I was listening to an episode of Joe Rogan with Katie Spotz, the youngest person to kayak across the Atlantic Ocean. She decided to raise money for access to clean water around the world. In order to get the donations for this cause, she decided to do something incredibly difficult. She spent 72 days in a kayak eating dehydrated meals and paddling for the majority of every day. But what does this have to do with Bitcoin?
Well, what if Katie just wanted to raise money by knocking on doors in her neighbourhood? Or through an online campaign wherein people donate to the cause? There is an aspect of “work” to be done in the trip Katie decided to go on. There is an effort put into raising money, and people recognize that.
It’s the same thing as a finely crafted wooden chest, or a well plated meal at a fancy restaurant. These are things that we collectively perceive to be high in value, because of the work that went into them. The more work put into something, generally, the result is a higher quality product. The opposite is also true when putting in less work.
The Proof of Work algorithm underpinning the bitcoin mining process is considered to be wasteful, redundant, and harmful to the environment. But I want to put forth two suggestions.
The work that has gone into producing the bitcoin blockchain is a testament to the quality of information contained within it.
The reason why bitcoin is accruing so much value is because there is a physical, energetic, and capital expenditure required to bring it into existence.
The Bitcoin Blockchain is a Cathedral
St. Peter’s Basilica took 144 years to complete, St. Basil Cathedral took 123 years. The York Minister Cathedral took 252 years. What these mega-projects all have in common is that the people that started building them, were not the people to finish them. The project is so important to the people and the culture building it, that the next generation will have to carry the torch and finish the job.
The quality of these buildings speak for themselves, and people from all over the world travel thousands of miles to visit these spaces. No one would dare question the amount of time and energy that went into producing these buildings. They contain immeasurable value to human civilization.
I see little difference between these cathedrals and what is taking place with Bitcoin. The bitcoin blockchain is constantly being produced and worked on by thousands of contributors all over the world. It may be the greatest collaborative project ever mutually pursued by humans. In a sense, bitcoin is a project that will take 130 years to complete.
The last bitcoin will not be mined until the year 2144. When Satoshi began mining the blockchain, they knew full well that they would not see the project to its completion. There is something admirable and selfless about this endeavour.
You Cannot Create Value out of Thin Air
I have a problem with money printing. I believe the practice violates a rule that is central to the way I see the world. The act of printing money is creating something out of thin air, and claiming that it has value. It costs me the same amount of money to produce $1, as it does $1 trillion dollars. There is no difference in cost, but the effect is catastrophic to the economy. I don’t believe economies can function normally wherein the primary basis of value (the dollar) is not based on work.
We value companies based on the products they produce. We value commodities because they can be refined, and combined into a variety of useful products. There was a cost to obtaining them, and there is a cost to combining them. Money seems to be the one thing that the central bank thinks is immune to this rule. I think that’s wrong.
Gold is Valuable because of the Work it Took to Obtain it
The best analog we have for explaining why the energy expenditure results in bitcoin having value is gold. Some amount of work, or energy went into pulling every ounce of gold we have out of the earth. The people doing the mining would not sell this gold unless they could pay their workers. Therefore there is a floor to the price of gold, just like there is a floor to the price of bitcoin. No one would sell their bitcoin for less than it costs to produce it. (About $9,500 to produce 1 BTC — Oct 2021).
The Energy Spent is Bitcoin’s Shield
Remember when I said the bitcoin blockchain is like a cathedral? Well, you wouldn’t want any harm to come to the cathedral, especially if thousands of hours of work went into producing it. You’d want it to be protected with as much assurance as possible. This is what the energy is being used for in bitcoin.
Think of the energy expenditure as a massive energetic forcefield surrounding the bitcoin blockchain. The only way to get through the energetic forcefield is to amass more energy than the bitcoin network is using. Combine that with the fact that a malicious actor would need to funnel that energy into thousands of top-of-the-line (and massively in demand) miners. We’re talking about a scenario that is highly unlikely.
This energy expenditure gives me a level of assurance about the truthfulness of the bitcoin blockchain. In a world where the media and politicians are tough to trust, I place a high value on anything that can be said for certain. Two statements that I’ve come to accept as truths are the following.
There are 21 million bitcoin
The bitcoin is located where the bitcoin blockchain says it is located
These truths might not seem like much, but they are in fact truths about the world we live in right now. Compare this with the next two statements.
No one really knows how much USD is in circulation
No one really knows where this USD has been, or where it is going
For me, these are important things to know about the base money supply that underpins the entire world economy. So if we need to spend 0.5% of the world’s energy securing and assuring truths about our mutual monetary supply, then I’m on board with that.
Mrugakshee recently did a video with a project called HelloBitcoin wherein she explains bitcoin simply, and in detail. I highly recommend checking it out because they use the exact same energy forcefield analogy.
Bitcoin is Already Greening
More than 50% of bitcoin’s energy use comes from renewable sources1. Furthermore, there is a compelling narrative that bitcoin is actually a force that accelerates the rate at which we can transition to more renewable sources of energy. There is a documentary that Mrugakshee and I financially contributed to called “This Machine Greens”. It breaks down the arguments made within this newsletter in an easy to comprehend way.
Proof of Work is Important
For me, the most important thing to understand about bitcoin is why proof of work was designed the way it was. After this understanding “clicks” within your head, bitcoin makes A LOT more sense. It starts to make sense as a tool for environmental activism, as a sound and secure money for the world, and as a basis for economic truth.
OR I’m just diluted and have convinced myself that this energy guzzling network of computers is good for our planet.
I hope you put in the work to wrap your heads around this!
Cheers,
Keegan