7 - 27/Jan/2021
Gamestop and zero-sum games
Unless you've been living under a rock, I'm sure you've heard of the epic short squeeze happening on Gamestop (GME) right now. And while I know a lot has already been written on the subject, nothing I read discussed the situation as it relates to zero-sum games in general, so here's my take.
A zero-sum game is basically a situation where one person's gains are offset by another person's losses. Think of any game you find in a casino where the money you win is money lost by the casino, and vice versa. The thing with zero-sum games is that no real value is created (unless you want to count the entertainment value), because the value is only moving from one person's pocket to another's.
Let me state that I have no problem with the redditors who just took down Melvin Capital. Can it get any better than an app called Robinhood taking down a Melvin? I say more power to them. The truth is I only wish I'd had the good fortune of betting on GME myself, but I also wish I didn't think that way. Because that kind of mentality is just another form of crab mentality that seems to have infected us all.
The stock market has turned into one giant casino, and crypto is even worse. (Defi anyone?) I feel our world is becoming overrun by these zero-sum games. It's gotten to the point where I sometimes forget the real reason capital markets exist to begin with, which is to match investors with those who seek the necessary capital to actually build new businesses, not just bet on them. Because while trading is a zero-sum game, investing is the opposite of a zero-sum game. The difference between trading and investing is that with investing, all participants can lose or gain together.
Imagine investing in a friend's business and it becomes a huge success. Your friend profits, you profit, not to mention all the value the business brings to its customers and employees. Of course it can also fail, and you can both lose, but that's the risk we sometimes have to take to move forward.
I believe that a big problem in our society is we've gotten away from investing in each other, or ourselves. Everyone is too busy focusing on making a quick buck. We're busy reading reddit forums looking for that one yolo trade that could potentially make us overnight millionaires. What happens in a society overrun with such people? Instead of rewarding those who are talented and hard working, we reward people who simply got lucky.
Again, I don't blame anyone for wanting to get lucky, because I'm no different. But I do blame the system that pushes so many of us to think that way. A system that forces us to keep chasing that next dollar, or won, or euro, because we know that the deck is stacked against us. Due to taxes and inflation, our money is constantly being stolen from us in one way or another, and it often feels like we have no choice but to run as hard as we can just to keep ourselves from falling behind. It's no wonder all of us want to win the lotto, we see it as our only way out of this never ending cycle.
So how do we fix this? How do we change everything? With technology, of course. And I believe that technology is called ecash.
ecash, or electronic cash, is a new form of money that isn't like the previously mentioned dollars, or won, or euros. Because unlike all those other currencies, ecash isn't controlled by any state, because it isn't controlled by anyone at all.
So how will ecash change everything? By changing the incentives. Since ecash isn't controlled by anyone (think of the ecash network like a source of energy that runs on its own, e.g. the sun), no one can just decide one day to print more ecash resulting in inflation. What this means is that all the ecash in circulation will gain in value over the long run because the more value we build, the more value each coin will need to represent.
Some worry that a deflationary currency will lead to people not wanting to spend their money. That they'll just hoard it and wait for it to go up in value. And in the beginning, that is what should happen, because Gresham's law tells us that bad money (money that doesn't hold value well) drives out good money (money that does hold value well).
But imagine a future where the entire economy predominantly runs on ecash. People will have to spend it in order to live. You're going to have to use it to buy groceries, and clothes, and make your next car payment. But because ecash is so much more precious, we will be less likely to spend it on frivolous purchases we might end up regretting later. This will also mean people will be less incentivized to lend it out. And for people who do want to put their ecash to work, they will be more discriminating with what projects they choose to invest in. In a world where we don't have to be constantly trying to keep up with the time value of money, I'm optimistic that this could lead to less waste and more efficiency.
I hope that in a world running on ecash we see a drastic reduction of zero-sum games. Instead of more trading, I hope to see more investing. I hope people will work harder because the money they're working for is more finite and therefore more valuable. We can't stop people from wanting to gamble, but I don't think it will be to the degree that we see today. When the money we've worked so hard to earn grows in value over time, I think this will result in us having less of that crab mentality. Shorting will also be less common, because what is shorting other than betting on people to fail? It's the opposite of investing. And if your argument is that you're shorting as a hedge, with ecash you'll hedge simply by investing less to begin with, or only what you're willing to lose.
I know some of you may be asking yourselves what sets ecash apart from all the different Bitcoins out there. The difference is that with ecash we now have the ability to invest in the network itself. It's not just about speculating on a future price, because with the new coinbase rule (NCR), anyone who buys ecash will also be an investor in this project. You will be investing in developers to build the infrastructure of the future.
We finally have a new version of Bitcoin that hasn't just devolved into another zero sum game. We finally have a version of Bitcoin that strives to build real value and lead a real revolution that isn't only about taking others down but building a future that allows us all to prosper.
If you're interested in such a future, buy ecash (BCHA).