When asked by a 12-year-old boy how he would suggest solving international problems without violence, Buckminster Fuller replied:
“I always try to solve problems with an artifact or a tool or an invention that makes what people do superfluous that it doesn’t do that particular kind of problem anymore relevant. My answer would be to develop a world energy Grid, a power grid in which everyone is on the same power grid. ASuddenly there would be no more problems, no international problems. Our new economic base would not be Gold or dollars; It would be kilowatt hours. “
The above quote from forward-looking Buckminster Fuller from 1983 referred to his now famous “kilowatt dollar” forecast, which he first discussed in 1969 (three years before Nixon took us off the gold standard). While Mr. Fuller was referring to a theoretical energy-based monetary unit, he couldn’t realize at this point that he was really talking about Bitcoin.
Money: Our most basic unit of social information technology
● In a society with a free market, the largest information network by far is the price, which itself is essentially an intersubjective value agreement. Money is the abstraction of this value.
● The “Schelling Point” for participants in a society is the money that is available best Submit this pricing information. This is where the money wants to go.
● Money is therefore the mediator of our communication and distribution of all economic resources. All innovations and societal advances result from this communication. It is perhaps the most elementary and consistent social tool we have, and it has been essential to our species’ ability to scale successfully (i.e., dominate the earth and populate it hyper-exponentially).
● This principle of money is vague and grandiose at the same time, but perhaps because it is taken for granted, abstracted and veiled by technocrats, economists and politicians who currently control our existing currency system together.
● It is important that money is also the means of transferring uncertainty and risk to those who are willing to accept this uncertainty. This is one of the most important ways money functions as information (beyond price itself), as the monetary transfer of risk and uncertainty reveals invaluable amounts of information about successes and failures. With these volatility increments over time, it builds anti-fragility in the system. Without money, there would be no measure of volatility. No means of evaluating success or failure and no motivation for such risk-transferring behavior.
● In particular, a risk transfer medium for the accumulation of productive capital is required. Risk takers and those with the appropriate skills to build new ones
productive capital are not always the same people. Those who have already amassed wealth are not always best placed to build new capital. Therefore, a marketplace is required to enable the exchange of risks to build up the share capital. Money is the medium for such transactions.
Now, with these basic and philosophical logos as a backdrop, let’s examine how money as an information technology is key to combating the entanglement of money and using energy as a vehicle to advance civilization. Such an investigation not only helps us determine how detrimental fiat money forms are to the process of energy phase transitions, but it also helps us to see how valuable Bitcoin is in breaking out of the socio-economic dilemma we are currently facing.
Energy, currency entropy and information parity
For the purposes of the following discussion, we will define entropy in the simplest possible way. High entropy is a state of high disturbancewhile low entropy is a state of high order.
An entropy equilibrium hypothesis:
The increase in thermodynamic entropy (TE) is always balanced out by a corresponding decrease in information entropy (IE), so that:
TE = – IE
a positive value indicating an increase in entropy and a negative value indicating a decrease in entropy.
This hypothesis is essentially an adaptation of the second law of thermodynamics, combining it with concepts from information theory, and using these observations to create a formula that is more fully applicable to human economic activity. It is a revision of this law to better understand the relationship between energy, money and information. It’s simple and symmetrical.
The power of X.
X ^ = exponential scaling order of technological innovation.
○ In human productivity, when we consume other low-entropy matter, we need to transform our temporary and low-entropy states – elegant organizations with double-helix, organic, and carbon-based existence – into higher-entropy states as we consume other low-entropy matter to then produce higher-entropy energy Form of work.
○ Thanks to technological innovations, we can do this work easier, faster, better and more extensively with the same amount of resources. This is also known as productivity.
According to the well-known information theory of Claude Shannon:
Information = reduced entropy
Technology, in turn, enables information to be scaled.
Let’s further unpack this concept of information, at least in the context of this article, as unstructured data that has been manipulated into a structured and intentionally ordered format that reduces uncertainty.
Just as the first law of thermodynamics teaches that energy can neither be created nor destroyed, the second law of thermodynamics says that thermodynamic entropy always increases with time. However, this law says nothing about entropy inherent in information or certain human systems such as market economies. Consequently, the second law of thermodynamics says nothing about the influence of human technological ingenuity on other forms of entropy, particularly with respect to information.
