A Closer Look at the Bitcoin Growth Game Let’s explore the "Bitcoin Growth Game" in greater detail to understand its mechanics and implications. This simplified model highlights the core dynamics of Bitcoin’s adoption and value growth. How the Game Works In this game, participants, or "users," follow two key rules: Consensus-Driven Pricing: Users agree that Bitcoin’s price is proportional to the square of the number of participants. If the user base doubles, the price quadruples (2² = 4); if it triples, the price increases ninefold (3² = 9). This rule, set by decree, simplifies real-world price discovery. The toy model aims to distill the fundamental mechanisms of Bitcoin’s value growth, making complex dynamics easier to grasp. Fixed Supply and Shared Ownership: The game mirrors Bitcoin’s 21 million coin cap. For now, existing users give up a portion of their Bitcoin to accommodate newcomers, diluting their ownership. This is a simplification, as real Bitcoin involves market transactions rather than mandatory sharing. We’ll later consider removing the supply cap to see how it affects the system. Analyzing the Implications: Consider what happens when the network grows from 2 to 4 users: Value Surge: The price of Bitcoin rises fourfold (4² / 2² = 16 / 4 = 4), driven by the squared increase in users. Ownership Dilution: The original two users see their share of Bitcoin halved (from 50% to 25% each) as they distribute coins to newcomers, where ( n ) is the number of users. Net Gain: Despite owning a smaller percentage, the value of each user’s holdings doubles, as the price increase (4x) outpaces the dilution (2x). Generally, individual value grows linearly with time, approximately as n^2/n~n. Early adopters may also gain cash from selling some of their Bitcoin to new users, adding to their benefits. The Paradox of Scarcity: The fixed supply, a hallmark of Bitcoin, prevents the creation of new coins, ensuring scarcity. However, in this model, it creates a form of dilution, as users must share their coins to enable adoption. This seems counterintuitive: scarcity is meant to preserve value, yet here it requires users to sacrifice ownership, which drives the network’s growth. Could issuing new coins proportional to the number of new users be a better approach? This would prevent dilution, allowing existing users to maintain their ownership percentage. In real Bitcoin, dilution occurs subtly when some holders sell to newcomers, but it’s not mandatory. If we could increase both the coin supply and value without negative effects, the total market cap—price times supply—would grow faster. However, I recognize this could destabilize a real system. For now, I’m noting that market cap is a theoretical figure, not a direct measure of value. We can explore this further later. Given these complexities, let’s focus on the fixed-cap model to address one issue at a time. Key Insights What does this game teach us? Scarcity, often seen as Bitcoin’s strength, appears counterproductive in this model. It forces users to relinquish coins to drive adoption, yet adoption is what fuels the asset’s value growth. The true value lies in more people choosing to join the network. As explained in the original article, this isn’t a pyramid scheme. It’s a participatory monetary system that rewards collaboration and consensus. Users contribute resources to enhance the network, and the resulting value is shared among members. Bitcoin stores and redistributes value, creating a unique model of collective prosperity.