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CHAPTER SIX — SCARCITY
What makes a commodity scarce? What is scarcity in the first place? What other properties can be deducted from an object’s scarcity? How are scarcity, energy, time and value connected? Scarcity might seem easy to describe on the surface, but in reality it’s not. Not when you take infinity into account. Infinity is a concept that has puzzled the human mind for as long as it has been able to imagine it.
If it ever has. It is a very abstract concept and it’s always linked to time, simply because even imagining an infinite number would take an infinite amount of time. If we truly live in an infinite universe, scarcity cannot exist. If something exists in an infinite universe, an infinite number of copies of this something must also exist, since the probability of this being true would also be infinite in an infinite universe.
Therefore, scarcity must always be defined within a set framework. No frame, no scarcity.
Think of it this way. The most expensive artwork ever sold at the time of writing was the “Salvator Mundi”, painted by Leonardo da Vinci. It’s not even a particularly beautiful painting, so why the high price? Because Da Vinci originals are scarce. A poster of the painting isn’t expensive at all but the original will cost you at least 450 million US Dollars. All because we agree to frame its scarcity around the notion that it is a Da Vinci original, of which under twenty exist today.
Historically, scarcity has always been framed around real world limits to the supply of a good. Most of the great thinkers of the Austrian school of economics from the twentieth century believed that the value of a monetary good arises from its scarcity and that scarcity is always connected to the real world availability of that good.
Most of them believed that a gold standard would be the hardest form of money that we would ever see, and the closest thing to an absolutely scarce resource as we would ever know.
In the late 90’s, the cryptographers that laid the groundwork for what would become Bitcoin reimagined scarcity as anything with an unforgeable costliness. This mindset is key to understanding the connection between scarcity and value. Anything can be viewed as scarce if it’s sufficiently hard to produce and hard to fake the production cost of.
In other words, easy to verify the validity of. The zeros in the beginning of a hashed Bitcoin block represents such easy verification. People who promote the idea that the mining algorithm used to produce bitcoins could be more environmentally friendly or streamlined are either deliberately lying or missing the point.
The energy expenditure is the very thing that gives the token its value because it provides proof to the network that enough computing power was sacrificed in order to keep the network sufficiently decentralized. Easy to verify is the flipside of the unforgeable costliness coin. The validity of a Bitcoin block is very easy to verify, since all you need to do is look at the hash of it.
In order to check that a gold bar is real or not, you probably need to trust a third party. Fiat money often come with a plethora of water stamps, holograms and metal stripes so in a sense, they’re hard to forge. What you cannot know about a fiat currency at any given moment though, is how much of it there is in circulation. What you do know is that they’re not scarce.
Bitcoin provides us with absolute scarcity, for the first time in human history. It is a remarkable breakthrough. Even though you can’t make jewellery or anything else out of bitcoins, their total supply is fixed. After the year 2140, after the last bitcoin has been mined, the total amount of bitcoins in circulation can only go down.
This limited supply is what the gold standards of the past were there for in the first place. Bitcoins supply is a lot more limited than gold’s though, since they will be lost as time goes by. Since the supply is so limited it doesn’t matter what the current demand is. The potential upside to its value is literally limitless due to this relationship between supply and demand. The “backing” that other currencies have is only there to ensure people that the currency will keep its value over time and the only way of ensuring this is to limit the supply. Bitcoin does this better than any other thing before it.
Leonardo da Vinci’s original paintings are extremely valuable because of Leonardo’s brand name and the fact that there’s only about 13 of them left. One day there’ll be less than one left. The same is true for Bitcoin.
Ty data set any number of times. Scarcity on the internet was long believed to be an impossible invention and it took a multi-talented genius such as Satoshi Nakamoto to figure out all the different parts that make Bitcoin so much more than the sum of them.
Satoshi’s special thing about computerized scarcity is that it was a one time invention. Once it was invented, the invention could not be recreated. That’s just the nature of data. Computers are designed to be able to replicate anisappearance was one such part, maybe the most important one. Bitcoin certainly seems to be true digital scarcity and if the game theoretical theories that it builds on are correct, its promise of an ever increasing value will be a self-fulfilling prophecy.
In 2018, the inflation rate of the Venezuelan Bolivar was a staggering 80000%. Hugo Chavez, and his successor Nicolas Maduro, have effectively killed the nation’s economy with socialism. It has happened before and sadly, it is likely to happen again.
The main problem with socialism is not that people aren’t incentivized to work in socialist countries. On the contrary, starving people under gun threat tend to work harder than most. The main problem with a state owned production is that there is no free market price mechanism to figure out the demand for a certain good or consumable and therefore, there’s no way of knowing how much supply of that good the state should produce. Everything is in constant surplus or shortage.
More often than not the latter, as the empty supermarket shelves you so often see in pictures from the country, are a depressing proof of. Chavez, and even more so Maduro, have tried to “save” their country’s economy by printing more money which simply doesn’t work. Their true motives for doing so are highly questionable since it is cheaper to use Bolivar bills than toilet paper for your hygiene needs in the country, at the time of writing this. As mentioned in earlier chapters, inflation is the biggest hidden threat to themselves that humans ever created.
A couple of hundred years ago the catholic church held the lion’s share of political power throughout Europe. Today, power mostly resides within nation states in collusion with multinational corporations. The separation of church and state triggered this migration of power from one entity to the other, emancipating many citizens from many of their clutches in the process. Still, places like Venezuela are a sad proof that “the people” are still in truth not in power in many self proclaimed democracies.
If in any for that matter. Another separation will have to take place first. The separation of money and state. We, the people of planet Earth, now have the tools necessary for this separation to take place at our disposal. Whether we choose to use them or not will determine how emancipated and independent our children will be in the future.
Paperback book version available here: https://www.amazon.com/dp/1090109911
Sovereignty through mathematics CHAPTER SIX was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
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