A nice article has popped out of the ether like a quantum particle. We observed it, and that observation has consequences.
People who have no idea about money or the decades of work that went into creating Bitcoin have a hard time describing it. Its many parts are derived from disparate disciplines, Maths, Cryptography, Economics, Computer Science, Software, Psychology, and its rare to find someone who is an expert in all of these simultaneously. Satoshi, apparently was someone in that class of man; a gifted, deeply experienced generalist.
In order to make Bitcoin understandable, people must resort to analogy. This creates many problems and toxic side effects, one you will be familiar with, “Bitcoin is Money”. That single wrong idea has created an entire industry based around the regulation of Bitcoin “Because its Money”. Other analogies don’t have a toxic side effect, but are equally incorrect and confusion spreading. A new analogy of this type is that, “Bitcoin is Energy”.
Lets take it apart.
First to define is energy, since Bitcoin is harder to define:
In physics, energy is a property of objects which can be transferred to other objects or converted into different forms.[1] The “ability of a system to perform work” is a common description, but it is misleading because energy is not necessarily available to do work.[2] For instance, in SI units, energy is measured in joules, and one joule is defined “mechanically”, being the energy transferred to an object by the mechanical work of moving it a distance of 1 metre against a force of 1 newton.[note 1] However, there are many other definitions of energy, depending on the context, such as thermal energy, radiant energy, electromagnetic, nuclear, etc., where definitions are derived that are the most convenient.
The erroneous argument we are addressing is that money is energy since it can be used to do work via payments to people. This argument is false. Money is not a form of energy, it is an arbitrary store of value. It has no utility out of the context of exchange; in other words, if there is no one to accept your money (whatever form it takes) it has no value at all.
Energy on the other hand, exists independent of man. Heat and electricity exist on Mars, where there are no men. Electricity stored in a battery has the same Electrical Potential Energy (closest equivalent a capacitor is a better fit) no matter where it is used or not used. It is a fact of nature that does not depend on you or how you use it.
Thinking about money as “Economic Energy” is an exceptionally poor analogy. Prices are not the same as volts or ergs. Kenyan shillings and all fiat currency in this analogy would mean that energy (the fictitious “Economic Energy”) could be created out of nothing. No physicist thinks that is possible. This is the Law of Conservation of Energy, the first law of thermodynamics,which says: “Energy cannot be created or destroyed, merely transformed.”
A $100 bill does not “have energy”; it is debt, created by the Federal Reserve. In the context of the US economy, people are forced by Legal Tender Laws to accept pieces of paper in exchange for goods; it is a medium of exchange, not “Economic Energy”. Its easy to get confused by the language of economics. When we say that inflation reduces the “spending power” of your savings, someone from outside the discipline of economics could conflate the word “power” from its use in physics (the rate of doing work) and then build an idea around this fundamental mistake.
Similarly, proof-of-work (PoW) has nothing to do with “work” in the physics sense:
In physics, a force is said to do work if, when acting there is a displacement of the point of application in the direction of the force. For example, when a ball is held above the ground and then dropped, the work done on the ball as it falls is equal to the weight of the ball (a force) multiplied by the distance to the ground (a displacement).
The term work was introduced in 1826 by the French mathematician Gaspard-Gustave Coriolis[1][2] as “weight lifted through a height”, which is based on the use of early steam engines to lift buckets of water out of flooded ore mines. The SI unit of work is the joule (J).
In the Bitcoin context, “Proof of Work” means mathematical proof that you have performed calculations and solved a problem. Since this is done in a modern computer, nothing moves to do this task, save electrons. The only way this analogy would make even a slight amount of sense, if if Proof of Work calculations were performed on a Babbage Difference Engine:
This machine was powered by cranking a handle. Que “Bitcoin is Indentured Servitude” arguments!
Value or spending power is not energy. When dollars are created, energy is not taken from pre-existing holders of dollars; the value of those dollars is diminished. The correct definition for this is inflation.
The writer claims that “Energy” is transformed from old coins to new coins in Proof of Stake systems, and that energy “flows” from old coins to new coins. This idea is very broken. The notion here is that by creating new coins, “Economic Energy” can flow between holders of the coins, even without a transaction. Its an odd analogy, that stretches beyond stretching.
Bitcoin does not consume electrical energy. The hardware that performs the calculations consumes electricity; Bitcoin is data, consumes nothing and is inert. It is also a safe bet (not that it matters one iota) that no one in Bitcoin thinks that the electricity used to manage Bitcoin is “transformed into economic energy”, or that pre existing coins “lose energy” or contain it or transfer it. They have to pay the bills for their electricity, and have no illusions about it.
There is no need to come up with a very bad analogy to describe what happens when the fiat dollar is used as money. People who store their wealth in dollars have the value of that money stolen from them. People who use Bitcoin and precious metals cannot have their stored value stolen from them. Note how I do not use the phrase “spending power” here. If I did, someone would no doubt chime in with, “but but but you yourself use the phrase spending pooowwer!”.
Bitcoin miners have not found a way to convert electrical energy into economic energy. First of all, they have found nothing. They have joined the Bitcoin train using tools that have been gifted to them after decades of research. They are performing calculations in the same way that computational drug design participants of Folding at Home users do; and those people are not, “converting electrical energy into medical advances”, though that analogy feels like it makes more sense than “Money is Energy”.
People with sense will store their money as anything other than fiat because they do not want to have their money stolen from them. It is as simple as that, and does not need an explanation more complicated than that.
Understanding Bitcoin is hard. Like many modern innovations, it sometimes helps to work from an overview of a device or service’s capabilities, and leave everything else about it to “Black Box” thinking. No one thinks about how SSL works; all of its complexity is reduced to a green padlock. When you see that padlock, you are secure. In Bitcoin, it will be the same thing eventually; “when you see that number, that is the Bitcoin you can spend”.
This thinking not only has the advantage of removing the need to describe Bitcoin to anyone, it also has a side effect of killing any service that does not allow you to spend your Bitcoin as you choose, when you choose. It creates the distinction between Real Bitcoin and Fake Bitcoin. Real Bitcoin is Bitcoin in your full control. Fake Bitcoin is a number displayed on a service where you need permission to spend it, and your balance is a arbitrary text displayed on a screen.
Finally, it appears that we are well past the “Bitcoin Denial” stage. No one that is serious claims that Bitcoin doesn't work, or that it is a scam. In fact, some people are looking at its unbroken multi year record of flawless performance as a historic and highly significant technical achievement. They do this and claim that you can have Blockchian without Bitcoin in the same breath but we all know about that problem.
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