Laws and Effects - Independence Reimagined Chapter 13 | Bitcoin Infinity Academy #28

0:00 Welcome, dear viewer or listener to the Bitcoin Infinity Academy. This is our course on my second book, Bitcoin Independence Reimagined. And I'm Knut Sronholm, and I'm here as always with Luke DeWolf. Good morning, Luke. How are you today? Good morning, Knut. I'm doing great. Thank you very much. It's been a little while since we last recorded, and we're about to wrap up our series on Independence Reimagined. We have this episode and then just a recap, but this is a unique one. It's on the chapter called Laws and Effects, which is going to be a little bit of a, I don't know, a Bitcoin glossary of important things that aren't chapters to themselves, but are worth knowing, right? Something like that.

0:43 Something like that. And they are things I put there then, things that were on my mind. Maybe if I rewrote this or did a bigger thing about it, I would have included other things and maybe left out a couple of things. But anyway, they're all interesting and they're all thought nuggets that are definitely worth contemplating. I think this is somewhat akin to Anil Patel's first work, the Bitcoin handbook or something, where there are visualizations of all of these concepts. And yeah, who knows? One day we might get an actual Bitcoin glossary where all of these concepts are listed.

1:27 Good to know things. Alright. Laws and Effects This chapter is dedicated to the concepts, natural laws, and effects that explain why Bitcoin is so much more than the sum of its parts. Understanding these concepts is crucial when defending Bitcoin during conversations with intelligent pre-coiners. Many of these concepts, if not all, have been discussed earlier in this book or in my first book, Bitcoin Sovereignty Through Mathematics, but this chapter is intended as a guide to wrapping your head around and being able to explain these concepts to newcomers with more ease. Scratching the surface, if you will. Bitcoin is hard to understand in general, but to really comprehend why, it may well be the most important technological revolution you'll encounter in your lifetime.

2:11 You'll need to understand the why before even trying to grok the how. All right, anything to say about this, Knut? No, I think that's pretty self-explanatory. You can go on with the first one, I think. Okay, let's do it. Subjective Theory of Value Karl Menger, the founder of the Austrian School of Economics, described the subjective theory of value as the idea that the value of a good is not determined by any inherent property of that good, nor by the amount of labor necessary to produce the good, but instead by the importance an acting individual places on a good for the achievement of his desired ends. In other words, what anyone finds valuable is an entirely subjective matter.

2:55 Valuability is always personal and situational, and there is little reason to question this insight. Keeping this fact in mind is crucial to understanding why no economic theory can ever be used to predict anything with perfect accuracy. Every investment is a guessing game and requires the investor to take as many factors, potential risks and rewards, as possible into consideration before making the trade. Alright, Knut, what does that mean? Yes, the most crucial of insights, yet so misunderstood, and so people actually get what this implies. And that like all other types of economics than Austrian economics, aren't really economics at all, but they can be useful as tools for making economic assessment of the situation.

3:43 So sure, you can see trends in markets and stuff, and you can probably derive some value out of being good at seeing those trends and being good at quote unquote trading. But that is not economics. That is economic assessment, nothing else. Economics is the study of catalactics, which is the voluntary interactions between human beings. So it's human action leaving out the non-voluntary stuff. That's what economics is. It's the study of the market, which is a voluntary process that humans engage in.

4:24 So vastly misunderstood because there are great powers out there who want you to misunderstand this to make you think that taxes and inflation are just and legit, which they're not. Right. And value being situational, personal and situational, I mean, that point is also lost, I think, on when we talk about the concept of inherent value, that there's no such thing, right? Yeah. And it's in the very first chapter of sovereignty through mathematics. The The analogy I use there is like a breath of air is worth nothing to most people most of the time, but worth an infinite amount of money to a free driver trapped under ice.

5:14 and yes also I think I used the example of someone with a death wish and clean summer air to him like a breath of air is worth practically zero but the free driver needs the next breath of air to survive so it's worth everything in the world to him this is just to show that like you say it's subjective and dynamic and therefore you can't draw any conclusions from trying to shoehorn empiricism into economics. Like empirical evidence can never deny nor confirm any economic theory.

5:54 Very good. And with that, I think the next one is quite apt as well. Supply and demand. Holding all else equal, the unit price for a particular good or service will vary until it settles at a point where the quantity demanded will equal the quantity supplied. resulting in an economic equilibrium of price and quantity transacted. Even though demand, which could also be called intersubjectively assigned value, is subjective, its relationship with the supply of a certain good or service has an obvious connection to the price of said good or service. The more abundant the supply, the lower the price, and vice versa. It is important to remember that this theory can be applied to money just as much as it can be applied to any other good or service.

