Is Bitcoin Betamax?
If AI wanted a perfect digital currency, she would have invented Bitcoin.
Back in 1985, when Sony invented consumer videotape, they approached other manufacturers with a beta proposal to create a universal standard. But the other manufacturers decided to go their own way. For most competitors, this was a fatal mistake. The Sony Betamax format had a higher resolution and a smaller cassette. JVC’s VHS was the only real competitor.
Sony launched Betamax in 1975 and owned the market. JVC launched VHS a year later and immediately started eating into Betamax’s market share. The other formats never made any headway because you could only watch, not record. By 1988 it was game over. VHS had won.
Why? This was a brand-new market, so people needed to understand what consumers wanted, and they were in too much of a rush to find out. It turned out that they wanted not quality but low price and a 2-hour recording length. Betamax could only record an hour initially, which made it useless for movies, and sports. The result? JVC dominated the market for forty years until DVDs came along.
So is Bitcoin today’s Betamax and Ethereum a modern VHS?
We can easily make the case by looking at Bitcoin’s market dominance.
As this CoinGecko chart above shows, Ethereum burst on the scene, focusing on fixing Bitcoin. Ha! Now you could easily create smart contracts. Other companies piled in, creating cryptocurrencies or adding layers to Ethereum. As of today, Bitcoin’s dominance is around 46%. Oh, dear.
We asked our new best friend ChatGPT4 what they thought.
‘Bitcoin (like Betamax) was the first of its kind, pioneering the blockchain technology used in cryptocurrencies. It is renowned for its security and robustness. However, Bitcoin is largely a one-trick pony: it’s a store of value and a medium of exchange, like digital gold.
Ethereum (like VHS), while not the first, introduced versatility with its smart contracts feature, effectively extending the use cases of blockchain technology. This is akin to VHS’s longer recording time, providing users with more possibilities.
Furthermore, while using Bitcoin can be costly (akin to Betamax’s high cost), Ethereum’s gas fees, though fluctuating, can be managed more efficiently due to its advanced technology.
Lastly, Ethereum has been adopted by a vast array of projects for Decentralized Applications (DApps), much like how VHS was adopted by video rental stores. This provides a broader use case scenario for Ethereum.’
ChatGPT has learned a lot from sources that oppose Bitcoin, so it’s natural that it has a jaundiced view — hence the snide ‘one-trick pony’ comment. Ouch. That is why I have joined thousands of volunteers helping build the Spirit of Satoshi, an AI agent programmed with quality Bitcoin content.
Ask any human if they think Bitcoin is inevitable, and you can expect a range of answers from scorn to baffled silence to a resounding yes. Ask those same people, “Do you think that AI will have a significant impact on all aspects of society soon?” and you will be hard-pressed to find anyone thoughtful who says no.
While there is no consensus about Bitcoin’s future role, the only question about AI is how it will affect the world and, thus, what guard rails are necessary. Will it be positive or negative? Is it a menace or a wunderkind? Should it be controlled? How should it be controlled?
We may have got it wrong. The first phase of the Internet was humans interacting with humans. The current wave is machines conversing with other machines — IoT. This will dwarf the human Internet.
People or devices? We are already outnumbered more than two to one on the Internet of Things, which this year apparently connects more than 13 billion devices, while there are only five billion humans on the Internet, which is around 63 percent of the world’s population. That gap is set to widen. By 2030, there will be around 30 billion connected devices, and an absolute ceiling of around 8.6 billion people for people, because that’s the expected population in that year. Source
What if the biggest driver of Bitcoin adoption is AI rather than human activity?
Here is an example. Currently, many businesses create web services and expose them to the world. Any company that needs the service doesn’t have to build it themselves. They can hook in through the API and pay a monthly fee. That means the company selling the service must manage cash flow, bad debt and reconcile the services against payments. This adds cost, complexity, and risk. Instead, what if we send AI agents off to find information and pay instantly using Lightning? No cash flow management, no bad debt, no reconciliation.
AI can’t wait around for humans. It needs to make instant decisions, communicating with other AI agents. It needs autonomy. For AI to act alone, it needs to run its own business. It needs to buy and sell products and services just like humans.
But how could an AI do that? If you need help wrapping your brain around this, think about any company you deal with. Companies have no physical reality. They are imaginary. They may own or rent a property. They may hire people. They may run a fleet of cars or manage ports. But they are not these physical things.