Given all of these analyzes, we can refine the above formula further than:
TEX = -IE
However, this Spartan equation is not complete, at least when applied to human social and economic systems. As mentioned earlier, since it is possibly the most fundamental unit of information technology for social scaling, we need to include money in this formula along with the general exponential order of technology scaling so that:
Where ME = currency entropy
We will define monetary entropy as the long-term rate of inflation of that money. In truth, monetary entropy is affected much more than just monetary inflation (discussed below). However, for the sake of thrift, let’s be satisfied with this slim definition for now.
We can now write the hypothesis more broadly than:
The key finding regarding the important paradigm shift inherent in Bitcoin is as follows: Fiat money means a net increase in entropy.
This cannot be overstated and is essential for the thesis of this article. Such a conclusion is drawn even though money is, in theory, one form of information that it should be to reduce Entropy when used as directed. Unfortunately, Fiat is not money as it was intended. Inflation, centralized and thus arbitrary control of supply rules (and attempts to control demand through managed risk-free rates as well), global exchange rate volatility and competitive devaluations and mercantilism, subsidies, free zombie debt-supporting industries, opaque and unequal tax enforcement, and many other behaviors are all conspiring to create an aggregated equation of massive entropy in fiat money economies.
When money is in fiat, ME is always> 0 (and is often well above this threshold, especially in the abundance of time).
If the money is in Bitcoin, ME is always = 0, period. No asterisks, no footnotes.
Another important observation highlighted by the above formula is that as the TE (X-ME) increases, the inputs (energy resources) of a system become more scarce.
Kyle Baranko writes:
If money is not allowed to absorb its scarcity, other resources must fill that void. This increases the costs of information production, since there are fewer and fewer sources for an increase in thermodynamic entropy, from which a decreasing information entropy can be converted. As a result, the system will affect productivity. Such an environment also leads to hidden costs such as external environmental influences and systemic fragility that can easily be cemented into chronic problems that are difficult to fix.
If an increase in TE ^ (X-ME) leads to greater thermodynamic or monetary scarcity, it means that the equivalent decrease in IE leads to a greater supply of structured, ordered information (decreasing information entropy). Basic laws of supply and demand conclude that this will lead to a proportional reduction in the cost of information.
If money in the form of Bitcoin is allowed to absorb the thermodynamic entropy, the incremental scarcity results from the increase in the thermodynamic entropy values. In this way we arrive at another “mathematical” phenomenon called NgU or, colloquially, “number increases”. Growth does NOT Necessity = gross domestic product (GDP); GDP growth = more consumption.
The biggest contributor to GDP is consumption, which has been increasing since the financialization of our economy through an exponential growth in money and debt since the breakup of Bretton Woods in 1971, the subsequent formation of the fiat standard and GDP as a percentage of the The USD Petrodollar Global Reserve System has increased GDP significantly. This trend only intensifies after each debt shock, which forces more and more consumption and leverage to free us from the newly indebted state we create with each cycle. This is evident in the graph below, both in the early 1970s since the Great Financial Crisis (GFC) and more recently with the COVID-19 pandemic.
This is a recipe for disaster. It is definitely not sustainable to grow in the long run by this measure if 1) limited thermodynamic resources and, perhaps more importantly, 2) these resources are used inefficiently and wasted. This waste is caused by inflationary monetary policy, which does not allow the economy to naturally transition to a lower-consumption society that results from reduced entropy of information and the abundance it could create if we let it. A sustainable path requires a redefinition of growth away from concepts that require increased consumption (amount of goods and services produced, wage growth, labor time, asset inflation / wealth effects, etc.), thereby virtually improving the evolution of energy, information and money can our prosperity.
Growth = information entropy = more time, less time preference.
The above equation helps us visualize a framework for such a dynamic and shows how Bitcoin as a base layer with a monetary entropy of zero can propel us into this future.
Money is not = value.
Instead, it’s a measure up of value creation in an economy. Good money is therefore information. It keeps us informed of our progress. Bad money blinds us and leads us to turn onto spindle-shaped and corroded dirt roads.
