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@ The Bitcoin Infinity Show
2025-04-25 07:10:01This is a part of the Bitcoin Infinity Academy course on Knut Svanholm's book Bitcoin: Sovereignty Through Mathematics. For more information, check out our Geyser page!
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 at the beginning of a hashed Bitcoin block are the Proof of Work that proves that the created coins in that block were costly to produce. People who promote the idea that the mining algorithm used to produce Bitcoin 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 and thus resistant to change. "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 its hash, make sure the block is part of the strongest chain, and that it conforms to all consensus rules. In order to check whether a gold bar is real or not, you probably need to trust a third party. Fiat money often comes 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 is in circulation. What you do know about fiat currencies 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 jewelry or anything else out of Bitcoin, its total supply is fixed. After the year 2140, after the last Bitcoin has been mined, the total amount of Bitcoin in circulation can only go down. This limited supply is what the gold standards of the past were there for in the first place. Bitcoin’s supply is much more limited than that of gold, however, 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 assume 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 are only about 13 of them left. One day there’ll be less than one left. The same is true for Bitcoin.
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. His disappearance from the project was one such part, maybe the most important one. The 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 any data set any number of times. This is true for every piece of code there is, and digital scarcity needed to be framed somehow to work. Bitcoin’s consensus rules provided such a frame. Bitcoin certainly seems to provide 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 80,000%. Hugo Chavez and his successor, Nicolas Maduro, effectively killed the Venezuelan 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, hungry people under the threat of violence tend to work harder than most. The problem with state-owned production is that there is no free market price mechanism to reflect the true demand for goods and, therefore, no way of knowing how much supply the state should produce. Everything is in constant surplus or shortage — often the latter, as the empty supermarket shelves in Venezuela depressingly attest. Chavez and Maduro attempted to rescue the country’s economy by printing more money — which simply does not work. Their true motives for printing money are, of course, questionable given that it depreciated the value of Bolivar bills to less than that of toilet paper. As mentioned in earlier chapters, inflation is the greatest hidden threat to themselves that humans have ever created.
A few hundred years ago, the Catholic Church held the lion’s share of political power throughout Europe. Today, power primarily resides with nation-states in collusion with multinational corporations. The separation of church and state triggered the migration of power from the former to the latter, emancipating many citizens in the process. Still, places like Venezuela are sad proof that “the people” are still 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 means at our disposal for this separation to take place. Whether we use them or not will determine how emancipated and independent our children can and will be in the future.
About the Bitcoin Infinity Academy
The Bitcoin Infinity Academy is an educational project built around Knut Svanholm’s books about Bitcoin and Austrian Economics. Each week, a whole chapter from one of the books is released for free on Highlighter, accompanied by a video in which Knut and Luke de Wolf discuss that chapter’s ideas. You can join the discussions by signing up for one of the courses on our Geyser page. Signed books, monthly calls, and lots of other benefits are also available.