It’s important to know if crypto are a zero-sum game because it can influence how investors approach the market.
In a zero-sum game, any gain by one investor must be offset by an equal loss to another investor.
This means that for an investor to profit, they must be able to predict the market better than other investors and time their trades correctly.
On the other side, if cryptocurrencies are not a zero-sum game, then there may be opportunities for mutual gain where both parties benefit without one party necessarily having to lose.
Understanding whether cryptocurrencies are a zero-sum game or not can also help investors make informed decisions about diversifying their portfolios and managing their risks.
Crypto, A Zero Sum Game?
The cryptocurrency market has often been described as a zero-sum game.
Where gains by some investors are offset by losses to others.
This is because for every buyer of a cryptocurrency, there must be a seller, and any increase in value for one investor means a decrease in value for another.
But, it’s important to note that the value of cryptocurrencies is not solely determined by supply and demand on exchanges.
Factors such as perceived utility, security, and adoption rate can also affect their value.
The crypto market is still in its infancy and constantly evolving, which means that there is potential for new wealth to be created as the market develops and expands.
Good exemple of wealth creation would be mining and token burning. Those can add value to the ecosystem and increase the market cap.
Therefore, while some aspects of the cryptocurrency market can be seen as a zero-sum game, it’s not accurate to say that the entire market is zero-sum, and there are opportunities for investors to create wealth over the long term.
What is a zero sum game?
A zero-sum game is a situation in which one person’s gain is exactly balanced by another person’s loss.
In other words, the total amount of wealth, resources, or utility in the game remains constant, and any gain by one player must be offset by an equal loss to another player.
In a zero-sum game, there is a fixed amount of resources that can be divided up among the players.
Any gain by one player necessarily means a loss for another player.
Examples of zero-sum games include some forms of gambling, like poker or blackjack, where the amount of money won by one player is exactly equal to the amount lost by the other players.
It’s worth noting that not all interactions or situations are zero-sum games. In some cases, there can be opportunities for mutual gain, where both parties benefit without one party necessarily having to lose.
Why is crypto a zero sum game?
The zero-sum game aspect of the cryptocurrency market comes from the fact that for every buyer of a cryptocurrency, there must be a seller.
When someone buys a cryptocurrency, they are hoping that its value will increase. While the seller is hoping to profit by selling at a higher price than they originally paid.
In this sense, there is a limited amount of money to be made or lost, and it can be seen as a zero-sum game.
Why is crypto not a zero sum game?
Even if crypto can be a zero sum game, at the same time, it could not be. Here’s why.
The value of cryptocurrencies is not solely determined by supply and demand on exchanges.
Many factors can affect the value of a cryptocurrency, including its perceived utility, security, and adoption rate.
Also, the cryptocurrency market is still relatively new and constantly evolving, which means that there is potential for new wealth to be created as the market develops and expands.
As new wealth could be created, in the long run, crypto might not be a zero sum game.
Wealth creation with mining
A good example of wealth creation would be Bitcoin mining. Yes the miners sell their Bitcoin to someone, but the cost of producing it is lower than the value at which it is being sold.
By doing so, miner add new Bitcoin to the market, increasing the market cap of Bitcoin and creating value for the ecosystem.
Burning token to generate wealth
Another good example of wealth creation in the crypto ecosystem is the Token Burn.
Many coins and token are burning their currencies on a steady basis.
Burning coins and token have the effect to lower the circulating supply resulting in a greater market cap.
A recent example would be Ethereum that started burning Coins and will continue to do so with ETH 2.0. The value of ETH as significantly increase since its ICO in 2014.