The financial superiority of Bitcoin is assured by physics


Everything in the (observable) universe is ultimately subject to the laws of physics. This encompasses everything from observable phenomena at the cellular and molecular level to what we can observe in the most distant galaxies. At the simplest level, this revolves around energy and energy as an aggregate state that cannot be created or destroyed, but is only transferred between units (first law of thermodynamics).

One of the least thought of ways energy is present in our world today, until the advent of proof-of-work in Bitcoin, is how the concept of energy is applied to money. Nevertheless, monetary energy is arguably the most important practical implementation of energy transfer in the world today because it is the signal of all the work that people individually and collectively transfer from our physical selves into the world. As a practical example, to build a bridge it takes work from the people who build that bridge, as they transfer energy in the form of physical labor to build this bridge and expect energy in the form of payment for it.

The clear problem we have today is that the monetary energy in the world is so distorted that the signal is completely broken. Central banks routinely bailed out Cantillon insiders and distorted the real cost of capital through interest rate manipulation. This has resulted in the loss of any understanding of monetary value. Monetary energy can only function optimally in a completely free, unrestrained market. The more the markets are distorted, the less “real” signal the monetary energy generates, and therefore real productivity is more distorted by this signal.

In practical terms, this means that monetary energy can no longer be reliably transmitted over time. The saleability of energy is a key factor in order not to distort monetary energy, because I have to know that my purchasing power is worth relatively as much today as it will be tomorrow. Otherwise, of course, it will force me to ride up the risk curve to try to preserve my monetary energy.

How do these ideas circle back to physics? As mentioned above, one of the key concepts in physics is thermodynamics. The third law of thermodynamics says that the entropy of a system naturally approaches a constant value as it approaches absolute zero, that is, the lowest limit of the thermodynamic scale. Randomness in systems tends towards what can create order out of disorder. For monetary energy this would mean looking for the highest signal out of the noise.

Bitcoin combines the first and third law of thermodynamics. It is a totally emerging system born of maximum disorder. This is not only true in theory, but also in practice, as the state of the Fiat world proves.

Ultimately, Bitcoin will absorb most of the value storage energy on the planet as it has the toughest monetary properties. Sellability, fungibility, censorship resistance and proof of work. The proof-of-work is the most important of these because it fulfills the first law of thermodynamics and thus guarantees that the third law of thermodynamics brings the majority of the existing monetary energy into the network.

Bitcoin is not a perfect currency system. It’s just the best monetary system the world has ever seen. Because of this, most of the world’s monetary energy is stored in the Bitcoin network for a sufficiently long period of time. It is simply the natural laws of the universe that make this inevitable.

The short-term exchange rate will fluctuate, often dramatically, as the world assigns different probabilities to the eventual accumulation of money energy by the toughest currency network ever created. But Bitcoin doesn’t work based on a probability function, it works based on a deterministic one. The short-term exchange rate represents the discounting that the world population collectively puts on the laws of thermodynamics. However, anyone who understands these basic truths knows that inference is built into the protocol and the nascent systems that develop around the protocol.

While HODLers wait for the world to catch up, they can sit back and relax knowing that Bitcoin’s success is not a human question, but a question of the energy transfer of entropy. And the laws that we know flow from guarantee its ultimate success.

This is a guest post by Mind / Matter. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

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