It was precisely for this reason that I found myself involved with Bitcoin so early on and why, even today, the thrust of my efforts in this paper are not advocating the idea that investors should “drop” it. The issue for me is that the Bitcoin community cannot, on the one hand, base its entire future on the Proof-of-Work argument while maligning Gold, which is the natural ideal which any proof-of-work currency strives to embody. As I shall show in the remaining sections of this paper, pursuing this flawed intellectual path introduces a necessary comparison which, unfortunately for Bitcoin, renders it inferior to not just Gold, but most corporeal units of metabolic energy made manifest in naturally scarce elements that survive through time.
Bitcoin is a paradox. On the one hand, its creation involves a proof-of-work predicated on the exertion of metabolic energy (the massive energy expenditure made in the form of the electricity used by the computers that “mine” it). On the other hand, this exertion is an effective opportunity cost for a cooperative society’s surplus of metabolic energy, which, due to the infinite demands of Bitcoin, is unsustainable through time.
The reason for this is that without the act of “mining” Bitcoins, there could be no Bitcoins. That is because the genius of Bitcoin is also its Achilles heel: its apparently decentralized properties which induce cooperation to secure a growing ledger of transactions requires that an increasing amount of metabolic energy be invested in the validation of mining blocks every few minutes. Each block serves a dual purpose of validating the latest transactions and, equally important, as the definitive ledger that tells every holder how much Bitcoin they own. This interweaving of the payment systems with the actual ledger affirming who owns what is how Bitcoin attempts to emulate Gold’s physical properties as being a measure of toil and motivator of merit, and these attempts are what contribute to its adoption as Money. Alas, as we shall soon see, this adroit design was achieved by mortgaging the future, and presents a serious issue for Bitcoin in the long-term.
The term “mining,” in this case, is really a misnomer. Instead of the word “mining,” consider the Bitcoin proof-of-work hashing and block validation as a massive, continuous investment of energy to maintain the network. Without this investment, Bitcoin (or any other cryptocurrency for that matter) is merely an abstraction—nothing more than lines of code, or, more specifically, mathematical operations that any ordinary person could simply write down with pen and paper. In contradistinction, Gold is mined because it is naturally rare and naturally immutable according to the first-order laws of nature. The act of mining does nothing to validate Gold’s continued existence just as the act of breathing does nothing to validate the existence of Oxygen. As a natural element, Gold’s inherent attributes of being extremely rare and non-reactive with air make it a perfect embodiment of metabolic energy, allowing it to serve as a measure of toil and motivator of merit in the objective present within any human cooperative society while remaining physically constant through time. In other words, the natural properties of Gold make it Money par excellence.
Mining more Gold makes more Gold available, which then circulates forever within and between human cooperative societies. There is no existential need on the part of Gold for a continued investment of energy, and the Gold, which serves as an embodiment of previously expended metabolic energy, can be worn as a ring or stored in one’s place of shelter. There is no shared ledger here, nobody can truly know how much Gold exists or is being owned at any one specific moment in time.
The point here is that Gold doesn’t need to refer to a blockchain to know what it is...it merely exists and continues to exist effortlessly and without the need for any subsequent investment of metabolic energy. Both energy and entropy are intrinsic to our existence as first order properties of the natural order. Likewise, Gold is born of the same natural mysteries, a first order property of nature, but it is, in its physical form, the only matter in nature which is immune to the forces of entropy through time—an idea I initially expounded in my 2017 essay: The Natural Order of Money and why Abstract Currencies Fail.
Bitcoin and other cryptocurrencies require us to constantly divert our collective metabolic energy and time into supporting the integrity of a mathematical abstraction. This activity is, therefore, secondary to the first order laws of nature. When a farmer produces a crop, it feeds society’s hunger. When a miner produces copper, it powers society’s energy infrastructure.
Bitcoin is a paradox. On the one hand, its creation involves a proof-of-work predicated on the exertion of metabolic energy (the massive energy expenditure made in the form of the electricity used by the computers that “mine” it). On the other hand, this exertion is an effective opportunity cost for a cooperative society’s surplus of metabolic energy, which, due to the infinite demands of Bitcoin, is unsustainable through time.
The reason for this is that without the act of “mining” Bitcoins, there could be no Bitcoins. That is because the genius of Bitcoin is also its Achilles heel: its apparently decentralized properties which induce cooperation to secure a growing ledger of transactions requires that an increasing amount of metabolic energy be invested in the validation of mining blocks every few minutes. Each block serves a dual purpose of validating the latest transactions and, equally important, as the definitive ledger that tells every holder how much Bitcoin they own. This interweaving of the payment systems with the actual ledger affirming who owns what is how Bitcoin attempts to emulate Gold’s physical properties as being a measure of toil and motivator of merit, and these attempts are what contribute to its adoption as Money. Alas, as we shall soon see, this adroit design was achieved by mortgaging the future, and presents a serious issue for Bitcoin in the long-term.
