Bitcoin and Game Theory: How Competition Accelerated Bitcoin’s Rise
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Every choice we make depends on what we want—and what others might do in response. This dynamic is the essence of Game theory. Game theory explains how rational players anticipate others’ actions to maximize their outcomes. But what exactly is game theory, and why does it matter to Bitcoin? What is game theory? Game theory helps explain why people (or companies or countries) might not always act in ways that seem logical or fair. It shows how fear, trust, and strategy all play a role in decision-making. It also provides tools to design better systems, like auctions, voting rules, or online marketplaces, where everyone can benefit more from making smart, strategic choices. Mathematician John von Neumann developed the concept of game theory in the 1920s. His first major breakthrough was a 1928 paper on strategic decision-making, where he introduced the minimax theorem. It showed that in zero-sum games where one person wins at the expense of the other (such as chess), rational players always optimize for the worst-case scenario. For example, in a game like rock-paper-scissors, the optimal approach isn’t to follow a pattern but to make choices randomly, preventing an opponent from predicting and exploiting your moves. “Game theory is the study of how decision-makers interact,” Dr. Matthew Stephenson, Head of Research at venture capital firm Pantera Capital, told Decrypt in an interview. “It’s a set of tools to understand their behavior,” which he said was usually based on “two key ideas”: decision-makers have objectives, and they respond to the actions of others. For instance, in a game such as chess the typical objective is winning; when playing the markets, the objective is making money. “In chess, success requires anticipating an opponent’s moves; in markets, profitability depends on price changes and trading behavior,” Stephenson said. “These two principles—having objectives…
Filed under: News - @ February 4, 2025 8:24 pm