6:40 Okay, so supply and demand. Yes, and the most important sentence here is holding all else equal. This is what you do in praxeology and Austrian economics. You make up these fictionary scenarios where everything else is equal to derive some form of truth from a statement. if that precursor whatever you call it, the holding all else equal wasn't there then supply and demand would not be interconnected the way they are because people's valuations are subjective and dynamic, there's nothing guaranteeing that everyone will just not demand the thing the second later so supply and demand is more of an observed effect than than anything else and it holds true only with the the holding else all else equal before before making the statement okay good clarification and i think the the other point that i would make here is that it's not saying that prices are out of kind of nothing the the price is the signal that's the that's the kind of the point here right the the price is the signal of what someone is willing to pay for it it's not exactly the value of that thing exactly uh prices are uh guesses of what someone will be paying for a good in the future given the what they have

8:13 paid for it in the past so it's an assessment that whoever puts the price tag on something has to make personally uh they have to guess how much a consumer is willing to pay for the product in order for him to make a profit so they do signal value they money does never measure value it signals value uh so and that is a very important distinction too um yeah very good continue stock to flow the impact and increase in the available supply of a good will have on its price is correlated to the size of the existing stock of that good compared to the increase per time unit or flow. This is called the stock to flow ratio. If increasing the supply of a good is difficult and therefore expensive, the impact an increase in the price of that good will have on its subsequent total supply is limited. Therefore, the increase will not push the price down again as much as it would have if increasing the supply would have been easy or cheap.

9:20 Remember that the supply of a good is directly correlated to its price if the demand for it doesn't change. The high stock-to-flow ratio of precious metals is what makes them expensive. The fact that you can make jewelry out of some of them doesn't affect the price in the same way at all. It's the other way around. Expensive jewelry is made out of expensive materials because jewelry is a form of proof of work, described below, or at the very least, a proof of wealth. all right stock to flow yeah uh maybe that last sentence is a bit confusing uh first of all i'd like to say that the most misinterpreted uh thing about stock to flow is uh the increase in supply is not the thing it's increase in available supply so for instance if you had full bitcoin blocks so you had a shit high Bitcoin transaction fees in the future so that the miner would be disincentivized to sell the mined coins, the newly minted coins, then that would not count as an increase in supply because it's not available supply.

10:34 It's just supply. So it's whatever happens to come onto the market. not uh the if if it's not on the market it is by definition stock and not flow and this is a crucial distinction that every a lot of people miss uh yeah so jewelry is made out of precious metal because the metals are valuable not the other way around so they they choose to make them out of this because a giving someone jewelry or buying jewelry for your fiancee or whatever is a it's also signal it's it's signaling to your future potential future spouse that you hold her dearly and that she's worth a lot of money it's the equivalent of uh yeah we talked about this in sovereignty through mathematics equivalent of a moose uh um evolving great antlers to impress his uh future spouse that he's a uh a capable male that can carry around this great appendage uh without too much trouble so and jewelry is basically the same thing okay i think the jewelry isn't really the point of this no no no that's an aside i i just uh didn't like the proof of work thing in the in the last sentence but the the important point i want to make here is that flow is flow onto the market not just an increase in the stock uh crucial distinction

12:08 okay that's interesting i sort of push back on that in fact i think you're wrong uh because the the uh this is really only a measure of that the increase in what is actually in fact created is what this is measuring right like this is this is like a technical a tech on a technical level what this actually is in terms of gold and copper and silver but it's not no it's not the if if i mine gold and i don't sell it then it's then it's part of the stock not part of the flow sure uh but that's that's not the that's not the measurement though in that's not the measurement in actual economics well there's no measurement this is it's like how do you how do you even measure stock to flow in gold there is no uh sub objective way of measuring how much gold there is neither in the stock part or the flow part.

13:03 The distinction I'm making is that flow only applies to whatever ends up on the market. Otherwise, it is by definition the stock part. All of the stock could come onto the market potentially, but it's not on the market until it's actually there. I think this isn't useful to the listener because it's extremely confusing when talking about Bitcoin, right? Because then the stock to flow becomes meaningless by that definition. You constantly have a flow of things going on to the market and becoming stock. So now this measure becomes effectively meaningless as far as Bitcoin goes.

13:44 I think you actually completely muddling the point that you made in this paragraph of trying to educate people by framing it that way Oh really This is interesting because then I think we should double click on this Because I don really think stock to flow is Like, stock to flow is not applicable to Bitcoin in the way people think it is. They think it is the new Bitcoins minted that is the flow. And that is not the case. The flow is whatever part of the entire stock that happens to come onto the market. So the more hodlers of last resort you have, the more stock you have.

