Bitcoin’s properties are deterministic, non-probabilistic, and based on the natural laws that make up our world.
Everything in the (observable) universe is ultimately governed by the laws of physics. This includes everything from observable phenomena at the cellular and molecular level to what we can observe in the most distant galaxies. At the most basic level, it’s all about energy and energy as a state of matter, something that cannot be created or destroyed, only transmitted between entities (first law of thermodynamics).
One of the most unthought-of ways energy exists in our world today, until the advent of proof-of-work in Bitcoin, is the application of the concept of energy to money. Despite this, monetary energy is arguably the most important practical implementation of energy transmission in the world today because it is the signal for all the work that humans have individually and collectively transmitted from our physical selves into the world. As a practical example, to build a bridge, the people who build that bridge must work, since they transfer energy in the form of physical labor to build that bridge and expect energy in return in the form of payment.
The clear problem we have today is that the monetary energy in the world is fundamentally distorted to the point where the signal is completely disrupted. Central banks have routinely bailed out Cantillon insiders and distorted the true cost of capital through interest rate manipulation. This has led to the loss of any understanding of the value of money. Monetary energy can only function optimally in a completely free, uninhibited market. As markets become more distorted, the less “real” signal that monetary energy generates, and hence real productivity becomes more distorted by that signal.
In practical terms, this means that monetary energy can no longer be reliably transferred over time. The salability of energy is a key factor in not distorting monetary energy because I need to know that my purchasing power today will be worth relatively the same as it will be tomorrow. Otherwise, of course, it will force me to push up the risk curve to try to conserve 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 states that the entropy of a system naturally approaches a constant value as it approaches absolute zero, i.e. the lowest limit of the thermodynamic scale. Randomness in systems tends toward 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 laws of thermodynamics. It is a fully emergent system born out of maximum disorder. This is not only true in theory, it is true in practice, as the state of the fiat world proves.
Ultimately, Bitcoin will absorb most of the precious energy on the planet because it has the hardest monetary properties. Sellability, fungibility, censorship resistance and proof-of-work. The proof-of-work is the most important of these because it satisfies the first law of thermodynamics, thus guaranteeing that the third law of thermodynamics will bring most of the monetary energy present into the network.
Bitcoin is not a perfect monetary system. It is simply the best monetary system the world has ever seen. Because of this, for a long enough period of time, most of the world’s monetary energy is stored on the Bitcoin network. It is simply the natural laws of the universe that make this inevitable.
The short-term exchange rate will often fluctuate dramatically as the world assigns various probabilities to the ultimate influx of monetary energy through the toughest monetary network ever created. But Bitcoin does not work based on a probability function, but based on a deterministic one. The short-term exchange rate represents the discounting that the world’s population is collectively applying to the unfolding laws of thermodynamics. However, anyone who understands these fundamental truths knows that reasoning is built into the protocol and the nascent systems that evolve around the protocol.
As HODLers wait for the world to catch up, they can sit back and relax knowing that Bitcoin’s success is not a human issue, but rather a matter of the energy transfer of entropy. And the laws that we know arise from those that 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.