Prisoner's Dilemma Fallacy

There is a theory that in a choice to join a ban on Bitcoin, individual states face a prisoner's dilemma. A meaningful ban implies one or more states (the "prison") will enforce economic sanctions (at least) on other states (the "prisoners") potentially moving to Bitcoin as a reserve currency.

We assume that the prisoners who may decide to use Bitcoin are trading partners. In other words the use of Bitcoin as a reserve currency is useful in that they have a partner to transact with.

The outcome for individual Bitcoin (Sucker):

• Economic sanction.
• An unusable reserve currency (no trading partners).

The outcome for group Bitcoin (Reward):

• Economic sanction.
• Trading partner economic sanction.
• A reserve currency not taxed via seigniorage.

The outcome for individual Dollar (Temptation):

• Inclusion in the global financial system.
• A reserve currency taxed via seigniorage.

The outcome for group Dollar (Punishment):

• Inclusion in the global financial system.
• A reserve currency taxed via seigniorage.

Payoff Matrix

Brazil\Ireland	Bitcoin	Dollar
Bitcoin	R\R	S\T
Dollar	T\S	P\P

T > R > P > S must be true, where:

• R > P implies that mutual Bitcoin is preferred by each to mutual Dollar.
• T > R and P > S imply that Dollar is the dominant strategy for each.

We can conclude that P > S holds, as S implies no international settlement and therefore no benefit from a foreign exchange reserve, and presumably economic sanctions are undesirable.

To determine if R > P and T > R, we require an objective measure. This can be obtained by the observation that gold is subject neither to seigniorage nor sanction. Given that a better alternative exists it would be chosen before Bitcoin.