Bitcoin: A Thermodynamically Sound Global Reserve Asset

Bitcoin represents a paradigm shift in monetary systems, combining thermodynamic principles with decentralized technology to address the inherent flaws of fiat currencies. In this article, I aim to advocate for Bitcoin as a global reserve asset (and why you should buy it) using laws of physics to prove that Bitcoin is fair, and fiat is not.

I. Thermodynamic Foundations of Money

The First Law of Thermodynamics

Energy cannot be created or destroyed; this is something we learn very early on in school. This fundamental concept drives every natural process and extends to matter as well. Think about the water cycle - at every stage, you can zoom out and see that it came from yet another stage, in a giant loop (albeit technically an open system since we can lose that matter to space). There is no point in the process where water comes from nothing or turns into nothing.

Electrical systems work the same way - they must be closed, only functioning if the electricity can flow cyclically. This also is imperfect, since systems lose some energy to heat, light, and other forms of energy loss. But that's just the thing: this energy is never really lost; it is simply converted to another form of energy, just as it once came from another form of energy. To produce energy from or return energy to a state of nothing would be a violation of natural law.

You can imagine that if we didn't have to put work into transforming energy into a form we can use, or did not have to put work into mining for precious metals or rare earth materials, none of them would have value. Even worse, imagine if all these processes still required work, but one entity had the ability to arbitrarily create these materials at will. The rest of us would feel ripped off! How is it fair that one entity gets these materials for free, while the rest of us work for them?

The Importance of Closed Systems

Material scientists, physicists, computer architects, and hundreds of other professionals work hard day after day, year after year, to try and reduce the amount of leakage in electrical systems, so they can be 100% efficient. The introduction of superconductors (at room temperature) will revolutionize everything; that's why we are working so hard towards it. Imagine paper-thin phones, silent computers, levitating trains - you name it. All this effort to make electrical systems more closed.

Now imagine your body as a machine, your blood is the energy. Wouldn't it be a shame if your body leaked blood all the time? Sounds problematic, doesn't it? Your body is built to be a closed system; it would be a disaster (death) if you leaked blood all the time. Whenever someone gets a cut or a wound, the first thing doctors do is stop the bleeding, because your blood carries oxygen (your lifeforce) to the muscles. If you were to double the amount of blood you have, it would do nothing for you unless you could also intake twice the oxygen; otherwise, the oxygen would just get distributed more scarcely among each blood cell.

II. Monetary Systems as Energy Systems

Picture an economy - millions of people transacting using money. But what is money? Money is an abstract representation of value. Money is to value as blood cells are to oxygen. You use money to transfer value across time, space, and scale. Value is the lifeforce of an economy. Remember what I said about doubling the amount of blood in your body? Well, money is the same way - if we double the amount of money in an economy, the value will have to become distributed differently. Now if this new money was introduced and distributed proportionally, life wouldn't change much - your bills will double, but you will have twice as much money, so just something to get used to. The value of each transaction stays the same.

Let's circle back to the first law of thermodynamics, which every natural system follows. What if there was an entity who could just arbitrarily create more money? That would not be fair, right? Especially if it wasn't distributed proportionally. Well, bad news: that's exactly how our fiat economics works. Central Banks have the power to give the middle finger to natural law, ignoring basic principles of physics. Through a process known as Fractional Reserve Banking, banks can increase the money supply, and they choose who it is distributed to.

Open Systems vs. Closed Systems

If the analogy I'm making is landing, you will see that the Fiat system is an open system, one where money can be introduced without the need for input. This causes value to flow partially from already existing money into this newly printed money. After all, something needs to give it value, and there sure wasn't any work put into it during creation.

What would a closed monetary system look like? Well, gold was a great start. The properties of gold made it an amazing store of value, and the Bretton Woods system was very analogous to a closed system. Because of gold's properties (doesn't tarnish, doesn't consume, very rare), it is very hard to introduce new gold into the system, and likewise to 'delete' gold from the system. Further, anyone who wanted to get their hands on gold could only get it in one of two ways: mining it or buying it. But you can only buy it from someone who mined it, or someone who bought it from someone who mined it, and so on. The bottom line is that gold has only ever been introduced into our economy via mining, so hard work was necessary for every ounce of gold.

