[jonahbenton]

The why requires a few steps.

Money is just another technology. As a technology it has existed in various forms over thousands of years.

Technologies see continual innovation and change, with various actors and various motives influencing their use, function, reach.

Governments of various forms are our current best method- govern-ance- for managing human-scale assets, resources, and technologies with collective purpose and implication.

Moneys- currencies- as a technology are one of those human assets owned and managed by governments, like land, and other resources. There are over 200 distinct currencies in the world.

The mechanism for this management is based on the notion of a ledger- the record of balances, of debts, of interest, and the creation- inflation- of money supply in the context of that management.

Most governments are poor at this management when measured by how well their implementation of this technology that is money serves the needs of most of their populations.

Governments themselves- both "democratic" and non- in their current form are fragile and vulnerable, with the powers of governments utilized against portions of theirs and other populations.

BTC is a technology, a cryptographically-secured system of record- a ledger- that can be used as a money. It is not under the control of an existing government.

By collective agreement of its participants, a complex balance of users playing different roles with different incentives and risks, the rate of creation of assets recorded there is managed to a low level of inflation. As such, as a technology utilized for money, it is a stable "store of value" in contrast to the moneys supplied by literally every government.

The ledger, the system of record can be preserved- secured- if and only if it is too expensive for attackers to change it. The turning of energy into hash minting is the security for that system of record.

That's it.

Adopting a mindset where the above argument takes hold involves a kind of leap of faith. It is a belief. Sure, a religion. The game theory/mechanism design behind BTC is a true innovation, the first demonstrated solution to the Byzantine Generals problem.

There is an argument- won't people stop believing in it?

Maybe? I would suggest evaluating that argument against the lifespans of other innovative beliefs.

Is it something that comes and goes, or is it like the eye, an invention of evolution that solves a specific problem and appears distinctly and repeatedly in different organisms once they hit certain levels of complexity.

Cheers.

[lolc]

One thing I don't get about the "store of value" belief in Bitcoin is: why specifically this chain? It has only network effects going for it. Mindshare is a fickle thing.

[jonahbenton]

Yeah- well:

It was first, and first mover advantage is significant, which has turned into network effects and inertia, and now with the ETF recognition has gained "official" validation;

Anti-inflation is one of its core design principles, is the basis for store of value, and commitment to it has remained solid;

After ETH PoS changes it remains the only proof of work chain. PoS has belief failure modes that can lead to collapse of value. PoW-based value by definition is secured by the cost of the work. It is a financial equation- a ledger can be maintained at the underlying cost of recoverable energy- not a political/fashionable one.

Mindshare can be fickle, and if purely based on fashion, if there is no inertia and there are adjacent equivalents, value can be lost quickly. With BTC there is inertia, because at a deeper level there are no adjacent equivalents. BTC continues to occupy a unique niche in the design space of these artifacts/assets.

[lolc]

Sure as long as people believe in Bitcoin it will keep existing. Like other currencies.

I can see the inertia argument. Why switch when it works. I still don't see the store of value argument when Bitcoin requires such exorbitant amounts of energy to keep up. That's a tax on the value. "Look how much energy it's using, it must be worth a lot!"

[jonahbenton]

Yeah, the store of value idea is pretty abstract and most people are completely unfamiliar with the various functional aspects that make money in general a store of value, or, rather, a lack of store of value, given the pervasive practice of currency inflation practiced by every central bank.

People can wrap their heads around there being "value" in an "asset" because it has "revenue streams" associated with it- that's what property and being a landlord is about. You can charge rent, so your property has value. That is very familiar because everyone either owns property or rents property. And then they look at BTC and are like- there are no revenue streams, any "value" is just made up.

Gold, a scarce/low supply inflation asset, and former money, is a good mental model for BTC, but it is completely unfamiliar to most folks, and not even the notion of metal coin being intrinsically valuable applies in any economy any more. In fact if anyone thinks about gold, they probably think people who put value into it are deluded.

People also can understand different currencies having different relative values, some being stronger, some being weaker. Why that is is generally a complete mystery. People think of strong currencies coming from "strong" countries with "strong" economies and weak currencies coming from "weak" countries with "weak" economies, where strong and weak roughly correspond to military capability and economic industrial capacity and diversity.

There is some truth in that mental model, but since BTC is not really "used' as a currency, it doesn't get to be slotted in to the currency mental map.

The actual function that BTC is starting to serve and that is critical to the functioning of all modern economic entities, whether governments or private enterprises, the notion of a "financial settlement layer", is completely unfamiliar. So yeah. It is hard to get traction when the machine is mysterious, to abuse a metaphor a bit.

The unnecessary energy waste argument though is an interesting one, eg where BTC is wasteful like just running your A/C unnecessarily or whatever. The most relevant comparison is looking at something called "home idle load" which in the US is basically the background appliance energy use. BTC total electricity use is in fact a tiny fraction of home idle load, which people don't really get exercised about and many when buying new appliances pay little or no attention to.

