What is the link between thermodynamics and Bitcoin?

What is the link between thermodynamics and Bitcoin?

The first law of thermodynamics, also called the law of conservation of energy, states that energy can not be created or destroyed in an isolated system. The second law states that the entropy of any isolated system always increases and the third law indicates that the entropy of a system approaches a constant value when the temperature approaches absolute zero. Well, what does this have to do with Bitcoin? Let’s explore! In the Bitcoin network, participants, called minors, compete for new Bitcoins in a lottery with very fixed rules. The more a miner contributes to the network with computing power (computing power), the more likely he is to win the block. What this system produces is an absolute rarity, the number of existing Bitcoins at any time is always predictable. The more time passes, the more this number is predictable as the reward of the block slowly approaches zero. At present (around 2140), the mining incentives granted to individual farmers have been replaced, at least in theory, by an incentive to collect transaction fees from network participants. . Even now, fees are a significant part of the miners’ reward. As the Bitcoin network evolves through Layer 2 solutions such as the Lightning Network, the fees remain very low and should stay low for a long time. Absolute rarity is a concept that humanity has never encountered before. We can say that this makes it the first concept created by humans to be directly related to the laws of physics! Everything someone does requires a certain amount of energy. The word “do” implies that a certain type of movement, a certain type of energy expenditure must take place. The value of an action that a human can take is an entirely subjective thing. Actions have different values ​​for different people. The value we place on different things is also inevitably linked to the supply of that thing.

The price that a person is willing to pay for a good, or the sum of the shares of one or more people, can be deduced from two basic variables – the highly subjective demand for good and the always limited supply of time. and the space of that very good. It should be noted that there is only a certain demand for a product so that its price increases if its supply is sufficiently limited. One could say that no one needs Bitcoin and therefore has no intrinsic value. One could also say that there is no intrinsic value because the demand is always subjective. In any case, there will always be a cost to exploit a bitcoin and the more powerful the network, the higher the cost. This cost, provided by the Proof-Of-Work algorithm of the Bitcoin network, is as close to pure energy cost as human activity. Once the mining platform is in place, the energy is infused. If the cost of production exceeds the current price of the token, the minor may simply choose not to sell, thus further limiting the supply of outstanding Bitcoins and eventually selling it for other goods whenever he deems it useful. . In this sense, Bitcoin is a battery. Not only that, but probably the best battery ever invented. Storing and transporting electrical energy has always been expensive and unnecessary. We do not have many effective ways to do it. Bitcoin offers a way to convert energy into a small part of a given number. A mathematical battery, if you want. It is important to remember that this does not directly convert energy into value, but rather electricity into digital scarcity. The digital rarity that can then be programmed to express a value. Energy can not be created or destroyed in an isolated system, as the first law of thermodynamics makes clear. Bitcoin can however express the amount of energy sacrificed to acquire a share of a limited supply. Of course, you can also buy Bitcoins by buying them rather than using them, but you also lose energy. You have somehow acquired the money with which you bought Bitcoin and it became because someone was sacrificing time and energy somewhere. Bitcoin allows you to express that you see that there is a link between value and scarcity by sacrificing the effort of being part of the network.

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