Bitcoin as Pascal’s Wager
Bitcoin is, or Bitcoin is not. But to which side shall we incline?
A bet on Bitcoin will yield the greatest outcome for anyone supporting cryptocurrency. Wagering against Bitcoin is an exercise in futility in the scenario where Bitcoin still succeeds or leads to absolute misery in the case that Bitcoin fails. It is useful to use Blaise Pascal’s argument for the belief in God as a parallel to how Bitcoin should be treated by any observer and participant in this ecosystem. Betting on Bitcoin isn’t betting against other assets such as Ethereum, but instead only adds weight and power to altcoins — as positive sentiment and activity around Bitcoin will only lead to all ships being raised. Bitcoin isn’t a ship, it’s the entire ocean.
Speaking of water —
Framing Bitcoin: Ignoring The Noise
My colleague Jacob once made an intelligent observation on the cryptocurrency space by pointing out that people are mostly “in the same tub” and simply just “pushing the same bathwater around.” Our innovation is bred, executed, and observed in a bubble — and the audience that many things are built for end up lost outside the bathroom door.
But were they even lost to begin with — as all the marketing material may make you think?
There could be the grand possibility that many of the innovations that we applaud today really are hammers in search of nails, and the nails the teams have written about are just everlasting hypotheticals. The waxed poetics we read from the “thought leaders” on how many of these protocols will ‘capture value’ are merely just thought-experiments contained in a self-instantiated techno-utopia. The blinders are dangerous.
There are project teams seeking to bank the unbanked, change the global healthcare industry, or reinvent existing financial instruments all without interfacing with their target markets. Of course, what good would any of this be without a futile asset stapled to a system in order to just redefine how we seek rent — this time with more jargon. Thankfully we have moved past the age of tokenized dogfood and toward a bit more critical thinking. However, even ‘critical thinking’ neglects the scale of the industry and how irrelevant we really are.
At the time of writing, the market capitalization of the entire cryptocurrency market is ~$191B, with Bitcoin accounting for ~$128B of that (OCFX). Even at its lowest dominance point during the last bull market, Bitcoin still made up 33% of the market and that’s with all other assets irrationally skyrocketing for no apparent reason other than pure speculation. If we were to value the assets associated with these protocols and applications based on open interest, the number would be far below what we’re currently presented with. That’s the key here — speculation — there are no ‘fundamental’ drivers of the market at the moment. While other assets are trying to capture much more and boil the bathtub, they will be faced with a much more Sisyphean task of becoming harder money in the process. Speculation is the most socially scalable use-case for this asset class at the moment and remains dominant.
Bitcoin is still the dominating force of the cryptocurrency space in regard to public interest. Currently, it dominates in search volume relative to other assets, and even against “cryptocurrency” as a term. Some could argue that it comes from its first-mover advantage, but the retention of this title for over six years (using 2013 as a fair marker) is quite telling. Looking specifically at Ethereum, the only time it briefly caught up to Bitcoin in search volume (US, News) was around the same time that ICO mania was in full force and the SEC began its enforcement campaign with the release of the DAO report around July 2017. After that, Ethereum still trends alongside “cryptocurrency,” but neither hold a candle to Bitcoin.
Bitcoin is beautiful in its simplicity. It is strong because it found protocol market fit quite quickly as a censorship-resistant store of value. Its simplicity not only inspired the proliferation of projects using similar concepts with similar aims but more importantly, it inspired a peaceful revolution — as Nic Carter puts it:
“How many cryptocurrency entrepreneurs would tell you with complete sincerity that they were building a system to last decades and face the State head on? How many would willingly face jail for their beliefs? Very few, I suspect.”
What gives Bitcoin its largest source of power is in the anonymity of its founder, and its ability to serve as a beacon of defiance to act as a base representation of “cryptocurrency.” What founders would willingly put themselves in the crosshair of any state and claim that they’re trying to usurp the State? Everyone would like to be a “cryptocurrency founder,” reap all the rewards of seigniorage, up until it reaches the point of state reaction. When the State comments on cryptocurrency and its imminent threat, they will typically reference Bitcoin as a clear enemy. It exists as a hedge against panoptical control and it’s a hedge against a cashless society. Bitcoin is a threat, and that’s what gives it power.
Aside from the greater philosophy of the space, it’s also important to observe the market as well. Logarithmic or Linear — it’s still quite clear that Bitcoin is a dominating and orchestrating force. There has been no flippening, and there is no larger decoupling other than some small activity. Bitcoin is always first-in-line for institutions that wish to get their feet wet with this asset class. Enterprises using a particular blockchain for a press release isn’t enough to force the market in any other direction — to speak directly to the insignificant futility of the attempt. However, this isn’t a bad thing, Bitcoin can always exist as a gateway drug to outside observers.
