# Bitcoin’s zero-sum game

That’s the title of my latest piece in Inside Story. Nothing that will surprise anyone who’s been paying attention to what I’ve written on this, so I’ll just cite the conclusion

Since bitcoins are not useful as a medium of exchange, or desirable in themselves, their true value is zero. The highest price at which bitcoins have traded is around \$20,000. At the time of writing, the market price is halfway between that level and zero. Pay your money (or not) and take your chances.

## 23 thoughts on “Bitcoin’s zero-sum game”

1. Smith says:

Bitcoin is useful for gambling. And you can place your bets from your computer or phone. And it’s probably less rigged than a lot of sporting events.

2. Pittsburgh Mike says:

You wrote: “If this were to happen, the value of the total stock of bitcoins would be equal to the value of US currency now in circulation, a bit over US\$1 trillion. Since the stock of bitcoins is limited to twenty-one million, each coin would be worth around US\$50 million. At a current price of US\$10,000, this would be a bet worth taking at odds of 5000 to one.”

\$1 trillion / 21 million coins = \$50,000.

You *really* hurt your credibility when you make a math error of this magnitude and don’t even notice it.

3. rog says:

@Pittsburgh Mike I thought it simple enough; 50,000,000/10,000=5,000.

To make it simpler, divide the dividend and divisor by 10,000; 5,000/1=5,000

4. Moz of Yarramulla says:

I fear that my maths skills are just not up to that, I get ~1M/coin. The trillion is unquestionably a US one, https://www.federalreserve.gov/faqs/currency_12773.htm says 1.5 trillion, then the graphs they link to from there are conveniently in billions and it’s 1,500 billion. So 1.5e12 / 2.1e6 ~1e6, or \$1M per coin.

But I thought we’d long established that “that doesn’t work in the real world” isn’t a sufficient objection to economics? Otherwise neo-liberals would have stopped using it as a figleaf for their thefts.

5. Smith says:

The number is US\$1.5 trillion where one trillion is a thousand billion, which makes the theoretical maximum price US\$75,000.

Not that it matters.

The interesting question is what can be usefully done with the blockchain technology.

6. Moz of Yarramulla says:

Smith, thanks for explaining what I said back to me, that cleared up… nothing at all. 1T = 1000B = 1,000,000M … = 1e12. That’s just standard scientific notation which is explicitly about making it easier to spot those kind of off-by-1000 or off-by-10000000 type errors (see what I did there?).

But error was where I used 2.1e6 instead of 2.1e7 as the divisor. So my answer is ~1e5, which is the same as JQ got.

7. Gee, the more comments that appear, the more confusing it is.

I thought the explanation may have been due to the old British defn of trillion and billion being bigger than the (now commonly used) US definitions. But using the old British trillion doesn’t help.

Even if a maths error, I don’t think it affects the big picture argument at all.

8. John Quiggin says:

It is a very embarrassing mistake. Sadly, I’m prone to the occasional mental typo of this kind. I actually looked at it and convinced myself I had the number right.

The only consolation is that fixing the error strengthens my case/.

9. Greg Pius says:

The mathematics of bitcoins hides the dark side of the whole crypotocurrency market. It is a return to the days of promissory notes. The Australian Notes Act of 1910 assigned responsibility for printing all banknotes to the Commonwealth Treasury. Until that date the Australian banks printed their own banknotes. The current situation is similar to those unregulated bank notes days.

10. Ikonoclast says:

This is a good article on the topic.

https://motherboard.vice.com/en_us/article/ywbbpm/bitcoin-mining-electricity-consumption-ethereum-energy-climate-change

This comment probably sums up Bitcoin’s essential problem

“Blockchain is inefficient tech by design, as we create trust by building a system based on distrust. If you only trust yourself and a set of rules (the software), then you have to validate everything that happens against these rules yourself. That is the life of a blockchain node,” he said via direct message.” – Matthias Bartosik

The article goes on to say;

“This gets to the heart of Bitcoin’s core innovation, and also its core compromise. In order to achieve a functional, trustworthy decentralized payment system, Bitcoin imposes some very costly inefficiencies on participants, for example voracious electricity consumption and low transaction capacity. Proposed improvements, like SegWit2x, do promise to increase the number of transactions Bitcoin can handle by at least double, and decrease network congestion. But since Bitcoin is thousands of times less efficient per transaction than a credit card network, it will need to get thousands of times better.”

11. Ikonoclast says:
12. rog says:

It’ll probably go gangbusters, traders are strange creatures and make decisions based on gut feelings, astrology and a number of pseudosciences.

13. jrkrideau says:

@ rog
Are you implying that the market is not totally rational?

14. Ronald says:

Here is my get rich slowly scheme involving blockchain. If you ever see blockchain technology being used for something useful and productive, set up a central registry that does the same thing faster, at a lower cost, and in a more user friendly way and beat the blockchain competition on price.

The trouble with this plan is the first condition may never be met.

15. rog says:

@rog There’s a market for everything. It seems that Bitcoin is attracted to those that are responsive to various conspiracy theories.

16. may says:

i’ve been waiting for this for some time now.

when i was at school (ahem)

one million was one thousand thousands.

one billion was one million millions.

one trillion was one billion billions.

so far so good.

how come one billion has changed to

one thousand millions?

and when did that happen?

17. Ronald says:

Apparently \$647 million in NEM cryptocurrency has been stolen. This news apparently increased the price of bitcoin as the news of hacking theft made people want to move out of that cryptocurrency into another cryptocurrency. That’s not smart behavior

18. Ikonoclast says:
19. In good relations diminution instrument so. Son definite paid entry gone say them.
Two accompanied by sir sorry men court.