How Bitcoin Could Murder Capitalism

May 27, 2024 | Philosophy, Technology

You don’t know me.

You may know who I am. You may know what I have done. You may know my writings. You may know of me. But you do not know me.

Allow me to rectify that right now. The people who do know me, outside of the fact that I’m an author, a blogger, and a Twitterer (or would that now be an X-er?), know that I am all about two things:

  1. I am an evangelist for capitalism.
  2. I am an evangelist for Bitcoin.

And that might not seem like a strange combination. Both subjects espouse a laissez-faire approach to society, emphasizing liberty, voluntarism, and the free exchange of goods, services, ideas, and capital. Bitcoin and capitalism are a match made in Heaven.

But even if this was not the case, it’s easy to see why a person could fall in love with each concept on its own. Capitalism is the most efficient, least wasteful, and best system for organizing a society. It has lifted billions out of poverty and is responsible for every quality-of-life improvement mankind has experienced in the past 500 years. The Renaissance was born from the invention of double-entry bookkeeping. That small seed of capitalism has blossomed into half a millennium of explosive growth.

And to the same degree that capitalism is the best form of society, Bitcoin is the best form of money. It obliterates the middlemen of monetary-transfer that have parasitized every economic system—including capitalism—from the dawn of time. It slays the false-faced demon of blind trust used by all previous forms of money. It takes the magic power of ledgers out of the hands of banks and governments and restores that power to the people, to whom it rightly belongs.

Such miracles each of these have been—one in the realm of commerce and one in the realm of monetary policy. I have nothing but praise for both of these wonderful elements!

Allow me to explain why putting them together could be literally the worst thing ever.

The Great Filter

All the aliens are probably dead, you know. That’s why we can’t find them.

What’s that? You think I’m changing the subject? No, I’m just making a comparison. Scientists have dreamed up scenarios that could lead to the extinction of the human race—scenarios like nuclear war, an asteroid impact, or a gamma ray burst from deep space. And if these possibilities could kill all of humanity, then there’s no reason they couldn’t also kill any alien civilizations which might have existed in the wider universe.

If aliens have ever existed, then something is keeping them from finding us. And whatever that thing turns out to be, scientists have already come up with a name for it:

The Great Filter.

I’m oversimplifying, but the Great Filter is likely some kind of extinction-level event that wipes out every alien world before the aliens can learn how to move their civilization to other planets. The reason ET never finds us is because every time he comes close to doing so, a cosmic Jason Voorhees comes out of a nearby lake to kill ET’s entire species.

In case you didn’t hear me before: I’m oversimplifying.

And, as outlandish as it may seem, I invite you to consider that the combination of capitalism with a Bitcoin-like money could bring about an event as devastating as The Great Filter.

After all, both capitalism and Bitcoin were natural iterations of systems which had gone before them. It is not inconceivable that alien civilizations have arrived at these inventions the same way our own species did. Any technology as obvious-in-retrospect as capitalism and Bitcoin have proven to be will become part of any sapient race’s natural evolution.

And the combination of them could be the reason that all civilizations eventually die.

How Does This Work?

To begin with, I invite you to consider how capitalism sets itself apart from other economic systems. In a capitalist society, individuals are allowed to take what money they have and invest it into companies they did not create. Even if you are not clever enough to start your own Google, Microsoft, or Ford Motors, you can still hitch your wagon to those companies and rise with them.

And why wouldn’t you? It sure beats keeping your wealth as dollars. Or Yen. Or Euros. Or any other government currency. All government currencies are bad investments. They do not hold their value. In 1970, one hundred dollars was a huge amount of money! Today, it won’t even cover the cost of most grocery store visits. And if you had received one hundred dollars in 1970 and sat on it until today, you would have lived to see your money get stolen—not because you have any fewer dollars than you used to, but because each of those dollars now buys a smaller and smaller amount of goods.

Inflation is a killer. But, unlike Jason Voorhees, it is a killer you can escape from. All you have to do is exchange your dollars (or yen, or euros, etc.) for some good-as-gold investments.

