Brian Armstrong was on Tyler Cowen and Tyler asked him if bitcoin was a zero sum game, in a round about way:
COWEN: I’ve seen estimates that about 20 percent of bitcoin has been lost, or people don’t have their passwords, or it’s somehow abandoned or whatever. Let’s say that 20 percent were found. Those people would be better off, right? They’d have more wealth. Who is then worse off?
ARMSTRONG: Yes, I suppose you have dilution, and you have inflation if you’re increasing the money supply somehow like that.
COWEN: Then if we ask the general question that the social value of bitcoin — bitcoin in general — again, clearly a benefit to the people who bought at low prices. They in essence found bitcoin. But if someone else in the system is losing an equal amount, why think that the social value of bitcoin is positive?
ARMSTRONG: Who’s losing the equivalent amount in this case, just so I understand?
COWEN: I don’t know exactly who, but someone else has less purchasing power, right? Bitcoin isn’t apples. You can’t eat it for lunch.
ARMSTRONG: It’s not clear to me that bitcoin is a zero-sum game.
COWEN: But what is that? When do I get my apples, so to speak? Where do they come from?
ARMSTRONG: Well, anybody can participate of course. I think, now, about probably 10 percent of Americans and maybe 60 or 70 million people globally have crypto, at least. So it’s been growing a lot.
Brian didn't seem to understand the question and it left me a bit unimpressed.
Not a bitcoin fan, but this question of eating it for lunch or backing it with apples misunderstands that the fundamental liquidity backstop of bitcoin is risk. So long as you can take it to a casino (real or notional) and bet it, it has value. For it to go to zero, it would mean no two people could make a bet where one benefits from the result.
Even random shitcoins have a non-zero value so long as there are participants who can use it as a proxy for risk of any sort. The the value is a function of the risk the exchange represents. If we bet 20 randocoins on tomorrow's high temperature in a city, we've created potential value. The bitcoin bet is that its value is non-zero, and an infinite number of people can trade in and out of positions in that bet and create and extract value from it.
The only real downside risk is a bunch of smart contract derivatives that hoover up bitcoin, rehypothecate and leverage it and give you some higher risk platform token/scrip instead that has a much higher likelihood of being worthless when it defaults, but with some additional personal security.
Using Cowen's analogy, bitcoin isn't apples, it's the game token you use to play the game to win the apples.
Interesting! But isn't betting is a zero sum game? Betting on apples means some lose and some win, but the world is not better off as a result, because they cancel out.
You're right, I'm just thinking there is some long hedge that keeps the game going, like the transaction fees, where you get demand for transactions that are bets on blocks. The whole thing is a kind of self reinforcing stochastic uncertainty cloud (infinite improbability machine?), where the endogenous demand is never zero. Until it is because of something exogenous. Same as fiat.
Very interesting. Similar theme to a point Tyler made awhile ago, that I think he touches on even explicitly in this interview, about how if BTC gets to $100K or $200K, you have a bunch of billionaires running around that have essentially done "nothing" to earn it. Seems like it would just exacerbate inequality. Anyone can participate, as long as you're reasonably tech-savvy, and have disposable income to invest (gamble) with.
To be honest, the questions were a bit stupid and/or dishonest. It's like asking, "if gold price goes up, who's losing?" I guess anybody that didn't invest in gold, but, so what?
It's hard to find a serious economist who doesn't see major flaws with bitcoin. It's because bitcoin was designed by engineers, not economists.
Bitcoin could only have been created by engineers - it misses a few fundamental tests of currency that any practicing economist would have "fixed" during the design phase. So we are left with bitcoin, which looks silly to most experts but is basically a religion to those who only see the technical merits of the project.
If we run the experiment all the way out, we end up with a ruling class based simply on time and fervor of adoption of a random piece of tech that appeared 10 years ago.
If we run it allll the way out we have a bunch of bitcoin billionaires constantly fearing for their lives because they are essentially walking piggybanks, ripe for kidnapping and torturing their wealth away via rubber hose cryptography.
https://conversationswithtyler.com/episodes/brian-armstrong/