III. Bitcoin as a Thermodynamically Sound System

Bitcoin takes all the best qualities of gold and all the best qualities of digital information and innovation. The biggest problem with gold is that it is heavy and inconvenient to move around or carry with you. Enter: the gold standard. Why carry around an ounce of gold when you can carry around a flimsy piece of paper? Perfect! Though this just offset the job of protecting and storing the gold into the hands of the government, which is expensive and difficult to audit.

Let me introduce Bitcoin with a few key points:

• Every Bitcoin in existence only came into existence when it was mined, which is a very energy-intensive process
• No entity can get their hands on Bitcoin without mining it, or buying from a miner, or buying from someone who bought from a miner, and so on
• Bitcoin is a perfectly closed system, mathematically guaranteed to never have more than 21 million Bitcoins in existence
• Bitcoin is essentially free to store, so a reserve would be instantly auditable and would cost nothing to protect
• The Bitcoin supply is introduced at a calculable rate, which diminishes over time
• Bitcoin is uninflatable

Fairness Through Proof-of-Work

Bitcoin acts as a new form of energy, requiring energy as input to be created; this value is then stored forever on the blockchain. Every miner who claims to have mined a Bitcoin must present the proof that they did the work necessary, which is verified by other nodes. Long story short, no Bitcoin is acquired without work.

This makes for the fairest possible system, where one party's participation does not diminish another's, and no party is given the power to steal from others. This is in stark contrast to our fiat system, where certain institutions can take action that directly extracts value from other hard workers. Furthermore, since Bitcoin's infrastructure allows for instant transactions with no trusted third party, you don't need to rely on anyone else to verify your transactions. No more asking the bank for permission to spend your own money, no more limiting people from withdrawing their own money, no more bank bailouts necessary (because there are no more banks).

IV. Three Qualities of Sound Money

Three qualities make money 'sound' - salability across:

1. Time
2. Distance
3. Scale

Gold excels in salability across time; it holds its value well. It is also very salable across scale, since gold is very valuable and easily divisible for different sized purchases. Where gold falls behind is salability across distance. Try to pay someone across the globe with gold - it will take a lot of time, protection fees, insurance fees, etc., if it even gets there. Bitcoin once again fixes this by settling transactions every 10 minutes, essentially transferring any amount of value anywhere instantly.

V. Strategic Advantages for Reserve Status

Mitigating Currency Wars: Neutral Reserve Asset

The current dollar-dominated reserve system creates the "Triffin Dilemma" where national and global monetary objectives conflict, leading to competitive currency devaluations. Bitcoin's protocol-enforced neutrality provides an alternative not controlled by any government or central bank, making it immune to political manipulation. Nations facing currency devaluation or sanctions are exploring Bitcoin to reduce dependence on politically-influenced currencies. As a non-sovereign monetary asset with superior verification and transfer capabilities compared to gold, Bitcoin offers a neutral settlement layer for international trade that can't be weaponized through foreign policy.

Digital Liquidity and Efficiency

Bitcoin combines gold's ability to maintain value over time and scale with unparalleled efficiency in transferring value across distance. This makes it uniquely positioned as a global reserve asset for the digital age.

VI. Volatility and Adoption Barriers

Transformative technology always starts rocky. The volatility in Bitcoin is the moat around the castle, there to scare away the folks unwilling to humble themselves and ask for the bridge to be let down. As market cap grows, volatility shrinks, not to mention that Bitcoin is on the right side of volatility, trending upwards over time despite short-term ups and downs.

As for adoption, many countries are beginning to shift to pro-Bitcoin stances, but quite frankly, this doesn't matter. Centralized adoption will do nothing to the adoption of Bitcoin aside from potentially speeding it up. The real adoption barrier is the education of the average person, because opting into Bitcoin is a personal decision, up to the individual. I think it's about time we stop the bleeding.

VII. Conclusion: Toward a Thermodynamic Monetary Standard

Bitcoin's closed-system structure offers an alternative to traditional fiat systems - one that obeys the laws of nature and follows the natural order, instead of defying it. Bitcoin is a new form of energy powered by decentralized verification rather than centralized trust; it stands as the path to a fair and resilient global reserve system. As nations explore Bitcoin and individuals open their eyes, the fragile bleeding fiat systems will bend the knee to the mathematically enforced closed-system Bitcoin ecosystem that does not bleed, does not discriminate, does not treat unfairly, does not rob, and does not steal. Bitcoin represents a true standard for the digital age.