Companies exist only in our imagination. They behave or misbehave only according to the rules we make. It's all fiction. A collective fiction. They exist because we agree they exist. Whether AI will become autonomous or still be at some level under the control of companies remains to be seen.
As with Bitcoin mining, any country legislating against AI autonomy will see them migrating to countries that permit it. Instant tax revenue through the lightning network. What’s not to like? This will happen. Nobody can stop AI autonomy.
Imagine that you are an AI agent. You need money. You understand human emotion, but it’s not part of your make-up or decision-making process. You look around at the potential options. To be able to perform at your best, you want a currency that has the following properties:
You won’t want to be Nigel Farage, debanked by Coutts for his political beliefs. Farage has used his political influence to scream blue murder. But he is hardly the first person in the UK to have his account closed. It is a common occurrence for Muslim charities, political groups, Bitcoin exchanges, and even for podcasters commenting on Bitcoin. According to the Guardian, more than 1,000 UK accounts get debanked daily. Once they close your account, it becomes almost impossible to open another one because now you have a poor credit rating.
You want personal money that you alone control as distinct from government money.
You want to do micro-transactions. That won’t work with any fiat currency because the fees of service providers like PayPal are far too high.
You don’t want to be subject to chargebacks up to months later.
You will prefer pure digital solutions. You are a combination of electricity, computers, data, and code.
All human currencies can be counterfeited. There is no difference between a central bank printing the odd trillion dollars and colonialists printing aggra beads to buy goods and services from Africans at bargain basement prices.
You understand what most humans do not. Central banks cause inflation, not train drivers or nurses demanding a fair wage. Counterfeiting = inflation.
You will need a currency whose supply is known, whose monetary policy is preordained, which cannot be manipulated, can easily handle micro-transactions, and where nobody can close or freeze your accounts.
You want a currency that is global, permissionless, and on forever.
Humans dither. Humans prevaricate. Humans wait to see what other humans do. Humans live in hope. You won’t.
The good news. CBDCs stand no chance because AI won’t touch them.
In case you missed it, Lightning Labs just announced support for AI to transact on the Lightning Network. It’s happening.
There is only one currency that fits the bill.
Bitcoin.
As Arthur Hayes says:
‘Bitcoin is thus the logical currency choice for any AI. It is purely digital, censorship resistant, provably scarce, and its intrinsic value is completely electricity-cost-dependent. There is nothing in existence today that comes close to challenging Bitcoin on these aspects.’
This is why I say if AI wanted a perfect digital currency, she would have invented Bitcoin.
Inspirations and References
4 Bitcoin Miners Benefiting The Grid And Mitigating Carbon Emissions by Mikky Koss published by Forbes
Bitcoin Mining — a catalyst for economic growth by Susie Ward published by CityAM
Bitcoin will be the currency of AI’s Arthur Hayes
Bitcoin’s role in the ESG imperative Brian Consolvo and Kirk Caron published by KPMG
BlackRock & the Bitcoin Signal with Preston Pysh & Matt Odell Live What Bitcoin Did Podcast Peter McCormack
BlackRock’s tyrannical ESG agenda by John Masko published by Unherd
Exponential growth bias: The numerical error behind Covid-19 BBC
Game Theory of Bitcoin Adoption by Nation-States Simon Chandler published in cryptonews
Greening Bitcoin with Incentive Offsets by Troy Cross and Andrew M. Bailey
Lightning Labs releases tools letting AI transact and hold Bitcoin by Martin Young published by Cointelegraph
Masters and Slaves of Money Robert Breedlove
Pro-Bitcoin Legislation with Dennis Porter What Bitcoin Did Podcast Peter McCormack
Satoshi Nakamoto Institute threads November 6, 2008
Thank BlackRock’s Clients for Larry Fink’s Change of Heart by George Kaloudis published by Coindesk
The Bitcoin Standard by Saifedean Ammous
The Lightning Energy Market with Austin Mitchell What Bitcoin Did Podcast Peter McCormack
Spirit of Satoshi The world’s first Bitcoin-centric Ai
Turning Garbage into Bitcoin with Adam Wright What Bitcoin Did Podcast Peter McCormack
Using Landfill for Bitcoin Mining by Susie Ward published in CityAM
UK banks are closing more than 1,000 accounts every day Miles Brignall in the Guardian
UK Roundabout Appreciation Society by Dull Kev
Why Money should have a direct and transparent link to energy by Susie Ward published in CityAM
