In the 17th century, a French philosopher, theologian, mathematician, and physicist named Blaise Pascal posited that human beings wager with their lives whether God exists or not. A similar thought experiment can be applied to explain the adoption of cryptoassets as a store of wealth. The possibilities defined by Pascal's wager can be thought of as a decision under uncertainty with the values of the following decision matrix (1).

Pascal’s Wager - does God exist?      
                                      God Exists   God Doesn’t Exist
Belief                                   +∞              -c
Disbelief                                -∞              +c

Pascal’s wager is essentially a McKinsey-Esq 2x2 matrix explanation of a simple positive asymmetry.

1. If you believe in God and God Exists, the potential upside is eternal happiness - entrance into the kingdom of Heaven. (+∞)

2. If you believe in God and God doesn’t exist, the potential downside is capped by a finite amount - the time, effort, and energy you wasted practicing religion. (-c)

3. If you don’t believe in God and God does exist, you suffer infinite downside - eternal damnation and torment in Hell. (-∞)

4. If you don’t believe in God and God doesn’t exist, the potential upside is capped by a finite amount - time, effort, and energy saved by not practicing religion. (+c)

Consciously or unconsciously, via simple positive asymmetric calculus, much of the population gravitates towards believing in God in the long run. I’m not asserting whether Pascal’s wager holds true or not. Far more intelligent minds have dedicated their lives to this. I posit that a similar explanation can be used to explain the rational mass proliferation in the number of cryptoasset holders. I also acknowledge that the analogy isn’t 100% accurate. Nonetheless, similar logic can be applied.

Should I Buy Crypto?      
                                      Crypto Wins Crypto Doesn't Win
Buy Crypto                                   +∞              -c
Don't Buy Crypto                             -∞              +c

1. If you convert a small portion of your wealth to crypto and crypto eventually replaces fiat, you stand to gain a lot of wealth.

2. If you convert a small portion of your wealth to crypto and crypto doesn’t replace fiat, your downside is capped - you lose a finite portion of your hard-earned wealth.

3. If you don’t convert at least a small portion of your wealth to crypto and crypto eventually replaces fiat, you stand to lose all your fiat wealth.

4. If you don’t convert at least a small portion of your wealth to crypto and crypto doesn’t replace fiat, you lose nothing and gain the opportunity cost of investing that wealth elsewhere.

Thus, Pascal’s wager explains why cryptoasset adoption will continue. Time will tell whether Nash Equilibrium ends up in [Buy Crypto, Crypto Wins] or [Buy Crypto, Crypto Doesn’t Win]. In the short to medium term, the dominant strategy suggests allocating a small portion of one’s wealth to cryptoassets. Today, the graph of crypto adoption over time looks like a healthy exponential akin to the reproduction of bacteria in a petri dish. Great. So, what’s the problem? Read our next piece “Not Your Keys Not Your Coins” to learn more.

References:

1. Pascal’s Wager, Stanford Encyclopedia of Philosophy