The term “mining,” in this case, is really a misnomer. Instead of the word “mining,” consider the Bitcoin proof-of-work hashing and block validation as a massive, continuous investment of energy to maintain the network. Without this investment, Bitcoin (or any other cryptocurrency for that matter) is merely an abstraction—nothing more than lines of code, or, more specifically, mathematical operations that any ordinary person could simply write down with pen and paper. In contradistinction, Gold is mined because it is naturally rare and naturally immutable according to the first-order laws of nature. The act of mining does nothing to validate Gold’s continued existence just as the act of breathing does nothing to validate the existence of Oxygen. As a natural element, Gold’s inherent attributes of being extremely rare and non-reactive with air make it a perfect embodiment of metabolic energy, allowing it to serve as a measure of toil and motivator of merit in the objective present within any human cooperative society while remaining physically constant through time. In other words, the natural properties of Gold make it Money par excellence.
Mining more Gold makes more Gold available, which then circulates forever within and between human cooperative societies. There is no existential need on the part of Gold for a continued investment of energy, and the Gold, which serves as an embodiment of previously expended metabolic energy, can be worn as a ring or stored in one’s place of shelter. There is no shared ledger here, nobody can truly know how much Gold exists or is being owned at any one specific moment in time.
The point here is that Gold doesn’t need to refer to a blockchain to know what it is...it merely exists and continues to exist effortlessly and without the need for any subsequent investment of metabolic energy. Both energy and entropy are intrinsic to our existence as first order properties of the natural order. Likewise, Gold is born of the same natural mysteries, a first order property of nature, but it is, in its physical form, the only matter in nature which is immune to the forces of entropy through time—an idea I initially expounded in my 2017 essay: The Natural Order of Money and why Abstract Currencies Fail.
Bitcoin and other cryptocurrencies require us to constantly divert our collective metabolic energy and time into supporting the integrity of a mathematical abstraction. This activity is, therefore, secondary to the first order laws of nature. When a farmer produces a crop, it feeds society’s hunger. When a miner produces copper, it powers society’s energy infrastructure.
When a wildcatter discovers oil, it propels humanity’s transportation systems. When a miner decides to take a risk and mine Gold, that opportunity cost results in additional Gold which can be used in computer chips to conduct electromagnetic energy without tarnishing or be employed as money—a lasting, objective measure for the other, more quickly decaying first order products of nature.
Based on the experience of debating this issue for over a decade, I find that this concept has been very difficult to grasp for modern economists, academics, and members of the so-called “service economy,” but the simple fact is that it is a self-evident truth.
Based on the experience of debating this issue for over a decade, I find that this concept has been very difficult to grasp for modern economists, academics, and members of the so-called “service economy,” but the simple fact is that it is a self-evident truth.
On the other hand, I often find that primary cooperators have an easier time understanding this feature of our natural world. It is often members of the primary cooperative, such as farmers, fishermen, and miners, that recognize Gold is no different than the tomatoes or the lithium or the apples they toil so hard to produce. It is a first order manifestation of human toil and merit via direct negotiation with nature.
The secondary cooperative, the “service economy” (to use the current expression), is where Bitcoin lives. It is within this mathematical computation realm that crypto appears to be rare, appears to move around with ease, and seems to represent the realization of a long-lasting and immutable state. Alas, none of this is real. At the end of the day, Bitcoin is nothing more than a poorly conceived monetary system which taxes metabolic energy rather than preserving it—a system that simply tries to mimic what nature has already perfected and made self-evident.
If the world’s Gold miners stopped mining tomorrow, nobody that owns Gold would care. One gram of Gold would remain one gram of Gold. The Bitcoin story is different. Any owner of Bitcoin only owns what the latest version of the ledger says they own. That version exists based on the continued operation of massive computational servers somewhere out there requiring society to constantly divert its metabolic energy to maintain the apparent utility of the service.
Having laid out the foundational philosophical differences between Bitcoin and Gold, I shall now conclude my paper by providing several proofs for why Gold is superior to Bitcoin. I shall do so by employing the languages of mathematics to abstract physical phenomena from the natural world, and thermodynamic physics to convey the dynamics at the heart of the corporeal world.
The secondary cooperative, the “service economy” (to use the current expression), is where Bitcoin lives. It is within this mathematical computation realm that crypto appears to be rare, appears to move around with ease, and seems to represent the realization of a long-lasting and immutable state. Alas, none of this is real. At the end of the day, Bitcoin is nothing more than a poorly conceived monetary system which taxes metabolic energy rather than preserving it—a system that simply tries to mimic what nature has already perfected and made self-evident.
If the world’s Gold miners stopped mining tomorrow, nobody that owns Gold would care. One gram of Gold would remain one gram of Gold. The Bitcoin story is different. Any owner of Bitcoin only owns what the latest version of the ledger says they own. That version exists based on the continued operation of massive computational servers somewhere out there requiring society to constantly divert its metabolic energy to maintain the apparent utility of the service.
Having laid out the foundational philosophical differences between Bitcoin and Gold, I shall now conclude my paper by providing several proofs for why Gold is superior to Bitcoin. I shall do so by employing the languages of mathematics to abstract physical phenomena from the natural world, and thermodynamic physics to convey the dynamics at the heart of the corporeal world.
- Source, Goldmoney
