don’t care about Bitcoin’s censorship resistance, fixed supply, or its ability to be sent across borders. They aren’t interested in monetary theory or the economics calculation problem, either.

But the one thing most people are interested in is making money and having a better life. No one wants to miss out on a great investment opportunity, or get left behind while everyone around them gets rich. It’s simple game theory. Think of it like buying into the office lotto pool. You do it not because you think you’re going to win, but because you don’t want your coworkers to become millionaires without you.

Of course not everyone will participate. There will always be those who think playing the lotto is a foolish endeavor. They know what the odds of winning are and don’t want to waste their money on speculation.

And that’s exactly how many people see crypto. To them it’s one big casino, a zero-sum game where you have winners and losers while adding no value to society. The problem with Ponzi schemes and zero-sum games is that the bottom eventually falls out when not enough new players can be found. Without new money being injected into the system, the scheme falls apart and the value drops to zero.

This is probably why you see so many pump and dumps in crypto. Because so many projects have no intention of creating anything of real value, the only thing they can hope for is to use flashy marketing to fool others into thinking the project may one day become valuable. Early adopters (usually the token creators themselves) will look to cash out at the expense of greater fools who buy into the hype and willingly hand over their money.

But I believe there’s an alternative scenario that many people are overlooking. A scenario where all participants can benefit in what is known as a positive sum game.

For me, the true value proposition of crypto is to create an alternative financial system that is different from the one we are forced to use today. Presently we use government backed currencies because up until now we had no other choice. Sure we could have continued using precious metals like gold and silver, but their inability to be used as an efficient medium of exchange would have severely limited our ability to advance as a species.

But in exchange for having a form of money that’s better suited for transacting at scale, we lost those properties that made precious metals such a good long-term store of value. This is evidenced by what’s currently happening around the world in terms of inflation.

It’s why crypto is seen by people like me as such a revolutionary breakthrough. For the first time in human history, we have the potential to have a form of money that can be both a great store of value and a great medium of exchange.

If any cryptocurrency can unlock that potential, I believe it can create an immense amount of value by making markets more efficient, by allowing us to leverage human capital in a way never before possible, by giving us the opportunity to have greater transparency and trust in all financial interactions, and freeing us from relying on central planners to run our economies.

While some see crypto as nothing but a casino, I see it as having the potential to be the greatest positive-sum game the world has ever seen, and the real gamblers will be those choosing to trust corrupt governments and politicians to fix the world’s problems.

I believe in humanity’s collective desire to achieve greatness. I believe in a world where we can compete with one another without killing one another. I believe in aspiring for more, not settling for less or accepting defeat because things are more difficult than you imagined.

And if you read these words and think I’m peddling impossible dreams, or trying to scam you in some way, all I have to say is you don’t have to believe the same things I do, but if you don’t, then ask yourself why are you here?

Maybe you’re the scammer hoping to profit off of something you don’t even believe in.