Bitcoin is Gamification

There’s a game we used to play, back in the olden days. It was called Googlewhacking. You would type two words into Google’s search form, and try to produce as few results as possible; ideally just one. The challenge was to come up with words that were sufficiently divergent and esoteric, yet connected in some surprising way.

“Bitcoin gamification” would have been
a good Googlewhack.

Wouldn’t it be interesting if two of the most controversial and misunderstood developments in technology today are actually connected at a deep level?

To put it simply: Bitcoin is gamification.

Bitcoin is a distributed, open source, digital currency. It has captured the attention of some of most prominent investors and entrepreneurs in the tech world, despite rampant skepticism from many quarters. Warren Buffet called the idea that Bitcoin has intrinsic value, “a joke.” Most people just have a hard time making sense of it. How can one trust a currency when there’s no government or bank ultimately standing behind it? And how can one have faith in money that emerges from a sort of digital treasure hunt, as squads of “miners” compete with ever-greater processing power to uncover Bitcoins out of the mathematical aether?

Fundamentally, the problem Bitcoin solves is not about money, or transactions, or the viability of nation-states. It’s about distributed trust. And equally fundamentally, its solution is not about cryptography, or security, or disintermediation. It’s about motivation. Those Bitcoin miners are, in a very real sense, turning the integrity of a financial system into a game.

Miners are gamifying trust.

To be clear, I’m not talking about the “game” of investing in Bitcoins as a speculative asset; I’m describing the internal operation of the Bitcoin system. And I’m really referring to gamification, not the formal economics of game theory (although the latter is useful in predicting specific strategies of Bitcoin miners).

Here’s what I mean by gamifying trust. If I want to make a financial transaction, traditionally I either need to trust the other parties, or I need to trust some intermediary, like a bank or PayPal. That need for trust introduces friction, either through safeguards to protect me or in added costs and control those intermediaries demand for their efforts. As the late Nobel Laureate Ronald Coase showed, almost everything interesting at the intersection of economics and the real world, such as the structure of firms and the effects of the law, derives from transaction costs. It would seem there is no way to get around the transaction costs of centralized trust.

Bitcoin offers an elegant solution to the trust problem. It does so by acknowledging that trust is a statistical, rather than an absolute, phenomenon. Trust is a confidence level that arises from collective behavior over time, and from confidence in subsidiary structures like companies and legal systems. One component of trust in Bitcoin comes from the radical openness of both its code and its transaction ledger, following Linus’ Law that with enough eyes, all bugs become shallow.

The second component of Bitcoin trust is even more radical: the authenticity of the Bitcoin ledger is determined by consensus. There’s some fancy math involved, but the basic challenge is this: For Bitcoin to succeed, participants in the network must volunteer their processing power to validating transaction blocks. If the network collectively puts enough effort into that process, it becomes extremely difficult for bad actors to undermine a legitimate consensus. If it doesn’t, the whole edifice implodes. No validation, no trust. No trust, no transactions.

So, the core gating factor in the viability of Bitcoin is not the quality of its protocols nor the integrity of its cryptography nor the willingness of users to buy and sell with it: it’s getting enough people to work hard enough at the boring task of validation. It’s about motivation.

In traditional financial systems, intermediaries like banks or payment processing systems get paid to perform to perform validation functions. The limitations of that approach, as noted earlier, are that that payment increases transaction costs, and you have to trust the honesty and accuracy and security of the intermediaries. But what’s the alternative? What would motivate people to validate each other’s transactions if not the opportunity to make money? We can’t assume people are either inherently altruistic or inherently honest.

Here’s where gamification enters the discussion. Gamification is a practice of applied motivation. It draws insights from digital game design and psychology, and uses them to build systems that engage people to perform activities. One important category of those activities are tasks perceived as boring, where appeals to altruism or intrinsic attraction fall short. Gamification proposes to overcome this hurdle through game-like experiences. A game is just a set of rules and goals, structured to produce contingency and to induce players to play. And playing means following the rules.

Bitcoin is based on a game called mining.

To win a round of the mining game, you must be the first to validate a ten-minute “block” of Bitcoin transactions, by performing a set of computations known as a “proof-of-work.” If you win, you get a reward, in the form of a few Bitcoin. As with any worthwhile game, though, winning is contingent; you’re not guaranteed to succeed. You’re competing against others, and exactly how long it will take to solve a proof-of-work puzzle is impossible to predict. Eventually, once enough people are participating and the prospects of winning through mining (which gets harder) are sufficiently remote, transaction fees should displace the mining game. Those, however, would never be enough to get the system to critical mass. For that, a game is essential.

Think of Bitcoin validation as a kind of crowdsourcing system. It offers participants the uncertain potential of financial rewards, like a casino or an innovation contest such as the XPrize. At the same time, it appeals to our intrinsic desire for relatedness — contributing to something larger than ourselves. And it challenges miners to master their craft through ever-more-powerful and sophisticated hardware. All of these are best practices for gamification, validated through experience of game designers and research in psychology.

The continued success of Bitcoin’s mining game isn’t guaranteed in the face of growth and the unpredictable behavior of real people. And there are other legitimate reasons to be skeptical or unsure about Bitcoin’s future. Just because a technology is startlingly innovative and addressed to a vast market opportunity doesn’t mean it will conquer the world. And even if it does, who and what and when and how are never predetermined. What’s clear is that Bitcoin offers a novel solution to an important problem. And it does so more because of what its mysterious creator Satoshi Nakamoto appreciated about psychology than what he understood about cryptography.

We should consider Bitcoin a validating case for the potential of gamification, and we should look to gamification to help us predict and shape the future of Bitcoin.

Bitcoin is as much a way to play as a way to pay.