Bitcoin and the Tyranny of Time Scarcity (Part 8)
Economics is the art of cooperation and competition aimed at conquering scarcity.
Temporal Anchorage
When money is disconnected from time scarcity (as fiat currency is), its “skin in the game” is compromised and the economies it facilitates start suffering from distorted price signals, malinvestments, recessions, and an exacerbated boom-and-bust business cycle. As with most systems, money requires skin in the game to function properly — meaning that money must be costly to produce, otherwise those who can produce it cheaply will do so to steal the value of time savings stored therein (as central banks do).
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For gold, the costs associated with mining provide this critical skin in the game characteristic. For Bitcoin, an ingenious composite of proof-of-work energy expenditure (skin in the game) and economic incentives (game theory) enabled it to digitize scarcity. In this sense, Bitcoin’s blockchain is like a bridge between physical and digital reality — the first incarnation of a digital asset with provable scarcity. An innovative amalgamation of open-source software and behavioral economics, Bitcoin was designed to be a monetary network that reproduces itself relentlessly:
From this perspective, the value of mining both gold and Bitcoin is the “unforgeable costliness” that each represents — a measure of the time sacrificed in production, which is redeemable for the time of others. Imbued with digital scarcity, Bitcoin preserves the advantages offered by gold’s physicality (self-sovereignty, irreversible transactions, final settlement) while eliminating its disadvantages (ease of confiscation, expensive safeguarding, high settlement costs). Digitization also makes Bitcoin a weightless, intangible, and (potentially) everlasting monetary technology. As a totally impersonal and self-sovereign monetary network capable of adopting market-proven features from competitors over time, while simultaneously resisting changes that negatively impact its users, Bitcoin may be the last evolution we ever see in global prime money. Gold is the “pristine collateral” which underpins the entirety of the highly-levered fiat currency financial complex; Bitcoin is poised to become the foundation for an entirely new economic order.
In Part 9, we will look out upon the future horizons of monetary evolution…
Thank you for reading Bitcoin and the Tyranny of Time Scarcity (Part 8).
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