Independence Reimagined Chapter 11: The One Shot Principle
This is a part of the Bitcoin Infinity Academy course on Knut Svanholm’s book Bitcoin: Independence Reimagined. For more information, check out our Geyser page!
The One Shot Principle and The Always Up Point
Who am I to conjure up theories about macroeconomics? I have no financial background, and even though I’ve probably studied mathematics more than your average Joe, that was a long time ago, and I’m hardly an expert at anything, really. Well, if there’s one thing that Bitcoin has taught me, it’s how scarce my time is and that I won’t be able to excel at anything if I don’t have skin in the game. Everyone is new to Bitcoin, and everything in economics is speculative. John Cleese, one of my favorite human beings of all time, has said that it seemed like the main goal in life for everyone in his hometown of Weston-super-Mare was “to get safely into their coffins without ever having been seriously embarrassed.” This phrase struck a chord with me. After having discovered Bitcoin and, in doing so also having discovered new ways to think about scarcity and time, I’ve decided to not hold my brain back any longer but to put my thoughts out there, where they at least might ignite a spark in someone else’s mind. Standing on the shoulders of true giants, here’s my take on an economic theory and an explanation of the specific event that it implies.
The One Shot Principle:
Absolute mathematical scarcity achieved by consensus in a sufficiently decentralized distributed network was a discovery rather than an invention. It cannot be achieved again by a network made up of participants aware of this discovery since the very thing discovered was resistance to replicability itself.
Absolute scarcity on the Internet was long believed to be impossible because of the very nature of data. Ones and zeros that could be copied an infinite number of times weren’t believed to be capable of representing something as uncompromisingly finite as Bitcoin’s 21 million coin issuance cap. That is until Satoshi Nakamoto showed that the double spending problem could be solved by giving every participant in the network a reward for following the rules and making sure that every other participant also did so. In doing this, and then disappearing at an early stage of the network’s development, he gave enough participants hope that the decentralization experiment could actually work and created a living thing that feeds on human incentives.
The rise of Bitcoin was a true black swan event, and it cannot happen again. A competing token would need to be sufficiently different from Bitcoin in order to achieve true decentralization because it would be trivial for any big player to completely dominate this new coin, and there would be no way to introduce it to the market without a skewed initial distribution. A competitor would need to differentiate itself so much from Bitcoin that when push came to shove, it wouldn’t be a competitor at all.
More importantly, if a “technically superior” or “more efficient” token one day renders Bitcoin a thing of the past, the whole concept of absolute scarcity on the Internet can be considered a failure because there would be no guarantees whatsoever that this new token wouldn’t suffer a similar fate at some point in the future. Users would no longer stand to gain anything from saving their Bitcoin, but contrary to this, they would be incentivized to spend and acquire new, alternative tokens. This would destroy the only true value proposition of Bitcoin, its scarcity, and deprive any future attempt at creating decentralized currencies of any legitimacy. This is the main reason that blockchains other than Bitcoin’s blockchain are counterproductive and confusing to a lot of newcomers, especially since a lot of Bitcoin proponents don’t seem to understand this fully themselves.
Hal Finney, the man who received the first ever Bitcoin transaction from Satoshi Nakamoto, definitely understood, though. He said the following in May 2011:
“Any successful replacement of the Bitcoin blockchain will forever undermine the credibility of any successor. How can an investor know that it won’t happen again? Rebooting now may benefit a few thousand early adopters. What happens when hundreds of millions use Bitcoin 2.0? They’ll be just as jealous and envious of you as you are of others. Given the precedent you want to set, how will you argue against yet another reboot?”
For those of you who don’t know, Hal was one of the people closest to Satoshi and a monumental part of Bitcoin’s early history. He believed that “the computer could be used as a tool to liberate and protect people, rather than to control them,” and some people even believe that he was the man behind the pseudonym. This would explain why Satoshi went silent in 2011 since Hal fully lost control of his locomotive functions around the time of Satoshi’s disappearance because of the Amyotrophic Lateral Sclerosis disease he suffered from. The disease eventually bereft him of his life on August 28, 2014. Hal’s body is cryopreserved and poised for resurrection as soon as this has been invented. Any day now…
The Always Up Point:
The Always Up Point is a highly theoretical, albeit logical, conclusion of what one deflationary currency competing with nothing but inflationary currencies might ultimately lead to. The Bitcoin block subsidy, which is the newly-minted-coins part of the block reward, is halved every four years, resulting in an ever-increasing stock-to-flow ratio1 of the asset. At some yet unknown point in the future, Bitcoin’s unmatched stock-to-flow ratio combined with enough people who aren’t willing to ever sell their Bitcoin, also known as* hodlers of last resort*, will make Bitcoin so hard to come by that it can’t lose value. In other words, a point in time from where the price of a Bitcoin can only go up. This might sound outlandish, but keep in mind how far off in the future such a point may be and that all other currencies on Earth are inflationary, including gold. The comparison to other currencies is sort of misleading in this case since Bitcoin’s monetary properties are so vastly different from what we’ve seen in the past.
Absolute scarcity means that one day there will only be 0.00000001 Bitcoin (or one satoshi) left in circulation. This satoshi will probably be worth more than an original painting by Leonardo Da Vinci, of which there are about thirteen left today at that point in time. It will simply be immeasurably valuable as a collectible. Not for sale at any price. The Always Up Point would theoretically happen a long time before this. Sometime between now and when all of the Bitcoin is lost, there’s a tipping point where it becomes pointless to talk about Bitcoin’s price in dollars, euros, or yuan, but the Always Up Point would precede that event, too. These two points may be closer to each other than they are to the present, or the point where there is no Bitcoin left, but no one can know for sure how far off, or close, these two points really are.
The Always Up Point may sound like total science fiction, but try to think about these things without coming to these conclusions eventually. I bet you can’t. There is, of course, always the possibility that Bitcoin may fail for one reason or another, but if it doesn’t fail, these events are bound to happen and are not fictional at all.
1. This concept is explained in the Laws and Effects chapter at the end of this book.
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 Nostr, 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.
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