Bitcoin, Thermodynamics and the Game Theory of Living

Thermodynamics

The Second Law of Thermodynamics states that in a closed system, entropy (the degree of randomness) is bound to either increase or stay constant.

Life

On the surface, it may appear that the emergence of complexity that we see all around us is impossible. However, a decrease of entropy in a system is possible, and the rate at which this decrease happens is determined by two factors:

  • the amount of energy flowing into the system
  • the effective channeling of energy - often referred to as work
Depiction of Heaven and Hell.

Game Theory of Living

As outlined above, the most basic of human instincts is that of individual survival. We are evolutionarily programmed to effectively fight off the tendency towards disorder by effectively channeling energy.

Money (Bitcoin)

In order to be able to socially coordinate, we need to be able to define what is of value, as well as keep track of the value individuals provide. For that, we need a standard unit of measurement for value. Unlike units of measurement for energy, such as Joules/Calories/Kilowatt Hours, the unit of measurement for value needs to exist in the form of a token, so that economic actors can claim possession of it.

  • work geared towards value preservation is rendered obsolete — this type of work produces no economic good for the collective, and leads to unnecessary competition between market participants.
  • every other asset geared towards value preservation gets demonetized (i.e. real estate).

Final Thoughts

Without a unit of measurement for value whose supply is inelastic to price, an economy is not able to collaboratively channel energy towards value creation and entropy reduction.

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