14:25 But it's whatever comes onto the market. It's not about what... Because how else would you make the distinction between the two? Otherwise, it would all be stock or all be flow. because theoretically all the bitcoins are flow or stock. But the concept is about what's on the market and what's not. I believe you are in fact still wrong. We can have this discussion at another time then. Well, okay, if I can just summarize the conventional understanding of stock to flow, which largely mirrors exactly what you said in the paragraph.

15:10 So I don't know why you're changing the definitions here. But in Bitcoin's terms, the stock to flow is effectively the amount of new block reward. And that is added to the total supply that is available. And so I understand the point that you're making here. I understand it because I understand your thinking process. but the thing is stock to flow becomes a meaningless definition. The supplies of gold going on to the market can in fact be taken out of the ground. That's the definition of stock to flow when we're talking about the precious metals and etc. It's the amount in the ground versus the amount that's not in the ground and how much new stuff is taken out of the ground per year.

15:54 Okay, maybe I'm muddling the point a bit because the word I want to emphasize is available. And if for some reason it becomes unavailable, for instance, if the block reward is smaller than the amount of sats it takes to move them, then no one will ever move them because there's no economic incentive to do so. So I wouldn't call that available. So this is the distinction, I'd say. But yeah, I agree with you. It's a very difficult term because how do you define what's available or not? yeah well you just decided to go and come up with a new definition of stock to flow here by surprise so thanks for that I think zero people will agree with you on this okay let's see alright well this turned fun no but this is an argument I've been making in this whole spam debate because and why we shouldn't desire full blocks.

17:04 And I'm not going to dive into that because that's too complex to fill up this chapter with. But yeah, let's keep up the discussion about stock to flow. Comment below and brush your teeth. Yeah, I hope you, dear listener, aren't entirely confused about stock to flow and I hope this isn't your first time encountering it because if it is, well, good luck. Please comment, as Knut said, on what you think stock-to-flow actually means. All right, continuing. Gresham's and Theer's Laws Gresham's law states that if there are two forms of commodity money in circulation, which are accepted by law and have similar face value, the more valuable commodity will gradually disappear from circulation.

17:48 If we consider Bitcoin a commodity, it would gradually disappear since its absolute scarcity would render Bitcoin the most valuable commodity in the world over time. Keep in mind that even if this happens and Bitcoin isn't ever used as money ever again, its value can still go up indefinitely. There is, however, a sort of counter-theory to Gresham's Law. Thier's Law shows that in the absence of effective legal tender laws, Gresham's Law works in reverse. If given the choice of what money to accept, people will transact with the type of money they believe to be the highest long-term value however if not given the choice and required to accept all money good and bad they will tend to keep the money of greater perceived value in their possession and pass on the bad money to someone else all right these are a bit confusing so do you want to explain this further uh yeah so if there's a good money and a bad money people will tend to use the bad money first because it's not as valuable to them over time they will which is why most bitcoiners prefer to spend fiat over bitcoin if given the choice uh this is also why why it's so important to accept bitcoin for your goods and services and if not being bitcoin only at least give people some kind of a discount for using bitcoin so that you incentivize them to do so otherwise it's likely that people will want to use fiat instead since uh they holding on to the fiat is less good for them in the long run

19:24 a complicated way of saying the same thing but yeah they're very connected these two laws definitely and it's it's uh it's subtle right and it also doesn't it doesn't seem like it's playing out exactly as predicted either bitcoiners are weird bitcoiners go and pay with bitcoin anyway. There's a subset of Bitcoiners that say, why would I pay with Bitcoin if I could just pay with fiat? And they're basically doing exactly what the law is. But then my response always is spend and replace. Use your Bitcoin and then go acquire more. That's the idea. If you have both fiat and Bitcoin, instead of paying with fiat, you could spend the Bitcoin and buy Bitcoin with that fiat instead. It's the same exact outcome, except Bitcoin has moved into new hands, potentially actually new hands, right? Increasing adoption, et cetera, et cetera. So the benefits of spend and replace are extremely high. And I think many Bitcoiners grok that. Yeah, absolutely.

20:23 Then again, this whole velocity of money thing is a very confusing thing because it's a Keynesian idea to begin with. Don't let anyone ever tell you when to spend your Bitcoin. If you choose to hodl them for five generations and let your grand grand grand grand grand grand grandchildren spend them good for you uh it's not up to anyone else uh so uh i i don't necessarily think you can draw any conclusion about the conclusions about bitcoin's success as a medium of change from just looking at on chain how many on chain transactions there are first of all we have the lightning network and liquid and other stuff that people can use instead of using on-chain sats? And also, who am I to tell anyone what kind of time preference they ought to have?