If one doesn't see the purpose for the use of BTC energy- which again is an unfamiliar concept of the need for "security" for a system of record- people do see the purpose for the wasted home load energy. They need home appliances, they just wish they were more efficient. That BTC mining becoming more efficient would not result in the network using less energy, in fact, the opposite would occur- this is also strange.

Anyway- I agree with you, it is a set of completely novel concepts that interoperate in ways that are very different from existing related and familiar mental models.

That is why to my mind the only way "in" to arriving at an understanding is to look at money- all moneys- as technology, as technical machines that are different implementations of accounting rules.

BTC is a "store of value" "secured" by burning energy because it is an asset system of record, a ledger, that uniquely for the first time in human history cannot be changed either directly or indirectly (e.g. by inflation) by a political actor who "governs" it. The "value" of a BTC is mathematically related to the cost of energy, and to the demand for use of that sort of ledger. What we have seen is that there is significant and growing demand for this sort of ledger, a ledger that is independent of the political processes that exist in every government, and were some problem with BTC itself to emerge, there are now different implementations of the idea that this demand would shift onto. But most of the brains that have the capacity to study and find such problems in BTC's implementation have done so and have not yet found them, so its value is really as the best known solution to a problem that we didn't know we had, and now we do.

Not sure if that makes sense. Thanks for the engagement.

[lolc]

I don't like the comparison to gold, because gold just sits there. It's a stable element. Bitcoin needs a variable amount of watts for upkeep. Who is paying for those watts and why?

If we're talking about the value of a currency, we're talking about what we can get in exchange for it. And when we talk about the store of value, it's what we can get in the future. With Bitcoin, we know it must burn energy, so we can get something only less that energy. The currency may get more "believable" due to the burning, when you look at sacrifice as commitment. But what are they committing to? Burning more in the future, because they now have coins they want to keep their value?

The funny thing is that most people trade in virtual Bitcoin they don't control. Because it's more comfortable and the ledger doesn't support the volume. So they need a government to assert their claim on their coins. I guess one can't even get Bitcoin from their ETF and needs to round-trip to some other currency.

The market is settling out of chain, because it's cheaper.

[jonahbenton]

A useful contribution, another attempt to quantify the cost of attacking BTC, which is "defended" in part by burning energy.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4727999

[jonahbenton]

Thanks for the engagement. Not sure if you are asking rhetorical questions to make a point about why BTC seems pointless. I don't necessarily disagree, it's speculative. But for the sake of clarity will say that I think there is a real innovation in BTC and those questions, rhetorical or not, do slightly miss the framing of the innovation.

Will try it this way. The store of value is a derivative result of the actual innovation, which is- BTC for the first time is a computationally secure mechanism that provides a system of record, the contents of which are somewhat resistant to political attack and manipulation.

A system of record is the basis on which rule of law exists, the basis for accounting and financial transactions, the basis for property, etc. Proof of Work vs Proof of Stake vs others as the "costs" for maintaining those systems of record, are experiments, empirical discovery processes to see which one(s) over what timeframe hold water.

Specifically to the points:

> BTC vs Gold

Yes. BTC is a technology that has wider use cases than gold. Store of value is just one use case.

> Who is paying for those watts and why?

Right now, people who want to make money, it is economically viable to turn stranded energy into "mining". Who is benefiting from the use of the ledger for store of value and medium of exchange? Often, not always, elements considered criminal by most governments as well as people whose legitimate needs are not being met by their governments.

> store of value...we can get something only less that energy

This is where I think the disconnect between the mechanism that BTC is, and these "rhetorical" questions, is greatest. BTC is a system of record platform. We have lots of other ones. All systems of record require upkeep. They are out there, they are expensive, we don't think about them. They are just people's jobs. Every county has a system for property and title maintenance. Every single financial institution has a ledger- many ledgers. etc.

Many of these ledgers are private. Oracle, the database company, originally became a big business on being the underlying mechanism for millions of private systems of record around the world. In every one of those ledgers, there is a DBA who can do UPDATE X SET VALUE = Y WHERE KEY = Z and often does- certainly "legitimately" governed by the various policies and protections and business rules and so forth that apply to the ledger. But sometimes those UPDATE SQL statements are "illegitimate" and those often occur when the political and governance mechanisms in the business or in the country are breaking down.

There isn't any of that SQL manipulation in BTC. Storing asset holdings is again, just one use case. Attestations, like on off-chain ownership, are another.

And to be sure:

> The market is settling out of chain, because it's cheaper

Absolutely- or rather, there is a lot of implicit cost hiding and inertial convenience in existing systems, as one would expect. And they work "well enough" in a "worse is better" sense. BTC may be too good, too "perfect", too expensive, as a system of record, long term. We'll see.

Hope that makes sense. Cheers.