Bitcoin is not a useful proxy for work

4 out of 5 capitalists prefer bitcoin over dollars for the business of wealth transfers without informed consent.

Photo by Kanchanara on Unsplash

This morning, I made the mistake of reading Why Bitcoin is Going to Zero, by

Alejandro Yela

. My mistake was reading it when I should have been sleeping. It’s a very thought provoking article. Not something to read if you want to go to sleep. I found no disagreements whatsoever with any of the points made in the article.

But my mind wanted to explore the issue of trust. The premise of Alejandro’s article is that if the encryption used to make bitcoin safe is cracked, then we lose trust in bitcoin. If we lose trust in bitcoin, the value of bitcoin falls, possibly close to zero.

We have been trying without much success to treat bitcoin like money, like a medium of exchange. But the dollar gets in the way. The dollar makes it hard to trust bitcoin because the dollar is a proven medium of exchange. The dollar is money. Bitcion is an investment vehicle.

Money is a useful proxy for work. Scarcity may help to maintain the value of any currency, but ultimately, the only reason we keep money in the bank is because we expect other people to work for it. That’s trust.

We can abstract the value of money into all kinds of investment systems, but down at the bottom, someone who lacks money must be willing to work for money to give our investments any value. The owner of money expects the work of other people to support the value of money.

But what about supply and demand? Shouldn’t scarcity give money value?

Supply and demand are proxies for trust in currency. They do not actually give money value. What gives money value is still work. If the money supply is too large, or the demand is too low, there isn't enough trust in the currency to convince people to work for it.

Work is the only thing that gives money any value, no matter the currency or venue. No matter the supply or demand, if people don't work for your currency, your currency has no value. There is no point in keeping it.

Our money says, “In God We Trust” because money is about trust.

People will work for money as long as they trust it enough to get their needs met. At the bottom, every exchange of money is a prayer that our needs will be met.

We trust that we can use our money to buy food when we’re hungry. To buy shelter when we don’t want to live on the street. To buy a car when we don’t want to walk.

In every use of money, there is an exchange of work for currency. There is no other exchange, there are no exceptions.

If I buy an apple at the market, I am buying work. The apple was cultivated on a farm. That’s work. The apple was transported to a market. That’s more work. The apple was stored and protected at the market. That’s also work. When I exchange my money for an apple, I’m buying work. Sunlight is work.

Yes, I eat the apple to satisfy my very real need to sustain myself, but a lot of work was perfomed to produce that apple. And so far, I’m just talking about the direct costs of producing the apple. I have not even touched all of the indirect costs of producing that apple.

A regulatory regime is an indirect cost of producing that apple. There is governance at every step of production, from land maintenance, seed sourcing, chemicals applied to the apples, packaging, inspection, quality control, accounting, and every aspect of every business along the way to make the apple appear on a stand in a market, for me to buy. And I still have to get there, to the market to buy the stuff I need to eat.

All of that is infrastructure. Much of that infrastructure is public infrastructure. Public infrastructure helps us get our needs met without having to beg for it. Public infrastructure, by its very nature, should lower the cost of living.

Money is public infrastructure. Money must be public infrastructure in order to trust it enough to work for it. Money must be transparent enough for us to trust it enough to work for it.

So I’m watching the value of Bitcoin rise in relation to the dollar. It’s now selling for $114k per coin. Does anyone really work for bitcoin? Does driving up the value of bitcoin in relation to the dollar produce any we can use? Does that make us happy?

How many mouths have been fed by bitcoin? How many people have found shelter with bitcoin? How many kids have been sent to college with bitcoin? I can assure you that those numbers are incredibly small.

The value of bitcoin appears to be a useful proxy for discretionary spending. The value of bitcoin is not determined by how many people are getting their basic needs met right now because the only people who can afford to buy bitcoin are spending money they don’t need to use to pay rent.

People who buy bitcoin are not concerned with their next paycheck. They are only concerned with the number after the dollar sign or the bitcoin symbol.

The people who “invest” in bitcoin have enough money that they can afford the risk that the value of bitcoin might fall to zero dollars. They are seeking another avenue for extracting value from work.

In the case of bitcoin, the work is done by CPUs in data centers around the world, in a network that most of never really touch.

People who accumulate bitcoin see the value of bitcoin in relation to the dollar or some other terrestrial currency like euros, yen or Chinese yuan. In a sense, we could say that people who own bitcoin are seeking money for nothing. Why?

If I use a CPU to process bitcoin day and night, I’m redirecting processing power that could be used to work for other people. Bitcoin is very, very selfish. It is fair to say that the people who hoard bitcoin are also very, very selfish. And down there, at the bottom of their consciousness, is an expectation that someone else will work for bitcoin.

People who accumulate bitcoin are focusing their attention on bitcoin, not on the needs of other people. Their attention is on an abstraction. Money is an abstraction of labor. Labor is performed by people.

When people perform labor of any kind, they are focusing their attention on the work. I’m not sure that people who own bitcoin understand this part of their relationship to people who do not own bitcoin.

If the value of bitcoin falls to zero, that might help us to redirect our attention to doing the work required to ensure that the needs of other people have been met. Other people will not work for bitcoin unless they can be sure they can get their needs met. If people cannot be sure that working for bitcoin will ensure they get their needs met, they will work for something else.

I think in terms of power and labor. I think in terms of who is making someone else do what. When I think about money, I find that the only reason to hold money is an expectation that someone else will work for it. There is no reason to hold money without that expectation.

Yes, there are other reasons to hold money, but all of those other reasons rest on the first one: work. If no work is done for money, there is no reason to hold it.

So if I hold an extraordinary amount of money, and I find that paying people to do work with a tiny fraction of my money makes it feel like they’re doing the work for free, then I’m interested in something else besides a free market. I’m interested in slavery.

So I offer a thought experiment. Can we identify a reason to hold money without an expectation of work from other people? I don’t think it can be done.

After all the diversions of investments, calculations, sports bets, and what have you, if you’ve increased the amount of money you have to a newer, higher number, without any useful work, you’re still expecting other people to work for you, for free.

I’m beginning to think that entire exercise of bitcoin is to make other people work for free. I’m beginning to suspect that the purpose of money is slavery.

If I find a way to increase the amount of money that I have without doing any meaningful work, perhaps I’m engaged in the business of slavery. If I don’t create something other people can use and I increase the number of dollars in my bank account, I’m probably engaged in the business of slavery.

As long as we agree to work for money, and I find ways to make other people work while increasing the number of dollars I have without working, I’m engaged in the business of slavery.

I don’t know any other way to reduce money, or anything we use for a medium of exchange. Currency is too easy to manipulate. Labor is not. Either you do the work and can prove it, or not. If you can’t prove work was done for money, we have inflation and slavery.

I think if we get clear on the reason we hold money, we might find a saner path to peace.

Write on.