Original author:ASXN
Original translation: TechFlow
When Trump addressed an audience at the Bitcoin Nashville conference in 2024, he laid out his vision to transform the United States into a global leader in cryptocurrency. At the end of his speech, he made a notable promise: He pledged to never sell the U.S. government’s existing stockpile of 213,000 BTC. He described this huge reserve as the cornerstone of the country’s strategic Bitcoin reserve.
While this initial statement may be challenged by today’s Silk Road transactions, it brings up a concept as old as Bitcoin itself — the game theory of Bitcoin adoption between nations.
Game theory, a mathematical framework for understanding strategic interactions, is a useful tool for analyzing how countries think about Bitcoin adoption. In general, it helps us make better decisions under conditions of uncertainty or incomplete information. In the specific context of Bitcoin adoption among countries, studying game theory will help us understand how countries think about innovation, taxation, adoption, regulation, and other important variables.
A country’s Bitcoin adoption strategy is best understood through two core concepts in game theory — First Mover Advantage and Payoff Matrix.
First-mover advantage
Countries that are early adopters of Bitcoin will enjoy significant advantages if BTC succeeds. These advantages could include becoming a hub for innovation and investment, attracting crypto businesses, and setting global standards for digital currency regulation. However, early adopters also face higher risks, including unexplored regulatory territory and potential economic instability. The sooner a country “acts,” the higher the risks and rewards.
Once a few influential countries adopt Bitcoin, other countries will follow suit to avoid being left behind - a bandwagon effect occurs. This effect is driven by the rewards of adoption and the risks of non-adoption. At this point, the Bitcoin adoption cycle enters the steepest part of the S-curve.
Payoff Matrix
In game theory, payoff matrices help illustrate the potential outcomes of different strategies. For Bitcoin adoption, each country evaluates the costs and benefits of Bitcoin adoption versus non-adoption and chooses the best strategy. Clearly, given the trade-off between costs and benefits, the dominant strategy is adoption.
In game theory, the best response function is the strategy that provides the highest payoff to a player (country) given the strategies chosen by the other players. For a country considering Bitcoin adoption, the best response function is the best strategy to choose based on the expected actions of other countries and the economic and geopolitical dynamics that this brings. The logic is roughly as follows - Country 1 evaluates the cost-benefit trade-off and decides to adopt. Country 1 realizes that all other countries will also choose to adopt, so Country 1 concludes that since all countries will choose to adopt, they should speed up their adoption to avoid losing their competitive advantage.
Slowly, then all at once.
Practical Applications of Game Theory
To better understand the game theory of adoption, let’s look at a few examples – El Salvador, US states, and MicroStrategy. These examples highlight that game theory of adoption is at work at the national, regional, and corporate levels.
In 2021, El Salvador became the first country to announce BTC as a reserve asset and legal tender. Since then, the government has purchased a total of 5,825 BTC with a market value of $394 million.
In May 2024, Wisconsin became the first U.S. state to announce its purchase of BTC. They disclosed in a filing with the SEC that they had purchased $160 million worth of BTC ETFs for their pension fund. While this is not a huge amount of capital for a $132 billion pension fund, it demonstrates an understanding of Bitcoin as a savings technology and the advantages of being a first mover.
MicroStrategy may be a typical example of first-mover advantage. At the end of 2020, Michael Saylor announced plans to buy BTC and has purchased a total of 226,000 BTC, accounting for more than 1% of the total supply. Although this choice was not favored at the time, Saylor's foresight and patience enabled him to create huge value for himself and shareholders.
What does the future hold, using game theory?
At the 2024 Bitcoin Nashville conference, Robert Kennedy Jr., an ardent Bitcoin supporter and presidential candidate, proposed a more radical Bitcoin adoption plan. He plans to buy 550 BTC per day until the United States’ holdings reach 4 million BTC (19% of the total Bitcoin supply). This would match the United States’ share of global gold reserves.
While the ideas Trump floated at the Bitcoin Nashville conference may or may not come to fruition, the simple fact that he publicly acknowledged Bitcoin and its properties is a sign of victory, and we are already seeing the first signs of this.
Expanding our view to the broader game theory of cryptocurrency adoption, we find another example of the dominant strategy of USD-denominated stablecoin adoption and the consolidation of USD hegemony. There are 180 fiat currencies in existence, most of which are underperforming Bitcoin. By driving the adoption of USD-denominated stablecoins in economies with failing currencies, they would be taking a major step toward securing global USD dominance.
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