21:11 Yeah, definitely. I think all we can say in a slightly more kind of encouraging manner is that by spending your Bitcoin, necessarily there has to be a second hand to that transaction, a second side. So that increases merchant adoption or encourages merchant adoption, which is a potential way of increasing the likelihood that people will adopt Bitcoin themselves. So there are network effects that are encouraged by spending your Bitcoin, basically. Yep. Yes. And if you look at the markets for, if you look at fiat versus gold, then you have like the entire market for store of value in a commodity and the entire, well, not the entire one, but the one for gold. If you look at precious metals and fiat, Let's say that. So you have commodities here and this bucket, and then you have medium exchange, which is actually a way bigger bucket.

22:05 So we want Bitcoin. Bitcoin is both. So we want it to overtake both markets eventually. Very good. Great concepts. Hopefully they're somewhat more clear now. The Cantillon effect and WTF happened in 1971. As described earlier, Richard Cantillon noticed that original recipients of new money enjoy higher standards of living at the expense of later recipients. The concept of relative inflation, a disproportionate rise in prices among different goods in an economy, is known as the Cantillon effect. Inflation is the main mechanism that funnels wealth into the pockets of the elite and away from everyone else.

22:46 The further you are from the new money created, the more you pay. When President Nixon practically legalized counterfeiting in 1971 by abandoning the gold standard entirely, he gave the US the ability to literally trade worthless green paper for real commodities, and everyone on earth is still falling for it today. Many citizens of the United States became very rich in the process because of the Cantillon effect and were thus less likely to turn against this monetary policy. Yeah, that's a great point at the end there, that Americans have been the beneficiaries really of this global Cantillon effect. Yeah, as shown very clearly the last decade where the average American is now twice more richer than the average European than they were 10 years ago.

23:37 Basically all because of the Cantillon effect. this is also fleshed out further in chapter five of this book i believe um a tale of two richards so we've already talked about it there so go back to that chapter if you want to know more about this perfect zero marginal cost as jeremy rifkin argues in his book named after the phenomenon most goods and services in the world are approaching a zero marginal cost Intense global competition forces entrepreneurs to introduce ever more efficient technologies, accelerating productivity to the point where the marginal cost of production approaches zero, making goods and services almost free. We're in an era in which consumers are transforming into prosumers. Anyone can create music, art, videos, and books and distribute them to the world via the internet for almost no cost at all. This book and its predecessor are great examples of this.

24:35 They're printed only whenever so demanded by a new customer and marketed solely by social media. I didn't spend a single penny creating these books except for what I paid for the electricity and the internet connection. In a world that has been so optimized by global capitalism that everything is nearly free to produce, all prices ought to reflect this phenomenon. Still, prices go up. The only thing hindering us from reaping the true fruits of our massive global collaborative efforts is our lack of sound, non-inflationary money. In a sound money economy, prices would go down, not up, over time. The price of tomorrow. Exactly. This is Jeff Booth's The Price of Tomorrow boiled down to one single paragraph.

25:18 Prices ought to go down, not up. And we talk about this all the time. People think that if prices were stable, everything would be okay. But in fact, even stable prices requires a shit ton of money printing. And what ought to happen is prices dropping all the time to truly reflect the zero marginal cost that all prices are approaching. Manufacturing, and it's what we wrote about in Clown World. Back again to if humans practice doing things, then they get better at the thing they're practicing.

25:59 So all prices ought to go down. Manufacturing and transporting almost everything is all of those prices are dropping to zero or not. Well, denominated in Bitcoin, all those costs are falling to zero is the correct term because a cost is not a price. A cost is what it actually takes in terms of human effort to do these things. And that is dropping constantly. So all prices ought to be falling. Yes, absolutely. And the zero marginal cost point, I think, is also important here because it really is that the innovation and competition is driving everything down, down, down, down, down. And in a world where the economy has tried to get planned and let's incentivize certain things by raising taxes on sweets or whatever and change human behavior this way, it all gets distorted.

26:54 And so we basically have been losing these benefits of zero marginal cost by things like VAT and all of these other taxes that just distort the market, basically. And so we lose the exponential growth function to the downside, right? We lose the benefits of things costing less and less and less by them being inflated by basically all of these distortionary policies. Absolutely. And even though we do, the market is so strong so that it pushes things in a good direction anyway. And we do see some exponential effects. like AI for instance has made like almost everything so much easier and fast faster and therefore less costly to produce uh the the amount of time it takes to produce a book now is is uh like half of what it was last year And one year from now it will probably be half of that So there are still exponential effects if you put things under a microscope.

