An analysis of Zero Sum Games in relations to crypto and the physical world


A zero-sum game is a situation where, if one party loses, the other party wins, and the net change in wealth is zero.

Investopedia 2022

So the discussion about zero sum games has begun again, with this post talking about 1 persons crypto gains equals another persons crypto loss. And this post arguing it’s not. I think both posts get something right and wrong on some level and i wanna explain why.

Let’s first start, zero sum games exists both in crypto and outside crypto, something being a zero sum game does not make is a scam or a ponzi in and of itself. More factors need to be present for it to be the case.

With that out of the way lets look at some commonly concidered Zero sum games:

Trading constructed real estate Gold Gambling (poker) Some Cryptocurrencies (or all crypto depending on how you look)

With real estate it makes sense, the only way to profit by flipping houses is if you can find someone who is willing to buy it for more than you paid. Same is true for gold and some cryptos too.

A similar diagram was shown in one of the linked posts as an example of such a zero sum system.

Figure 1 – A zero sum cryptocurrency

And the diagram is correct, the only way for one investor in this system to turn a profit is if the person can cash out using another investors investment/liquidity.

However analysing any real world economic system, crypto or any other thing, only from a financial/money standpoint is not a good way to look at financial products in general as i will elaborate on.

Below is a model of a normal FinTech buisness. be it Coinbase, Paypal or Visa.

Figure 2 Any fintech money transfer buisnesses

If we look we can see that this system is also a Zero sum game if we look at it from a financial standpoint. Another persons economic gain is anothers loss. In this case the sender loses the transaction Fee and the shareholders + employees gain the dividend + wages.

Furthermore if we look at it from a purely financial standpoint above makes total sense, no buisness can operate with negative cash flow for long. A buisness that pays dividends gets that money from customers.

Although the above described analysis would make everything a Zero sum game, which obviously isn’t the case. The reason Fig 2 is not a zero sum game is because the ecosystem provides some VALUE or UTILITY to some people, somewhere.

Now let’s have a look at a crypto with utility.

Figure 3 A value adding functional Crypto ecosystem

As we can see this crypto ecosystem is also an economic zero sum game, however as explained previously we also need to look at the VALUE being produced, in this case it’s the money transfer from Person A to Person B. Be it a purchase or a gift or things DEFI related.

This aside, How much value does crypto actually generate? Well many sources says something different

NewsBTC claims around 33% of all crypto transactions are used for purchases.

LATimes through citing chananalysis claims around 1.3% is used for purchases.

Bitpay a merchant specialised in handling Crypto to Merchant payments handles 1 Billion$ in annual transactions compared to the 120 Billion$ Crypto settles annually.

This shows that crypto does actually provide value meaning it’s not a zero sum game in the colloquial sense. Since value is being produced.

That aside, crypto is still largely used as a speculative asset and it is true that a person who engages in crypto only to buy and sell with the intent on turning a profit is engaging in a zero sum game, because they do not contribute any real value add to the crypto ecosystem other than making the line go up when buying and line go down when selling.

So if you want your crypto to generate value, Go buy stuff with it, most popular VPNs already accept crypto already so if you use VPNs pay with crypto. lend it in a DEFI pool, donate some to charity, accept it at your buisness if you have one. Dont just HODL your coins as that doesn’t really do anything valuable to the ecosystem as a whole.

Bitpay has a site where they list all merchants that use them as part of the payment settleing. You can probably find others stores that accept it yourself

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