Bitcoin as the New Digital Gold: The Rules of the Game and the Different Games Being Played

By Long S. Le and Shawn Vecellio

INTRODUCTORY REMARKS:

Case-based learning places students at the heart of real-life decision situations, wherein they grapple with uncertainty and move from particular case problems to general underlying principles such that decision criteria and viable solutions can be identified and developed.

In exploring a case-based pedagogy that could better frame the teaching and learning of international business, the Global Citizen utilizes Howard Gardner’s Five Minds for the Future – the synthesizing, disciplined, creating, respectful, and ethical minds. In brief, these five minds are prescribed as cognitive capabilities for students to effectively navigate and positively impact a world that is increasingly disrupted by digital devices and systems, overwhelmed by information, and disconnected by national differences. The five minds are employed as lenses for students to engage in the content taught as well as to cultivate deeper insights through linkages across disciplinary courses and between formal education and workplace contexts. Before starting, students are asked to become familiar with this introduction to the five minds by Howard Gardner.

INSTRUCTIONS:

Read the case scenario of Bitcoin and its technological tools that has created a decentralized digital currency. In analyzing the scenario, assess thoroughly Bitcoin’s structure which places trust in a global blockchain that could bank the world’s adults who don’t have access to financial institutions. Additionally, considering yourself as a part of Bitcoin leadership team, recommend decisions through which specific actions could grow Bitcoin’s ecosystem that allows for adversarial in the intellectual sense.

For those interested in doing the decision scenario utilizing Gardner’s Five Minds for the Future, apply the following instruction.

Read the case scenario of “Bitcoin as the New Digital Gold: The Rules of the Game and the Different Games Being Played.” In analyzing the scenario, synthesize and articulate how payoff structures — prisoner’s dilemma, public goods game, chicken and coopetition — explain the strengths and weaknesses of Bitcoin. Additionally, considering yourself as a part of Bitcoin’s leadership, recommend decisions and proposed actions that creatively, respectfully, and/or ethically explain the payoff structures that could improve or re-strategize Bitcoin’s future.

SUGGESTION:

The challenges of placing students in complex real-life decision scenarios include making a space for structured and protracted discussions. For students who are looking for the right answer(s) for Bitcoin to address different “games” being played which could undermine its global blockchain network, it should be emphasized that international business is not (yet) a science. Rather, management and problem-solving in international business are more of a process and a practice. Thus, students should reflect deeply on whether their understanding of the structural payoffs (based on game theory) and how their recommended actions could affect other players along with the choice others make that could affect their proposed solutions — either being more competitive or cooperative. To keep this case study ongoing and help students develop critical reflective practice or deeper case-based experience, faculty could deploy additional case studies of Bitcoin in situations with different competitors, new customers, regulators, or in context of COVID-19 either within the course or on a written exam.

“Bitcoin as the New Digital Gold: The Rules of the Game and the Different Games Being Played” by Long Le and Shawn Vecellio

(Click on the links and images in the case study to see the original source and its content)

Many already know how the story Bitcoins begins. On an obscure cryptography mailing list in 2008, someone using the pseudonym Satoshi Nakamoto posted a white paper, stating, “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” In Bitcoin, it is an open-source blockchain and that there is no need to trust third parties with your money. In other words, Bitcoin is ‘trustless.’

All transactions are executed by and on the blockchain itself, where are no additional parties between the sender and the receiver of funds. Because of Bitcoin’s decentralization, it is practically impossible to censor transactions on the Bitcoin network. This is because to do this, a government or a cartel would have to convince 51% of all the computers in Bitcoin’s global network to not allow a block with a certain transaction in it.

Moreover, Bitcoin is very useful to make cross-border transactions. Conventional payment processing takes 3 to 5 days on average, whereas a Bitcoin takes 10 minutes to be confirmed. Transaction fees to do this are also substantially lower, which makes Bitcoin very useful for remittances. Bitcoin could also be a great way to escape hyperinflation, government debt, fractional reserve banking and central banks in general.

One of Bitcoin’s largest use cases is banking the unbanked. According to McKinsey, 2.5 billion of the world’s adults don’t use banks or other financial institutions to save or borrow money. Sub-Saharan Africa contributes 326 million to that number, meaning that 4 out of every 5 adults in the region are unbanked.

One company, BitPesa, a wholesale provider of bitcoin, is determined to reduce that number, and has already enabled over 6,000 users in Kenya, Tanzania, Nigeria and Uganda to make payments across borders and run their businesses. Compared to Western Union and banks, BitPesa is the easiest, quickest, and cheapest way for organizations to manage their cross-border payments to suppliers, distributors and, employees. Using BitPesa, businesses can also accept customer payments in many forms, including other digital currencies like M-Pesa.

To be sure, blockchain and cryptocurrencies have been around, but what makes Bitcoin so special is the marriage between game theory mechanics and blockchain that has made cryptocurrency “secure” from internal corruption. That is, blockchain uses game theory mechanics to model human reasoning to build and deploy network systems that need no oversight yet have positive outcomes for the common good.

In a “centralized” system, we trust a single third party (e.g. Chase Bank) to act as the intermediary who guarantees those two properties. In a blockchain, a decentralized public ledger, our trust is placed elsewhere, namely in public-key cryptography and a “consensus mechanism” that allows us to determine the truth.

From the beginning, there were many who responded to Satoshi poked and prodded the proposal, claiming that it could never work in practice due to fundamentally flawed assumptions in the scalability or game theory of the system. For such individuals, miners can cheat. These include “actors” that could “bribe” other miners in order to create blocks on a separate chain, and ultimately come out paying nothing.

Presently, only big mining pools with large amounts of capital can afford the electricity costs can mine profitably. However, such centralization can lead to increased risk of censorship and mining cartels (51% attacks). Additionally, there are now multiple ways for mining pools to try and make changes to the network or attacking a competitor. The ‘big block’ camp has even forked off into a new blockchain called Bitcoin Cash through a so-called hard fork.

Currently, there are a handful of companies that now control a significant portion of bitcoin’s total hashing power. So, it’s not a stretch to imagine that a handful of mining companies could communicate in private and decide to form a cartel by working together to orphan all blocks minted by entities other than themselves. Furthermore, if some miners change their protocol to be incompatible with the rest and the blockchain forks as a result, this drastically changes the game theory and equilibrium of the system and also reduces security. This is because they’re no longer cooperating to extend the same chain, thus making each new chain fork cheaper to attack computationally.

Notwithstanding, Bitcoiners, born from the efforts of cyperpunks, see the larger picture and know the value of open coopetition in which a constructive environment allows for adversarial in the intellectual sense. Thus, Bitcoiners have argued that supporters of cryptocurrencies should focus on figuring out to grow the cryptocurrency ecosystem – the drivers of cryptocurrency adoption. Everyone can always compete later over how to slice the pie up, as Bitcoin saw a new resurgence in price and volume: just under $10,000 in late 2019.

In fact, Bitcoin has just experienced its “third halving,” where less supply being made over time that would likely increase in value rather than decrease like fiat currencies. However, even among the long-time Bitcoiners would argue that the technological tools that could allow for Bitcoin to be the new digital gold could serve the interests of the “centralized powers” that the Bitcoin and other cryptocurrencies are specifically constructed to dismantle. Therefore, Bitcoin as a network system will seek questions and concerns so that “we do not deceive ourselves.”