28:01 Also important to remember, costs can never be zero entirely. they can just approach zero um so it's forever approaching zero but it never reaches zero there's always in delivering a good there's always at least a time cost in doing so very good nothing is free no free lunch no free lunch and no second breakfast all right moving on the first law of thermodynamics The first law of thermodynamics, also known as the law of conservation of energy, states that energy cannot be created or destroyed in an isolated system.

28:47 Bitcoin can express how much energy that was sacrificed in order to acquire a share of a limited supply. You can, of course, also acquire Bitcoin by buying it rather than mining it, but in doing so you also spend energy. You somehow acquired the money you bought the Bitcoin with, and that somehow came to be because someone sacrificed time and energy somewhere else. Bitcoin lets you express that you see that there's a connection between value and scarcity by sacrificing effort or labor to be a part of the network. The value of the total amount of sacrificed labor cannot leave the isolated system. Therefore, theoretically, the total value of the network cannot decrease over time, even if the price does.

29:29 Interesting. Do you want to explain that further? No, I want to deny it. This is one of the theories that I had back then that has no grounding in reality. Simply because value is subjective and dynamic, and you cannot merge physics and praxeology in this way. so i'd i'd like to maybe we should put a footnote under this in the if there's ever a next edition of this book because this is not how energy works and this is not how human beings work so so i'd like to uh apologize for being an idiot and cancel this entire paragraph all right cool nothing more to say then the price of money and the prices of everything else This is the sort of embryo of a theory I came up with while writing this book.

30:22 It's just a thought at this point in time, but well worth mentioning while explaining money in general, and Bitcoin in particular, to someone else. The theory goes something like this. The lower the cost of money production, the higher the prices of everything else, and vice versa. In today's society, money is almost the cheapest commodity to produce in the world. Phenomena such as negative interest rates are a testament to this. The only things that become cheaper over time in an ever-increasingly inflationary economy are those that become cheaper to produce at a rate faster than that of the monetary debasement. If money, on the other hand, was the most expensive commodity to produce, everything else would be cheaper in comparison to it.

31:04 More for less. in a sound money economy the market economy would function several orders of magnitude better than it does now because it would disincentivize frivolous spending and promote long term investment instead alright what do you think of this theory now? I think it 100% holds true and it's fun when we re-edited this book you told me that it was very similar to the price of tomorrow a lot and you said like this is all jeff and stuff uh but you hadn't realized that this was published before the price of tomorrow so maybe the inspiration was the other way around i do i don't think that jeff actually read this book before he wrote the the price of tomorrow but we we that we became very good friends because we we think in similar ways and came to the same conclusions here and i think this is uh this is yet another tldr on jeff's book i still think you should read jeff's book because it's it's got way more points to it than just these two paragraphs but if you like this kind of thinking that's a a highly recommended book uh that explains all of these things uh further but but this is this is not really my i mean i may have had this idea when writing this book but this uh rothbard and mises wrote endless paragraphs about this uh phenomenon there's even a Rothbard article where he explains

32:34 how one single monetary unit would be could fuel the entire world economy given that it was divisible enough so the notion of having to increase the money supply is simply wrong and has negative effects in fact if the money supply is limited prices fall which is what they ought to do that's the true nature of the free market yeah it's i don't have a ton to add here except it's just it's just funny how this is so completely gotten wrong uh i mean the opposite idea is basically that we need inflation in order to incentivize people to spend which is the velocity of money thing and and is probably the cause of most of the consumerism in the world which is definitely a definitely a negative and it's it's just crazy to me that that it's not better understood that this is the problem and everything is exactly backwards at the moment yeah saving is what allows you to set aside time to build things that can make you be more productive in the future like robinson crusoe setting aside time to construct a fishing net rather than catching fish with his bare hands so the velocity of money is If money has a high velocity, it's actually acting in the exact opposite direction of that, disincentivizing people from saving, which is civilization.

34:02 Saving resources and deferring consumption for later use is what makes us civilized. It's also what makes colder countries more technologically advanced because we, as in people who grew up in colder countries, had to stockpile food and wood and stuff for the winter, making us forced to implement a lower time preference. And therefore, we got more technologically advanced faster. Absolutely. Yeah, nothing more to add here. I think we should just continue. Sure.

