Physics guarantees Bitcoin’s monetary superiority

Bitcoin’s inherent nature is necessity, not probability, and it is based on the laws of nature.

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 simplest level, it centers around energy, which can also exist in the form of matter. Energy cannot be created or destroyed, but can only be transferred between entities (the first law of thermodynamics).

One of the least thought-about ways in which energy exists in the world today is how the concept of energy applies to money. Until Bitcoin’s proof of work came along. Nonetheless, monetary energy is arguably the single most important way of transferring energy in the world today, as it signals the total work that people individually and collectively output, transferring from our physical selves to the world. A practical example – building a bridge, it requires the work of the people who build that bridge, as they transfer energy in the form of physical labor to build that bridge, and expect to be paid in return for that energy.

The obvious problem we face today is that the world’s monetary energy is fundamentally distorted and the signal is completely broken. Central banks routinely bail out insiders and distort the real cost of capital by manipulating interest rates. This causes all understanding of the value of money to be lost. Monetary energy can only work best in completely free, unfettered markets. The more distorted the market becomes, the less “real” signal monetary energy can generate, and so real productivity becomes even more distorted.

In practical terms, this means that monetary energy can no longer be transferred across time in a reliable manner. The saleability of energy is a key factor in monetary energy not being distorted, because I need to know that my purchasing power will be worth relatively the same today as it will be tomorrow. Otherwise, it naturally forces me to climb the risk curve in an attempt to preserve my monetary energy.

How do these ideas relate to physics? As mentioned above, one of the key concepts in physics is thermodynamics. The third law of thermodynamics states that as a system approaches absolute zero, its entropy naturally approaches a constant value, the lowest limit of the thermodynamic scale. Randomness in a system tends to create order out of disorder. For monetary energy, this means looking for the highest signal out of the noise.

Bitcoin combines the first and third laws of thermodynamics. It is a fully emergent system that arises from the greatest chaos. This is not only true in theory, but also in practice, as demonstrated by the state of the fiat world.

Eventually, Bitcoin will absorb most of the stored-value energy on the planet because it has the hardest monetary properties. Saleability, fungibility, censorship resistance, and proof-of-work. Proof-of-work is the most important of these because it satisfies the first law of thermodynamics, thus guaranteeing the third law of thermodynamics to bring most of the monetary energy in existence into the network.

Bitcoin is not a perfect monetary system. It's just that it's the best monetary system the world has ever seen. That's why, on long enough timescales, most of the world's monetary energy will be stored on the Bitcoin network. It's the natural laws of the universe that make this inevitable.

Its price will fluctuate in the short term, often wildly, as the world assigns various probabilities to the monetary energy that will ultimately be produced by the most hardened monetary network ever created. But Bitcoin does not work on a probability function, but on a deterministic function. The short-term price represents people’s collective discounting of the laws of thermodynamics. Yet anyone who understands these fundamental truths knows that the conclusion is built into the Bitcoin protocol and the new systems developed around it.

While hodlers wait for the world to catch up, they can rest easy knowing that Bitcoin’s success is not a human problem, but a matter of entropic energy transfer. We know these laws guarantee Bitcoin’s eventual success.