A rough example of the value of “smart contracts” and the value of bitcoin as an investment option in relation to poker

Suppose a scenario between a backer and their horse.

The horse is working hard to gain VIP points to move up to the next level where there “points” can be used to by a bonus of a higher value in terms of USD. The horse and the backer split these bonuses so if the backer can keep the horse afloat for the time period in which the horse is likely to move up to the highest given bracket, then it is generally seen to be both the horses and backers best interest to allow the points to accrue until the time when they can “optimally” be cashed out.

However in today’s changing economic environment, players in the economy of poker may wish to consider alternative options. These options may become useful or viable as a hedge in different economic times whether in relation to for example the fluctuations in the USD or the changing poker regulations depending on where the horse is located.

Consider a relationship where a backer and a horse split their bonus points 50/50 and the VIP level the horse is expected to move up to will bring an overall gain of $200. That is to say if the horse cashed out their points today the horse and the backer would expect to lose $200 from the long run ($100 each), that they expected to make by waiting until the horse gained their highest expected VIP level (before the levels reset for the next year). We might assume the horse would reach their highest level in 4 months time and that the total cashed points (from “today” as we can ignore future points for the purpose of this writing) to equal $1800 if cashed today and $2000 if the horse waited for the optimal time (highest VIP level) to cash their points out.

Basically what we are looking at is the idea that if the team could find an investment that pays more than $200 in 4 months (with perhaps assumed zero risk at this point in the inquiry), then it would seem favorable to cash out one’s points and head for that particular investment. Also, this certain investment might be more lucrative depending on the both the fluctuations of the USD and/or in regards to any uncertainly of the given site in response to relevant regulations and/or changes in relevant regulations to be expected.

Furthermore, and what also might prove to be interesting, is if one of the parties “felt” they knew of such an investment, or in other words they wanted to speculate, the horse for example could choose to pay the backer their $100 loss out of the monies received from cashing the points at the current time. So in our example if the horse trades their current points for $1800, which they split $900 each, the horse would then give the backer $1000 and only keep $800, and so the backer is assured not to sustain any loss from the early cashout.

However, depending on the investment, the backer might no incur a loss at all in the 4 month long run in which they weren’t planning on cashing the points anyways. We might consider the effects of this possibility in a moment but first we can look at another aspect.

If the duo enters an investment together worth $800 each the backer retains $200 dollars and the horse can offer to “securitize” half the investment, with a stop loss where the asset sells if it loses half the value.  So the horse can still assure the backer of no possibility of loss.

In respect to possible profit made over this 4 months period, the backer can choose what % of profits they would like a share of vs what % of risk exposure they are willing to endure. If they investment is fully secured, they might be entitled to only a smaller portion of profits. while if they are willing to take some of the risk they would be entitled to more profits.

We can note if the backer wants either 0% or 100% risk exposure, then the duo might just invest on their own (or each not at all).

Obviously the author is thinking about bitcoin in this example as the investment vehicle, but the reason for this example might be more interesting. A “smart contract” exactly like this could be written directly into the transaction making a perfectly accountable and automatic investment deal between the two players. Today (and in relation to user friendliness) the parties might use a certain website or project like counterparty to facilitate this contract, yet something that could be of great intrest to players is the  goal of the ethereum project (at least on some levels) is to create a system that facilitates exactly the above described type of “transactions”

If one can see the value of such technology, it might then be seen as a no brainier to invest in it as early as possible.

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