34:43 Metcalfe's Law. Metcalfe's Law states that the effect of a telecommunications network, and therefore also its value, is proportional to the square of the number of connected users of the system. A single telephone is useless, but the value of every telephone increases exponentially with the total number of telephones in the network, because the total number of people with whom each user can call and receive calls increases. Imagine this law's impact on Bitcoin's value, where expressing value is the sole purpose of the network, and where this is achieved through dividing a fixed number among the users. To say that the thought is mind-blowing would be an understatement. All right, Metcalfe's law.

35:25 Yes, this has little to no effect on Bitcoin as a store of value, or a medium of change over time, but as a medium exchange over space this is absolutely true the the more things you can spend your bitcoin on in other words the more big people that accept bitcoin the more powerful it becomes as a medium of exchange uh which is just uh and as we said before that that the demand for it as such has so much potential in the future because almost no one accepts bitcoin except for very local communities like el santa and madeira and prague and stuff but we are everywhere and we are growing everywhere so i'm just stoked by how much potential value there is in in simply the communications network growing because it is a communications network where it's just a tool to communicate appreciation for one another prices signaling value not measuring value that's what it is so it's it's definitely a communications network in even a language if you will yeah i i really find this interesting and it's it's uh also a bit of a funny thing. This feeds into the power law idea. I hate to bring it up and give it time, but the whole idea of this power law thing is that it mirrors how those sorts of networks

36:59 grow. And it's an observational theory, sort of. And who knows? I'm not a proponent of it, but it is interesting to make the comparison that Metcalfe's law applies. And then potentially it follows an adoption curve that is similar to that. That's the only observation I have. I don't think the power law is actually true because of the number go up phenomenon and etc. But it's interesting that things have played out similarly. Absolutely. I don't believe in the power law either. But I think one should expect that exponential growth is more likely than linear growth when it comes to Bitcoin because of because of Matt Coleslaw. Perfect. The Byzantine General's Problem. The Byzantine General's Problem describes the condition of a computer system, distributed computing systems in particular, where components may fail. And there is imperfect information on whether a component has failed. Imagine that several divisions of the Byzantine army are camped outside an enemy city, each division commanded by its own general. The generals can communicate with one another only by messenger. After observing the enemy, they must decide upon a common plan of action. A trader among the ranks could deliver false information and prevent the group from reaching consensus. The generals must, therefore, develop an algorithm to guarantee that all loyal generals decide upon the same plan of action and that a small number

38:30 of traitors cannot cause the loyal generals to adopt a bad plan. Now, think of a traitor as a malicious party within a distributed ledger that aims to facilitate fraudulent transactions. In accordance with Metcalfe's law, as the number of parties in the system increases, the number of channels for communication increases exponentially. Each communication channel could be used to carry false information. Imagine the complexity of building consensus in a truly decentralized system with thousands or millions of parties involved. This is the main computer science problem that Bitcoin solved by aligning participants' incentives in such a way that cheating becomes very risky and expensive. All right, the Byzantine Generals problem.

39:12 This really described the problem and not how it was solved exactly. But yeah, do you want to comment? Yeah, it basically solves it by making it extremely expensive to go against the common will of the network. So that's the way it solves it, through proof of work. But this is interesting because we've both been tweeting vehemently about this the last couple of days here after the CAT proposal and how this is actually playing out in reality and whether it has to do with the code or with the Bitcoin's users actually choosing to do one thing over another.

39:58 And it's very interesting, I think. And I'm going to eat my metaphorical popcorn here, seeing how this whole thing plays out. It's going to be very interesting. Yeah, but it's also like when you take Metcalf's law into account, You can also see why it's so hard to filter out spam from the network. Because even if 90% of the nodes do not relay the spam, the spammy transactions, the remaining 10% is still so big, so the spam will find its way to a miner anyway.

40:45 And therein lies the problem. So the strength of the network lies in that and also potential problems if you see spam as a problem, which you should. But anyway, there's a lot to be double clicked on here. But yeah, I think we should move on. Yeah, I'll only briefly comment that I first ran into the Byzantine Generals problem when I was studying computer science in university. And this would have been about 2012 or 2013, I think. And so obviously Bitcoin was a thing. But the thing was, my professor didn't think the Byzantine Generals problem had been solved yet.

41:29 And the funny thing was like the reason for this was because it not solved mathematically It just solved in this kind of theoretical way that the proof of work makes it so that the Byzantines general makes it so that the problem is irrelevant basically But I think what we seeing here in the modern day is that you can still have bad actors not acting towards the same goals as the rest of the network, or at least I'll hedge it slightly, that use the network in their own way. And so the proof of work doesn't necessarily solve this thing 100 percent it solves it mostly and it this is this is all to say i don't really want to muddle this entirely the the byzantines generals problem was solved by bitcoin but it it is solved in an imperfect way and not in a mathematically uh nothing not in a mathematically provable way so maybe the my professor had a had a point all along yeah it's very interesting because i i I don't think it can be solved mathematically.