To make an even larger point — Bitcoin isn’t in competition with a world computer, supply chain management solution, asset creation engine, or any fancy database management software. Bitcoin is all that it will be — a digital store of value, a rigid system of ungovernance, and an arms race to secure the network based on simple game theory. However, my prediction is that Bitcoin will remain the rising tide to raise all ships, and that’s how this wager is prefaced.
Satoshi’s Wager
Based on the three arguments in Pascal’s Wager:
French philosopher Blaise Pascal’s (wager) argument for the belief in God was rooted in the idea that the belief yielded the greatest possible outcome for the individual. Instead of proving the existence of God, he sought to rationalize the belief in a higher being, as it was the better of the two choices. In the first part of the ‘wager,’ Pascal argues that wagering for the belief in God dominates wagering against based on the belief in God yielding salvation (if God exists,) after one’s death as opposed to the wager against which would result in possible damnation. If one were to believe in God and God did not exist, the individual is at a net neutral. An individual that doesn’t believe in God in the same scenario is also at a net neutral. There is no “winning” in the belief against God.
In the case of Bitcoin, this stems from the belief in Bitcoin yielding the greatest result for the entire market and public sentiment against being opposed. Considering Bitcoin’s capture of the entire market in terms of price trends and information trends, positive sentiment around Bitcoin only raises both forms of sentiment for the entire crypto market. When one wagers against Bitcoin, you’re actually directly betting against your own assets as everything is quite correlated. This also isn’t necessarily in the case of acquiring the asset when I reference “wagering” — this is simply about one’s own view and publicly displayed sentiment.
The second part of the wager, dealt with the idea of expectation, or the fact that there is no escape from the belief for or against God, as it’s a binary that will control the ultimate outcome of one’s self. To avoid the topic or claim neutrality is impossible, as belief or non-belief is an unavoidable binary that will result in some form of static outcome. The wager isn’t for a particular age (for the sake of example) of God to be correct or not which yields multiple possible outcomes, but rather the mere existence of God. In Pascal’s case, God is or is not, and a wager in favor would be rewarded with more than the wager against.
The same idea comes with the belief in Bitcoin, as we are not generalizing based on outcomes with differing probabilities. In this case, Bitcoin succeeds or fails, and it’s based on if the network continues to run and a healthy market exists for it. However, a wager on price would yield a different discussion — this is more on its mere existence. If we wish to measure it as a binary against the market, it would result in whether or not the price goes up on a long time horizon or not. Because Bitcoin is a neutral technology without a founder, you can’t have a personal bias against its background — only its aims. Some of the more fringe criticisms of Bitcoin such as environmental issues come from a small minority treating the protocol as if it’s a firm or an institution, which is not the right approach. You can either support it or be against it — there is no in-between, as a neutral stance is negative due to the macro implications (independent financial system, lasting technology) that it comes packaged with.
The final part of Pascal’s wager deals with an argument from “generalized expectations,” or in this case that the wager for God results in “an infinity of an infinitely happy life” (or infinite utility). In the case of other outcomes, forms of misery can be equated to hell, or the status quo simply results in stasis (“a chance of gain against a finite number of chances of loss”). In a rational scenario, the individual is expected to follow what would lead to their best possible outcome, or in this case, the scenario with infinite utility.
Anyone with a horse in crypto should understand that “misery” results in the failure of this asset class being used as the cornerstone of an independent, parallel financial system, as well as market failures as they are both inextricably linked. More importantly, infinite utility in our case comes from the success of Bitcoin which results in the success of other assets in the space.
It’s right to assume that altcoins will continue to exist. It’s also right to assume that Bitcoin isn’t competing with your alts — rather, your alts are trying to compete with Bitcoin rather than attempting to coexist with it. Although some individuals attempt to label this as “Bitcoin Maximalism,” this is more Bitcoin Rationalism, as Bitcoin currently is the dominating force in the one outsized opportunity this space presents: money. Satoshi could only assume that derivative works would be produced, but the movement’s aura could only be captured in Bitcoin.
If your favorite altcoin is powering some form of network to provide a computational layer, storage layer, or another application layer, that’s fine. If your favorite altcoin is also competing to be a censorship-resistant store of value and general-purpose money, then it’s also fine — but it’s important to accept that it may never surpass Bitcoin in that regard. It may gain traction and may be able to amass enough public opinion to consider it a form of money, but it will always live in Bitcoin’s shadow. Positive news cycles about the industry will likely be rooted in Bitcoin and translate to Bitcoin’s success.
Bitcoin’s success will then result in the success of other assets — and that is the importance of the wager for Bitcoin.
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Thanks to the two Jacobs, Tom and Anthony for review
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Nothing in this article should be taken as legal or investment advice.
