The True Source of Bitcoin’s Value
Bitcoin’s value comes from being an anchor with absolute irreversibility that entrains our present with our future by design.
with Robert Breedlove
1. The Tyranny of the Future
Think about the future for a space, as it pertains to each of us individually or even to any combination of us taken as a group, from a couple all the way to the entire world.
The present is a point in time, wherefrom you draw several paths that each represent one possible future. As a matter of fact, the future is theoretically characterized by an infinite number of states of the world. Some states of the world that arise in the future map to untold riches or unimaginable happiness, others point to a life led destitute or ceaselessly unhappy. Most lie somewhere in between. The future contains multitudes, some states likelier than others, but none entirely improbable.
Man lives in the present as he contemplates these paths. He draws conclusions from his experience of the past and relies on accumulated wisdom, and wonders which state of the world the future has in store for him. Yet, for all the advancement of science and innovation — for all the progress since prehistory — we cannot entirely eradicate uncertainty about which state of the world we are destined for. We can make useful, informed guesses, to be sure, but uncertainty remains axiomatic. A fact of life.
This uncertainty is what sustains a disparate collection of markets and professions. We employ and pay astrologers and clairvoyants, who assuage our concerns about the future by arbitrarily narrowing the range of possible futures we might face. We insure our house, health, pets, cars, belongings, even our lives, to protect the worst of outcomes that might afflict us should we come a cropper in any one of those infinite states of the world that might arise in the future. Variously, we may believe in signs, talismans, personal gods or prayers, or the power of science and technology to provide solutions or even put stock solely in our own abilities to tame our destinies.
Yet, uncertainties stubbornly remain. If anything, the complexity of life multiplies, thereby increasing the possible states of the world that await us manifold higher than we can hope to comprehend, let alone control.
This unknowability is the tyranny of the future. And, with the inviolable scarcity of time, man is compelled to economize his actions, further compounding the oppression of the uncertainties he must contend with.
Faced with this impossible calculus, what would you predict a man ought to do? With no control over tomorrow, should he not, rationally, live life like an animal, mostly or even entirely in the present?
Just like the man who throws caution to the wind when he has discovered that he shall surely die tomorrow, should we not also all engage in something similar? Bring forward all our hopes desires for the future into the present and consume with reckless abandon? Surely, having a very high preference for time — discounting our futures hyperbolically — seems to be the correct course of action when the tyranny of the future looms large over you.
Yet, this does not occur as frequently as you should predict. What keeps us back from the brink? If fickle unpredictability is our lot in life, then what is of value to us that should prevent us from discounting our futures?
2. On Anchors and Value
The simplicity of the answer is elegance itself. We rely on anchors.
Anchors are all that is of real value: They are the quintessence of life itself.
Anchors serve to extend our gaze from the present towards states of the world in the future that we can countenance. Anchors minimize risks; they reduce the risk to us from enduring a negative outcome from a state of the world in the future that is less optimal than expected. Anchors make the task of contending with uncertainties over the course of our future far more palatable.
To the extent that life beyond the present has any value to man, the only things of real value are anchors that enable states of the world that are advantageous to us and mitigate those that are not. The more enduring, reliable, and beneficial an anchor is to man, the more value it has.
There is a myriad of things that might fit the definition, albeit most do so laughably trivially. Curiosity for how your favorite sports team fares over the course of a few seasons, for example, hardly makes it an anchor. Why, though, is the team not a true anchor? Simply stated, there remain infinite states of the world where that team’s fortunes would fail to embed your hopes for the future into your present. It therefore only has ephemeral value.
The most basic of real anchors is our inherent genetic imperative. It is our elementary desire to live life, to survive and to pass on our genes into the future, through our children. One’s family and children are the most basic anchors for any state of the world that might potentially arise, and for that reason, their value is primeval and immense.
Think next of the quiddity of your mind, the legacy of your ideas, the essence of your being. Call it your soul, your spirit or your immanent nature, if you prefer. Now put all of that to nought and then contemplate your future. In an instant the future loses almost all of its allure. What good is any state of the world that might arise if you are robbed of what makes you, you? And, so, the desire to improve yourself and then to leave an impression of yourself into the annals of the future is a powerful anchor. It is why you desire to write a novel, to compose a piece of art or music, deliver a perfect lecture, build a company, and, generally, influence posterity with the creative force of your ideas.