42:33 And I think that's the point the professor tried to make. And if you see the world solely through a mathematical lens, then this might be an unsolvable problem. And this is the important part about how Bitcoin solves it, is that proof of work is just the tool the network uses to make it work. But the network can change and the users can change their minds and change the code into another set of rules that the proof of work will help us enforce.

43:15 So Bitcoin is still dynamic and can never ossify. Sure, it doesn't change unless all of us want it to change almost, but that doesn't mean that it's set in stone. It's still like if there's enough irritation because of some bad actor behavior, then enough of the network will want it to change to such an extent that the proof of work will enforce something else than what it's enforcing right now. And this is an idea I had in my head for the last couple of days, because I think this is the crux of the problem with the so-called technical crowd of Bitcoin. If you see it as only as code, you miss the point that the code can change.

44:00 Sure, it's hard to change it, but it can change. Meaning that the code is only enforcing what we want it to enforce. It's not the code that sets the rules. It's the code that enforces the rules. But we're the ones setting what rules the code should enforce. So it's complex in that way. It's intricate and the will of the individuals in the network and the will of the code, if you will, are intertwined. But at the end of the day, it's not backed by energy, it's backed by human beings. So it's not an immutable spreadsheet of data, you know, encrypted and secured by energy, like some technical Bitcoiners want to call it.

44:51 It's still, at the end of the day, backed by whatever human action happens in the background and whoever chooses to adopt these tools. Very good explanation. Now I think we're ready to move on. The Black Swan Theory According to Wikipedia, a black swan event is an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term was popularized by Nassim Nicholas Taleb. The discovery of Bitcoin was such an event. almost no one believed that a currency native to the internet could ever be created due to the nature of data itself and its infinite replicability we're still in bitcoin's infancy and most people are still reluctant to believe that the network will work long term all right the black swan effect yeah a black swan event i definitely think that bitcoin was a black swan event uh and an event meaning how it played out the first 10 years because it's not like an event like a specific point in time it's more like what bitcoin unfolded into uh the the outcome of the block size wars and so on and so forth uh yeah something can be mentioned about he wrote the black swan which is a very good book and he wrote uh skin in the game which is also a very good book. And then he wrote the forward to the Bitcoin standard. And after that, I think he

46:26 bumped his head into something because he became a bit of a statist cuck and wore three masks at the same time during the retarded lockdowns. And now his Bitcoin takes are just retarded. Yes, totally agree. But that doesn't mean he didn't contribute to things in other ways. No, and this is actually a good point. Appreciate people's ideas is usually more, appreciating people's ideas is usually more constructive than appreciating their personality. That's why I don't care who Satoshi Nakamoto was, for instance. I don't care at all who that individual was.

47:08 an individual that had a very good idea. Just like Pythagoras. I don't know Pythagoras' personality either. And, you know, the Black Swan events and Skin in the Game are two super good ideas regardless of what Mr. Taleb did before or after he had those ideas or popularized them. So, yeah. Weigh the good against the bad and judge ideas not people. Yes, judge idea is not people. Great. The Lindy effect. The Lindy effect is a theory that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age so that every additional period of survival implies a longer remaining life expectancy.

47:54 The longer Bitcoin survives, the higher the probability that it will survive in the long term. Yeah, that's it. The Lindy effect. Yeah, a pretty simple concept. I wouldn't say that it's a theory it's more of an observed thing like uh an observation that people have made that that this is usually the case in when predicting longevity of an idea so if that observation is true for most things then bitcoin will uh is very likely to survive for at least 16 more years there's not much else to be said about it.

48:35 I mean, this is also a thing that Taleb promoted. I think I read Skin in the Game pretty just before I wrote this book. So maybe that's why there's a bit of Taleb in it. Yeah, well, keeping Bitcoin running and therefore increasing the odds that Bitcoin will keep running is, I think, very important. It's important to defend Bitcoin and keep it going. However, we all want to do it. So the Lindy effect, maybe we're all actually contributing to the Lindy effect in that way. That's that's actually one point about Bitcoin's anti fragility that that sorry to. Yeah, but Bitcoin's anti fragility is all about humans actually working to keep it anti fragile.

