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.
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.
Good to know things.
Perfect.
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Notes will be in the description.
So shall we get going?
Absolutely.
All right.
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.
you'll need to understand the why before even trying to grok the how.
Alright, 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.
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.
All right, 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.
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.
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 i use there is like a breath of air it is worth nothing to to most people most of the time
but worth an infinite amount of money uh to a a free driver trapped a free diver trapped under ice
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.
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.
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's a 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
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.
Money does never measure value.
It signals value.
And that is a very important distinction too.
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.
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 with uh so you had
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. 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 fiance 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 evolving great antlers to impress
his future spouse, that he's a capable male that can carry around this great appendage
without too much trouble.
So jewelry is basically the same thing.
Okay, I think the jewelry isn't really the point of this paragraph.
No, no, no.
That's an aside.
I just didn't like the proof of work thing in the last sentence.
But the important point I want to make here is that flow is flow onto the market, not just an increase in the stock.
Crucial distinction.
Okay, that's interesting.
I sort of push back on that.
In fact, I think you're wrong.
Because this is really only a measure of 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 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. 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 uh all the all of the stock could come onto the market potentially but it not on the market until it actually there
I think this isn't useful to the listener because it's extremely confusing when talking about Bitcoin, right?
Because then stock to flow, it becomes meaningless by that definition.
like you constantly have
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 I think you're
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't really
think stock to
flow is like
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.
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.
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.
Like the supplies of gold going onto the market can in fact be, sorry, taken out of the ground.
Like that's the definition of stock to flow when we're talking about the precious metals
and et cetera.
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.
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
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
zero. Okay, okay. Let's see. All right. 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. And I'm
not going to dive into that, because that's too complex to fill up this chapter with. But yeah,
we can, 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.
Alright, 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.
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.
Theer'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?
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.
Which is why most Bitcoiners prefer to spend fiat over Bitcoin if given the choice.
this is also 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 holding on to the fiat is less good for them in the long run
a complicated way of saying the same thing
But yeah, they're very connected, these two laws.
Definitely.
And it's subtle, right?
And it also 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.
like use your bitcoin and then go acquire more like that's yeah that's that's the idea you 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 etc etc so the benefits of spend and
replace are extremely high and i think many bitcoiners grok that yeah absolutely uh then
And 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-grandchildren spend them, good for you.
It's not up to anyone else.
so 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. 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, right? 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 um 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 so you
have commodities here and this this bucket and then you have medium exchange which is actually
a way bigger bucket so and we want bitcoin bitcoin is both so we want it to 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.
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.
Basically all because of the Cantillon effect.
This is also fleshed out further in chapter 5 of this book, I believe.
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.
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
prices ought to go down and not up and we talk about this all the time people think that uh if
prices were stable uh everything would be okay but in fact uh stable prices stable 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 the zero marginal cost uh that were that all prices are approaching
manufacturing and uh it's it's it's what we wrote about in clown world back again to if humans
practice doing things then uh they get better at the thing they're practicing so all prices ought
to go down uh 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 what it actually takes
in 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 yeah and and in in a world where the economy has tried to get planned and and like
let's let's uh let's incentivize certain things by raising taxes on suites or whatever and and uh
change human behavior this way it all gets distorted right and so we we basically have
been losing these benefits of zero marginal cost by things like vat and and 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
almost everything
so much easier
and faster and therefore
less costly to produce
the amount
of time it takes to produce a book
now is
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
yeah no
also important to remember
costs can never be
can never be zero entirely
they can just approach zero
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 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.
time. Therefore, theoretically, the total value of the network cannot decrease over time,
even if the price does. 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 is 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.
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.
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.
all right what do you think of this theory now i think it 100 holds true
and it's it's fun when we edit when we re-edited this book we uh you told me that it was very
similar to the price of tomorrow or a lot and you said like this is all jeff and stuff
but you hadn't realized that this was published before price of tomorrow so maybe the inspiration
was the other way around.
I don't think that Jeff actually read this book
before he wrote The Price of Tomorrow,
but we became very good friends
because we think in similar ways
and came to the same conclusions here.
And I think this is yet another TLDR on Jeff's book.
I still think you should read Jeff's book
because it's got way more points to it
than just these two paragraphs.
But if you like this kind of thinking,
That's a highly recommended book that explains all of these things further.
But this is not really my...
I mean, I may have had this idea when writing this book,
but Rothbard and Mises wrote endless paragraphs about this phenomenon.
There's even a Rothbard article where he explains
how one single monetary unit would be uh could fuel the entire world economy given that it was
divisible enough so the the notion of having to increase the money supply is simply wrong
and has negative effects the 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 uh 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 is actually acting in the actual in the exact
opposite direction of that disincentivizing people from from saving which is civilization
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 people 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.
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.
Yes, this has little to no effect on Bitcoin as a store of value,
or a medium of exchange 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
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
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. 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 here's, yeah, 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 and it's
very interesting i think and uh yeah i'm gonna eat my metaphorical popcorn here seeing how this
whole thing plays out it's going to be very interesting uh yeah but it's also like the um
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.