Wealth, of course, is a powerful anchor. We value silk, spices, gold, diamonds, precious stones, money, treasures of all description, because they too are anchors that reduce uncertainties for us. Wealth has immense value to the extent that it holds the promise to narrow the state of possible worlds that you must endure. Yes, wealth is of value because it enables better states of the world, and, yes, it removes poorer states of the world. But even more fundamentally, wealth has the potential to reduce the range of outcomes that inhere to our lives and so reduce the uncertainties we must suffer.
What then are the inherent features of indispensable anchors?
3. Entrainment and Irreversibility
Entrainment refers to the process, seen in fields as disparate as nuclear physics and music, where two systems behave in concordance with each other. However different their initial states, they eventually develop perfectly synchronous behavior; the behavior of each system becomes mutually anchored.
What makes one anchor superior to another is its relative ability to make the fortune that it enables invariant to the vicissitudes of time and circumstance. A valuable anchor irreversibly entrains your present self with your future self.
Irreversibility entrains the present with the future, yielding harmony over time.
Anchors of incredible value irreversibly conjoin our present with a majority of the states of the world in our future. The more irrevocably and absolutely they do so, the less we feel the need to discount our futures. In other words, superior anchors naturally lower our time preferences.
With a moment’s worth of honest introspection, we can usually intuit the merit of an anchor by considering what role they play in the motivations that drive us towards establishing and achieving the goals we hold for ourselves.
Goals are, definitionally, a visualization for a fairly specific state of the future for ourselves: better health, greater wealth, perfect love, satisfying career, flourishing family, and so forth. When a goal is set in the present based only upon an inferior anchor, the pursuit is easily derailed because the anchor failed to entrain your present with several states of the world that your future self might encounter. Progress becomes easily reversible and, consequently, time preferences increase. Think of the failed diet that had been taken up merely to look good or the unfulfilling job that was sought merely for the benefit of the resume.
Conversely, when our pursuit of a goal is driven by an anchor of real value, its realization becomes measurably more likely, since such anchors remain resolutely in our corner throughout the course of our journey, from the present to the point in time in the future where we have accomplished it, regardless of the state of the world we are in. Real anchors make progress towards a goal increasingly irreversible and keep our time preferences lower. Think now of the desire to improve your health for the benefit of those who love you or the job you take on because it inspires you viscerally and intellectually.
4. The Bitcoin Anchor
What gives Bitcoin inherent value is that it captures the essence of a real anchor within its design. By inherently being invariant to any state of the world that might arise in the future, it naturally entrains the present with the future.
Begin even with the basic idea of a ledger made immutable by costly work. What is a ledger but an account of the current state of the world. To the extent that a ledger can be altered arbitrarily, it ceases being a link to the only true future state. Indeed, arbitrary alterations actively corrupt the state of the world. This looseness between the present and the future introduces uncertainty and the concomitant need for a third-party who supplants certainty with trust, at a price.
The Bitcoin blockchain is of value because it provides an irreversible anchor that removes uncertainty over a myriad of states of the world that could erroneously eventuate; those states become entirely irrelevant to you, for you have an indelible entry in an unalterable ledger that maps to your future with precision. This absoluteness is a powerful anchor for your expectations and helps entrain your present with your future.
Further, Bitcoin gains desirability as an anchor by virtue of becoming increasingly irreversible. The more it does so, the more it entrains a Bitcoiner’s present with his future, and the more value the Bitcoin anchor acquires.
There are several aspects of Bitcoin that accord it with features of an irreversible anchor that other assets ultimately lack. The cost of a 51% attack, for instance, is astronomically high and increases with time as the network’s hashrate grows exponentially, making the Bitcoin anchor calculably irreversible.
However, Bitcoin’s irreversibility comes even more basically by being preference compatible, a point made abundantly clear by Nakamoto in the white paper. Rational participation in the Bitcoin ecosystem organically weeds out malintentioned actors over time, systematically entraining our present selves more intrinsically with our future selves, regardless of which state of the world obtains.
Consider, finally, Bitcoin’s finite supply. Fundamentally, absolute scarcity is a hallmark of the most precious of anchors because the acquisition of a scarce good strongly incents the entrainment of the present with the future. Your child has limitless value precisely because of the absolute scarcity that that life represents, and he or she unalterably entrains your present with generations of your future.
A concluding thought
There are several sources for Bitcoin’s value that we are familiar with: Bitcoin is sound money; it provides an intergenerational store of value; it is a conduit for self-sovereignty; it is powerful platform for contracting in a borderless market, and much else besides.
However, every proposition for Bitcoin’s value can also be understood as componential to its overarching value as an anchor for a Bitcoiner’s journey into the future. A real and steadfast anchor that entrains our present with any state of the world that our futures might bring.