Bitcoin and the Law of Conservation of Energy

The author, Alex Millar, is a blogger who holds a degree in engineering physics from Queen's University in Ontario, Canada. In this article, Millar expounds on the theory that "money is energy". In addition, he also believes that from a purely scientific point of view, Bitcoin is a better alternative to fiat currency.

In physics, "energy" is defined as a measure of the ability of a physical system to do work.

This means that money is energy, because it can be used to pay other people to get work done. The energy in money can be thought of as "economic energy." Economists call economic energy "prices" and measure them in terms of "Euros" or "Kenyan Shillings," for example.

However, these units are abstract because their quantities change over time. Physicists prefer to use units such as the joule or kilowatt-hour, which have concrete basis in physical reality (such as mass (kg), length (m), and time (s)).

Since money is energy, we can apply the law of conservation of energy, that is:

"Energy cannot be created or destroyed, but it can change form."

You may remember this from your high school science textbooks: a toaster converts electrical energy into heat; a blender converts electrical energy into mechanical energy.

A $100 bill has significant economic energy. However, it is made from cheap raw materials and negligible electricity. So the question is: where does this $100 economic energy come from?

The answer lies in Economics 101, which states that prices (economic energy) are a reflection of supply and demand.

When the overall supply of a good increases, the economic energy per unit decreases. Therefore, the energy stored in a new $100 bill is transferred from a pre-existing dollar (which loses a small amount of energy), and dollar energy as a whole is a zero-sum game.

This also applies to proof-of-stake (POS) currencies (e.g., planned future versions of Ethereum), as well as proof-of-work (POW) currencies like Bitcoin.

USD, EUR, etc.

As explained above, when the government creates new dollars, those new dollars draw energy from previously existing dollars.

The energy equation is simple:

Proof of Stake Coins

Let’s assume that Ethereum in the future is a PoS network, and Ethereum holders will receive new coin rewards in proportion to their holdings (Translator’s note: Ethereum’s PoS is not simply distributed in proportion to the coins held).

In other words, every investor who holds X coins will receive C X coins (where C is a constant number) at the next coin block reward. Energy is transferred from the old coin to the new coin, but the holder remains the same person.

Without the flow of energy, it is difficult to see the point of creating new coins in a PoS system. Supposedly, its purpose is to find consensus in the growth of the blockchain, but this remains to be seen.

Proof of Work Coins

The creation of PoW coins (such as Bitcoin) consumes a lot of electricity.

Bitcoin fans may think that the electricity consumed by mining machines will be completely converted into the economic energy of new coins. Therefore, the original coins will not lose energy.

However, the process of mining coins also generates heat. If the heat generated is equal to the electricity consumed, then the energy in the new coins must have come from the old coins. Fortunately, this seems unlikely, because once the electricity is completely converted into heat, the machines will not be used.

It seems that economic energy is converted from electrical energy, but it is also accompanied by some heat energy loss.

Summarize

Those who store their energy in dollars will have their economic energy sucked away by economic parasites, while those who store their energy in Bitcoin will not.

Bitcoin miners have found a way to convert electrical energy into economic energy.

Logically, once people realize they can store pure economic energy without the downside of economic parasites, they will convert their dollars into Bitcoins. This will result in the energy in the dollars being transferred to Bitcoins.

Later, as the total economic energy of Bitcoin approaches that of the US dollar, people will find that the economic energy of the US dollar will fall due to the decline in demand. This is like a chemical reaction, where energy is converted quickly and almost completely (I use the word "almost completely" because some people will refuse to give up their trust in the US dollar).

Finally, from a physicist's point of view, the entropy in the universe must increase.

PoW coins like Bitcoin are the only type of currency that increases entropy (through heat energy lost in mining), and therefore are the only currencies that follow this trend from a cosmic perspective.