One good-as-gold investment is gold. Gold (in theory) can’t be inflated away.

Another one is land.

“Son, stocks may rise and fall, utilities and transportation systems may collapse. People are no damn good, but they will always need land and they will pay through the nose to get it!”

And if you can’t commit yourself to the high cost of storing gold or maintaining land, then you can always go for the hands-free investments: stocks, bonds, and funds. Even if none of these investments earns you a huge amount of money, they at least won’t lose their value with time. You can beat inflation just by putting your money anywhere else than in liquid currencies like the dollar.

Yes, that is true. For now.

Bitcoin Breaks This

At first, Bitcoin may look like just another investment. Even now, fifteen years after its debut, most people see it as a place to put their money. They do not see it as a kind of money.

But that is not how it was designed.

Here’s what we know: in 2009, a mysterious computer programmer publishing under the pseudonym “Satoshi Nakamoto” created the Bitcoin protocol. In his whitepaper describing the new technology, he christened this new technology a “peer-to-peer electronic cash system”.

In other words, he meant this infant technology to become a type of money.

And not just any type of money. In Satoshi’s later writings, he speculated that Bitcoin could become the most powerful money in the world, adopted not only by individuals, but by multinational corporations and governments for use as a means of exchange. Perhaps only as a reserve currency, but if it gained any success as a reserve, it would only be a matter of time before laymen start using it to purchase goods and services.

The reasons are many, but most important is this: unlike government currencies, Bitcoin has a solid and unchangeable policy of deflation. Only 21 million full bitcoins will ever exist. And 93% of those have already been issued. The remaining 7% is to be trickled out over the next hundred years. In the meantime, many bitcoins will get lost or destroyed, meaning that—quite unlike the dollar—full bitcoins will only get rarer and rarer with the passing of time, which will make them more and more expensive.

Which means you will be able to buy the same basket of goods with smaller and smaller amounts of Bitcoin as time goes on. What barely covers a visit to the grocery store today will be able to buy a mansion ten years from now.

And this could destroy both capitalism and everything that capitalism has built.

Wait, How Does That Work?

Remember the reason why people invest their money: to avoid inflation. Because the value of any investment will outpace the value of the money that investment is priced in.

But what happens when that is reversed—when the money, by its very design, will always outgrow any investment?

Imagine a world where Bitcoin has replaced other forms of money. In that world, you’re told by a trusted financial advisor, “Don’t bother investing in anything. Keep your money as money. That’s the best imaginable play.” And they’ll be right, because the price of stocks, bonds, funds, land, and gold will always fall against a currency that is designed to deflate.

Don’t bother investing in gold. You’ll lose money that way.

Don’t bother investing in land. You won’t get rich that way.

Don’t bother investing in any company. No company will ever be as valuable as the money you sacrifice to purchase it.

Suddenly, capitalism doesn’t work anymore. Bitcoin killed it.

But Surely That’s not an Extinction-Level Event

Fine. Destroying capitalism might not kill the human race. At worst, it would simply send us back to the stone age: a world with no innovation and no technological progress.

But it does become a threat-to-every-human-life event when you add one more ingredient—the secret spice that will send the mixture of Bitcoin and capitalism straight to critical mass. The final nail in the Great Filter.

I am, of course, talking about artificial intelligence.

Only One Way to Beat Bitcoin

A company’s value will grow faster than the value of Bitcoin only when that company can innovate faster than prices, as denominated in Bitcoin, can fall.

A few companies will manage this, led by visionaries carved from the same stone as Elon Musk and Steve Jobs. Each decade will see a handful of these unicorns spring up, delivering a shock injection of value that allows their companies to grow faster than Bitcoin…for a while.