Inflation does not match the consumer price index (CPI).
Inflation is not the cost of gas prices. There are no rising prices for sawn timber. It’s not the price of a Big Mac or your electric bill. It doesn’t even appreciate the value of your home.
The most comprehensive definition of inflation is, more fundamentally, the devaluation of money in relation to otherwise created value.
Inflationary currency systems obscure the value created by societal productivity. This simple statement cannot be overstated. Since the early decades of the 20th century, we have mistakenly accepted inflation as the first fundamental imperative in all free markets. But it’s not the natural state of the economy, and in a broader historical context, it’s actually a relatively new experiment (see Gibson’s Paradox). On the contrary, as regards the natural state of human progress and free market capitalism. Once this problem is really recognized, the value of an absolute scarcity that is verifiable, immutable and censorship resistant across time and space, and stateless (belonging to the free market), we suddenly realize how incredible an invention this really is. The is the rabbit hole that Bitcoin is. The term is subtle, but once understood, gravity’s desire to dive headfirst into that rabbit hole of countless social revolutions becomes an inevitable journey.
Bitcoin = a mirror
A deflationary currency system of absolute hard money acts as a mirror for value creation. It is a compass that guides us towards a better economic path. Value is created through human ingenuity, environmental necessity, and the composite productivity that is fueled by our accumulation of collective knowledge. These forces are often generally referred to as technology or innovation and always create a value-reducing information entropy. In other words, all productivity is driven by technology, and all technological innovation is fundamentally deflationary. That is, as long as money remains a constant in the equation.
However, when money puffs up, we lose our measure of value. It would be like using the proverbial yardstick that is constantly redefining what a yard is: a table is two meters; but then a yardstick creates more units and suddenly this table is four meters. The table didn’t grow. The unit of measure shrank. A store of value is what it sounds like. It saves all productivity and labor. If more value is created than healthy money, then by definition this money has more purchasing power and stores more and more value. If instead the misuse of the money supply destroys value, people will definitely try to store their value elsewhere. Money must therefore always begin as a store of value before it becomes a medium of exchange. Deflation is a measure of success in creating economic value as innovation creates more for less. When prices drop 5% a year it is a much bigger expression of value added than our current perverse inverted measures like “real GDP”. If you print dollars and then count the value that has been created in those dollars, what does that tell you? Instead, what if you could calculate the amount of goods and services created versus the dollars created? Wouldn’t that tell us anymore?
We live in a time of incredible technological advances on increasingly exponential growth curves. This results in information production occurring in an invisible degree of abundance. However, this abundance is watered down and often completely negated by the perversion of fiat’s money potential to synergistically account for such abundance.
If technological productivity has the potential to reduce information entropy production for any thermodynamic unit with increased entropy input, this is the true definition of wealth creation. More for less. Fiat not only robs us of that wealth, it also contributes to entropic dissipation, which pollutes our ecosystem and makes it increasingly fragile. Yes, “ecosystem”. It is no coincidence that one word most commonly associated with environmental dialogues is made up of the word “economy” itself (with its etymological roots in the Greek words for “Distribution of the house”), Since thermodynamic systems are inextricably linked with systems of human productivity (information).
To conclude with the mundane axiom “Bitcoin fixes this” does not even begin to find the solution where Bitcoin is the justice it deserves. Bitcoin fixes this problem like Cinderella’s slipper. In this case, it’s a perfect fit or solution. The Bitcoin network not only naturally absorbs highly disordered information and makes this information asymmetrically (through cryptography) incredibly ordered, as Bitcoiner Gigi eloquently states in his article Bitcoin’s eternal battle, But Bitcoin (money) with its properties of absolute scarcity, decentralized consensus, unchangeable programmed offer, rule-based and anti-fragile incentive structure completely changes the game. Each of these properties in itself would change the game, as they are each very conducive to a reduced information entropy, especially in comparison to Fiat. When combined, however, the synergistic reduction in entropy may be even more exponential than the Cambrian explosion of information generated by today’s technological abundance.
It’s going to be a great day, maybe one great filter Kind when the ships of money and other technology can sail along the same current.
This is a guest post by Aaron Segal. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.