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 should but anyway uh there there a lot to be double clicked on here but yeah uh i i think we should move on yeah i only briefly
comment that i first ran into the byzantine generals problem when i was studying computer
science in university and this this would have been about 2012 or 2013 i think and uh and so
So obviously Bitcoin was a thing, but the thing was my professor didn't think the Byzantine
general's problem had been solved yet.
And the funny thing was, like the reason for this was because it's not solved mathematically.
It's just solved in this kind of theoretical way that the proof of work makes it so that
the Byzantine general makes it so that the problem is irrelevant, basically.
But I think what we're seeing here in the modern day is that you can still have bad
actors, not acting in the same towards the same goals as the rest of the network, or at least
I'll hedge it slightly, that that use the network in their own way. And and so the proof of work
doesn't necessarily solve this thing 100 percent. It solves it mostly. And this is this is all to
say I don't really want to muddle this entirely. The Byzantines generals problem was solved by
Bitcoin, but it is solved in an imperfect way and not in a mathematically provable way.
So maybe my professor had a point all along.
Yeah, it's very interesting because I don't think it can be solved mathematically.
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
so Bitcoin is still dynamic
and can never ossify
sure it doesn't change unless all of us want it to change
but that doesn't mean that it's set in stone
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.
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 it's the 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
and secured by energy like some technical bitcoins bitcoiners want to call it 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 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 the outcome of the block size wars
and so on and so forth.
Yeah, something can be mentioned about Taleb.
He wrote The Black Swan, which is a very good book,
and he wrote 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 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.
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.
it was an individual that had a very good idea just like pythagoras i i don't know pythagoras
personality either and uh you know uh 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 and judge ideas not people yes judge ideas 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.
The longer Bitcoin survives, the higher the probability that it will survive in the long term.
Yep, 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.
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, to, yeah, but Bitcoin's anti-fragility is all about humans actually
working to keep it anti-fragile, 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 gonna break eventually we'll see if that is uh when some
human beings do something stupid or when the sun uh finally devours the earth and we've all we're
on on a spaceship on our way to alpha kentauri we don't know that yet but uh um it certainly looks
like it's gonna survive but once again backed by human action not energy absolutely all right
roko's honey badger the concept of roko's baski the concept of roko's basilisk has been called
the most dangerous thought ever imagined it describes a non 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. 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 Roku's Basilisk before?
No, the honey badger.
Oh, the honey badger.
No, that's inverting the idea
and claiming that's something that would reward you,
helping something that would reward you
over and over again in ad infinitum in the future.
would be a rational choice.
So it's literally the same kind of thought process
as the one surrounding Rocco's Basilisk.
And I think this is what's going on.
Funny thing about Pascal's wager there is,
you know Pascal's wager, to explain that shortly,
Pascal said that you might as well believe in God
because if he exists, it will be the correct choice to have made
when you eventually die because you'll end up in heaven instead of hell.
So if you didn't believe in him, then that was the wrong choice to make.
So by simply weighing one option against the other,
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.
Like 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.
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.
And I think that's super interesting. Sometimes it feels like Bitcoin is actively trying to push me to become religious, and I'm fiercely resisting it still, 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, an 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.
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 70%.
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. All right. 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.
That's the thing.
We don't know what the
scale looks like here. We don't know what the
long-term graph looks like.
And it might be
J-shaped rather than
most people
think it will play out like this,
like 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
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 last recap on everything uh but this
has been it. So I think we'll round off first of all, just by mentioning our friends at Plan B
Network. And there's something you can actually do now to get involved with them. You can take
their courses, either the business course or the development course. And both are fantastic. You
can use code infinity over there for a discount And you might get a chance to go attend their prestigious summer school in Lugano What do you think about that Knut It fantastic I had the joy of being there this summer
and the plan is that I'll go back next summer
to meet all the students and hang out with them
and have interesting discussions with them the entire week.
I absolutely love Lugano.
I absolutely love the Plan B project,
and I'm happy to be a part of it.
we're also making my
Praxeology book into a course
so I will be in Logano
giving lectures about that
sometime during the spring
of 2026 soon to be
announced so
yeah keep your eyes peeled and
check out the Plan B network
fantastic and also
go check out Bitbox if you or
a family member needs a hardware wallet
most likely a family member
considering you self-custody your Bitcoin in a hardware world already, dear listener, I assume.
But yeah, the Bitbox is fantastic. They even right now have a little Christmas bundle going on.
I don't know for how much longer or if it'll arrive in time, but go check it out. You can get
the Bitbox Zero to Nova edition, plus a nice red knitted cap and a bunch of Christmas cards or
something like that. So that's fantastic. I gave a few of those to some friends last year, actually.
Not the Nova because it wasn't out yet, but the Zero2 Bitcoin-only firmware, of course.
Yes, what the Japanese would call the Bitbox Christmas Abundaru.
All right.
I think with that, this has been the Bitcoin Infinity Academy.
Thank you very much for listening.
Bye-bye.
Thank you.