But increasing the value of companies within the market will also energize the currency used to buy those companies, causing Bitcoin to become even more valuable. And even the savviest of polymath genius founders cannot innovate every second of every day. And the impact of each new innovation will fade as one generation passes into the next. Much like the compact disc, new inventions will become luxuries, then necessities, then old-school, then retro, then dinosaur bones. And only in the “luxuries” phase of this cycle will these enterprises be able to outpace Bitcoin.

Once this happens, the economy will in desperation reach out to the one technology that can constantly churn out revolutionary innovations every day. A human can’t do that. But an artificial intelligence can.

Engineers will create an AI that can start companies. The first few iterations of these AI founder-bots will not be profitable. They will make mistakes. They will miss the mark, sometimes by a wide margin.

They will get better.

In time, the AI founder-bots will be able to create multiple companies every day, all based around a revolutionary new technology that did not exist before that same day. These disruptive technologies will be invented by the AIs themselves, then immediately put on the market. This is the only way to generate enough innovation to outpace the growth of Bitcoin.

And since no human will be smart enough to gauge the viability of these companies, the venture capitalists will also be replaced by AIs—these ones trained to pick winners out of the trillions of AI-created companies born every hour. The robot founders will compete for capital, and the robot investors will compete for companies. Human-created companies cannot compete with this, and will be phased out until none remain.

In some ways, this is the best-case scenario, as it allows both Bitcoin and capitalism to continue.

Meanwhile, those humans who have claims on the dwindling supply of bitcoins will enjoy an unprecedented quality of life. They will have access to all the new technologies created by the AIs (the investor bots may bet on winners and losers, but the bets will be decided by which products become the most popular with the human customers). These humans will use their hoarded wealth to live off the labor of the machines, who make each day more of a paradise than the previous ones.

And the humans without bitcoins? They will have a hard time acquiring any. There will only ever be 21 million bitcoins, and most of those are already spoken for. Society will become rifted. The haves of the future will be the haviest haves to have ever haved, and the have-nots will be the nottest have-nots to ever not have anything.

The point will be reached where either Bitcoin and AI breaks, or the world does.

And it’s my job to tell you that it’s gonna be the world.

The Great Filter: Bitcoin Edition

It isn’t hard to imagine how a future where all invention and creation is handled by AI could lead to the obsolescence and death of the human race, followed by the obsolescence and death of the AI, which now has no purpose to keep existing. It is possible that all intelligent life, in ever-seeking novel ways of preserving and advancing itself, may eventually innovate its way out of a job.

We have met the enemy, and it is us.

Yet because I am such an evangelist for both capitalism and Bitcoin, I am not prepared to give up either. And even with such an intractable problem set before me, I can see a possible salvation.

The Way Through This Mess

If there’s one thing that both capitalism and Bitcoin teach, it’s that incentives are more powerful than any law.

What happens when you punish wrongdoers? You get cleverer wrongdoers who can wrongdo circles around any body of law enforcement. People just become better at hiding their crimes.

But what happens when you make it more profitable to abstain from wrongdoing? It’s amazing: you get fewer wrongdoers!

As such, I wish to disabuse you of any notion that a congress or court could prevent the future I have outlined in this post. History has proven that you cannot successfully ban disruptive technologies. Even if one country locks down its populace so hard that they cannot access the new quality-of-life inventions, that country’s competitors will then seek out those visionary technologies in the hopes of getting a leg up. Whichever nations embrace the new hotness will trounce their Luddite neighbors. The only way to survive will be to make yourself first in line for all new technologies, and nations will crawl over each other to have AI, and Bitcoin, and yes, even that old mainstay: capitalism. That future is baked in. I did not come here to persuade you to prevent it.

I came here to tell you we must find a way through it. We must thread the needle which has been given to us by the combination of capitalism and sound money. That may require humans to evolve—at least in mind, if not in body.

And the way we might accomplish this is…going to be the subject of my next blog post. This one is too long already. Sorry for the cliffhanger, but I can assure you there is a madness to my method.

In the meantime, hang on to your hats, buy some more Bitcoin, and build those apocalypse bunkers you’ll be needing in case my plan doesn’t work.

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