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Author Topic: Bitcoin and Game Theory  (Read 10584 times)
state hater
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« on: July 31, 2013, 01:16:41 PM »

I have another thread in this section on why Bitcoin appears designed to rise to one million or more USD.  While I think that this has a very good chance of happening, I'd like to articulate a hurdle that is somewhat reminiscent of the prisoner's dilemma from game theory.  

Bitcoin is going through a very strong deflationary period, which is great (any sane person would take deflation to inflation, the criticism of Keynesian kooks notwithstanding), except that this encourages hoarding (long term investors who spend little to nothing).  The following groups of people are not deterred by this rapid deflation, and are actively spending bitcoin:

  • black and gray market buyers, especially those purchasing drugs (their desire for obtaining hard-to-obtain items soon outweighs any consideration that the bitcoin spent may be worth over a million USD someday)
  • ideologically motivated people who spend bitcoin on everyday legal items, in an attempt to get more businesses to accept bitcoin (the newlyweds from Utah who are doing their 30 day honeymoon documentary at the moment may fall into this category)

Unfortunately, there are a lot of people, who expect bitcoin's value to skyrocket, and who will spend little to no bitcoin.  However, there is a conundrum, because the less that this segment of the bitcoin community spends on everyday goods and services, the longer it will take a bitcoin to be the seven figures USD value that they are waiting for, which is the very expectation that is causing them to spend little to no bitcoin.  I think that there will need to be a realization amongst this segment that in order to turn their bitcoin nest eggs into large fortunes, they will need to "do their part" and spend a portion of said nest eggs on everyday goods and services so that bitcoin increases in popularity, thereby causing demand to increase along with the value.  Ideally, a large number of people start receiving their pay in bitcoin.  That way, they can have a bitcoin savings and a portion that they spend, whereby the spent portion is continually replenished by their pay.  

What are your thoughts?




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Seth King
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« Reply #1 on: July 31, 2013, 01:26:51 PM »

The real goal is to get to the point where each individual earns their bread in Bitcoins. Then they have no choice but to spend bitcoins every month in order to pay their bills and survive.
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state hater
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« Reply #2 on: July 31, 2013, 01:32:12 PM »

So what do you think of the criticism from Keynesian types who say that deflation (which there will always be with Bitcoin, since even after it reaches its super-high plateau, there will be some degree of attrition as bitcoin are lost by people who die before giving their private keys to their next-of-kin, etc.) is very bad economically since it will cause people to only buy necessity items (groceries and fuel) and forego luxury items, vacations, and so forth?  Cheesy
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« Reply #3 on: July 31, 2013, 01:40:59 PM »

If an individually wants to go through their whole life only buying the necessities and never spending their wealth on fun things, that's their prerogative. People should stop worrying about how OTHERS are going to spend THEIR OWN money.

As for me, sure the money I spend in my 30's will definitely be worth a lot more when I'm in my 60's, but am I willing to skip all the fun in my 30's for more fun in my 60's? NO!
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« Reply #4 on: July 31, 2013, 01:50:11 PM »

I completely agree with you.  I was just lampooning the statist Keynesian fools.  Of course human behavior results from a mixture of many factors, and rational humans consider time to be quite valuable, so in a deflationary scenario there will always be plenty of people who strike a balance and find more value in having some fun now than in saving every last satoshi possible.
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Victor
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« Reply #5 on: August 08, 2013, 10:06:51 PM »

The world needs more people like you two.

(Actually I guess I'm on a forum full of people like you two.)

(Cool.  Smiley)
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« Reply #6 on: August 09, 2013, 07:21:38 AM »

Unfortunately, there are a lot of people, who expect bitcoin's value to skyrocket, and who will spend little to no bitcoin.

What are your thoughts?


I have made this same argument on this forum a couple times.  I agree. 
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reymarkperry
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« Reply #7 on: February 12, 2014, 04:03:50 AM »

“Unfortunately, there are a lot of people, who expect bitcoin's value to skyrocket…” - And their prediction is right because it’s actually skyrocketing now. One of the reasons why it is skyrocketing is because more and more people especially in the gambling industry are accepting this new currency.
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