Blockchain and the infinite game

Investors in the blockchain space naturally gravitate towards the question "who will win?"

In our thesis we often talk about asymmetric risk return. These winner-take-all scenarios are fueled by network effects causing winners to compound winnings, and losers to fade into the background. Enter game theory which challenges this world view that there can ever be an ultimate "winner".

Finite vs infinite games

Game theory divides the world into two types of games.

  • Finite games as the title implies have finite numbers of players using finite rules to play the game. 
  • Infinite games conversely have infinite numbers of players with ever changing rules governing how the game is played.

The goal of a finite game is to definitively win thus ending the game (think baseball, chess, court cases). An infinite game conversely has only one goal... perpetuate the game itself.

Finite players seeking to win concretely in a finite paradigm will eventually be defeated by new players entering the space following different rules. A more eloquent primer can be found by watching this.

New players will always emerge: Assimilate or perish

So will bitcoin win? Will Ethereum win? Given a long enough time horizon neither.

Everyone in the space is fighting hard to become the fundamental transactional protocol network. The new TCP/IP for the internet of value. 

Who will win (or to be more precise gain massive market share and adoption) depends on who creates/copies/remixes innovation the fastest.

NEO is a perfect example. Serious multi-national conglomerate resources went into developing the hyperledger protocol. This low-level architecture is incredibly fast and scalable requiring minimal energy usage to validate transactions.

None of this matters if no one uses it, or crucially can use if it is siloed in inaccessible centralized databases.

NEO developers took hyperledger and adapted it to solve real world problems on a public blockchain. Digital identities, asset registration, secure messaging, decentralized application development, all are possible with NEO. 

Does this mean then NEO is the ultimate winner? Of course not. NEM, Stellar/Ripple, Nexus, the two Ethereums, ARK, the list goes on all make similar claims.

Though if HTTP and TCP/IP are any indication, widely adopted protocol standards once solidified can last for decades.

Opposing forces: Centralized systems are "not that"

The one uniting force behind blockchain is decentralization. This term deserves to be unpacked before it loses all meaning. Put simply the practical use case of decentralization is to lower the barrier between individuals exchanging value to effectively zero.

Centralization begets permissioned environments, which begets intermediaries. Intermediaries are the people, institutions, & macro systems that stand in between two individuals wanting to exchange or prove value.

This value can be anything from buying assets such as stocks, bonds, and real estate - to proving citizenship, birth certificates, or health records. Any of these middleman from real estate brokers, to Uber, Airbnb, (and the app stores they run on) charging a fee to serve as a centralized intermediary will continue to be attacked from all sides by new opponents using different rules.

Regardless which decentralized protocol(s) are chosen, there will be a whole sale rewriting of the game. Finite centralized players placating finite metrics like quarterly earnings cannot win against an infinite opponent (again given a long enough time horizon).

The Meta J-Curve

Let’s end with the concept of the meta J-curve or in other words the endless ebb and flow of grossly under then over valuing the same asset.

metajcurve.PNG

Rather than looking at a J-curve function for one individual asset, a meta J-curve exists as  many projects are born, evolve, then eventually replaced.

To be successful in such a dynamic new system, the key takeaway must be there is no “winner”. Rather periodic re-evaluation of fundamentals as the market continues to march forward.

Further Playing

An excellent browser game explaining the fundamentals of game theory