Game Theory of Bitcoin Adoption by Nation-States

Source: Adobe/Alexey Napalkov
  • “Even if other countries do not believe in the investment thesis or adoption of bitcoin, they will be forced to acquire some as a form of insurance.”
  • The competition “will most likely be in the form of mining” Bitcoin.
  • “Countries with the least to lose in terms of monetary sovereignty are more open towards adopting bitcoin.”

Is the race on? This is a question that at least some people have been asking ever since El Salvador made bitcoin (BTC) legal tender in September, and with the Swiss city of Lugano doing essentially the same thing at the beginning of March, it’s arguably only a matter of time before other countries rush to embrace bitcoin.

This is pretty much the conclusion reached by a recent report from Fidelity Investments, whose analysts Chris Kuiper and Jack Neureuter wrote that countries — even those that don’t really “believe” in bitcoin — will be “forced” to acquire some sooner or later. As Kuiper and Neureuter argue, this is because the cost of not doing so (when others are creating BTC stockpiles) could be extremely steep.

And industry figures speaking with Cryptonews.com largely agree with this analysis, with most affirming that some kind of game theory is at play here. And while they also suggest that a race to acquire bitcoin by nation-states should push the cryptocurrency’s price up massively, they remind that the divisibility of BTC won’t make it too expensive for retail investors and users to acquire for themselves.

Game theory = Worldwide bitcoin adoption?

Fidelity’s analysts also cited game theory in their report, noting that history has repeatedly demonstrated that capital always flows where it’s welcomed the most. Basically, any country that nurtures innovation (i.e. by acquiring or adopting bitcoin) will gain an advantage over its peers, who as a result will be compelled to follow suit, for fear of being left behind.

As they wrote, “We also think there is very high stakes game theory at play here, whereby if bitcoin adoption increases, the countries that secure some bitcoin today will be better off competitively than their peers. Therefore, even if other countries do not believe in the investment thesis or adoption of bitcoin, they will be forced to acquire some as a form of insurance.”