49:18 Right. Like it's not like Bitcoin, the system with zero action is ever going to be like it's going to break eventually. But the anti-fragility is in the people in the system continuing to keep it running. So, yeah, I think we're all contributing to the Lindy effect that way. Yes, and it's going to break eventually. We'll see if that is when some human beings do something stupid or when the sun finally devours the Earth and we're on a spaceship on our way to Alpha Centauri. We don't know that yet. but it certainly looks like it's going to survive.

49:58 But once again, backed by human action, not energy. Absolutely. All right, Roko's Honey Badger. The concept of Roko's Basilisk has been called the most dangerous thought ever imagined. It describes a non-existent artificial intelligence punishing everyone who didn't contribute to bringing about its eventual existence retroactively. Rational people would, therefore, help it come about just out of fear of what could potentially happen to them if they didn't, similar to why some people believe in God because of the supposed rationality described by Pascal's wager.

50:39 Bitcoin could be said to be a sort of inverted Rocco's basilisk in a way, since not having any Bitcoin if, when, hyper-Bitcoinization happens, will be at least indirectly punished as such an event would render those that do have Bitcoin richer than those who don't at a very fast pace. This only holds true if you think that relative wealth gaps are inherently important, though. As described in earlier chapters, wealth gaps are of little importance to Austrian economics. What's important is if you're better off than you have been historically, no matter what anyone else owns or earns. If you rethink this supposedly rationalistic phenomenon you end up with roko's honey badger instead an entity that rewards those who help it come alive rather than punishing those who don't and this is a fascinating unique concept i don't think anywhere else you haven't heard of roko's basilisk before no the honey badger oh the honey badger no that's uh yeah inverting the idea and claiming that's something that would reward you, helping something that would reward you over and over again ad infinitum in the future would be a rational choice.

51:55 So it's literally the same kind of thought process as the one surrounding Rocco's Basilisk. And I think this is what what's going on. Funny thing about Pascal's wager there is you know Pascal's wager to explain that shortly it's the pascal said that you might as well believe in god because uh the if you if he exists it it will be the correct uh choice to have made when you eventually die because you'll end up in heaven instead of hell uh so if you didn't believe in him uh then that was uh the wrong choice to make so so by by simply weighing one option against the other uh the rational choice would be belief in God. The problem I have with Pascal's Wager is it leaves out all the other 5,000 deities and belief systems that humans have come up with over the years. So there's no way of knowing what God to believe in instead of any other God. It reminds me of that South Park episode where everyone's in hell and Satan reveals that it was the Mormons that were right about everything and everything else led you to hell.

53:14 But anyway, if by God you mean Bitcoin, Pascal's wager actually works. Because if you act as if Bitcoin exists, you actively help it come into being. So the more people that accept Bitcoin as a real thing, the realer it becomes. So Pascal's wager actually works on Bitcoin, if by God you mean Bitcoin. So and I think that's super interesting. Sometimes it feels like Bitcoin is like actively trying to push me to become religious. And I'm fiercely resisting it still.

53:54 But it just keeps poking me about these strange phenomenon that are now totally applicable to this new mode of being. Absolutely. Yeah. No matter what, interesting thought experiment. And I think one that holds. absolutely. Alright, last one. Mass adoption and exponential growth. So, where are we now? At the time of writing, it is estimated that around 1% of the world's population own some Bitcoin. During the first 11 years of Bitcoin's existence, the number of Bitcoin users worldwide has doubled every year, and even quadrupled during bull market years. As Albert Allen Bartlett said, The greatest shortcoming of the human race is our inability to understand the exponential function.

54:45 At the same adoption rate as that which we have now, not taking bull runs into account, more than half the planet's population will own Bitcoin in less than 7 years. 2% in the first year from now, 4% in the next, then 8, 16, 32, 64 and so on. So cut out the noise, buckle up and enjoy the ride. Bitcoin changes everything ignore it at your own peril alright so I think the exact rate of increase hasn't played out exactly as predicted yeah maybe not in the short term but if you zoom out maybe it will so I think it's too early to tell we don't know that's the thing we don't know which what the scale looks like here we don't know what the long term graph looks like looks like and it might be j-shaped rather than most people think it will play out like this like a an ever decreasing sloping curve but that curve may be the other way around and it depends on what time frame you're looking at this uh through yeah i mean yeah if there's anything i could add to this book it's the word excelsior and an exclamation mark as an extra paragraph at the end there so ignore it at your own peril excelsior what do you think of that perfect perfect way to end it yeah and with that that has been independence reimagined we'll come back next week just for a

56:16 last recap on everything this has been the bitcoin infinity academy thank you very much for listening bye bye Thank you.