The Breakdown - Where Bitcoin Fits in a Post-Scarcity World

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, October 31st, Halloween. I didn't read Satoshi's white paper this year because I think I did that last year, and I can't do it every year. But if you want to do a Satoshi-themed episode, I think either of the last few years at the podcast, have them. So go check it out and let me know what you think. But for today's Long Read Sunday, I am reading something big-minded, something kind of macro and about the future and about the larger

Starting point is 00:00:48 context that we're all operating within. The piece is by Paul Brody, who is the head of global blockchain at EY, and a regular coin desk columnist. And he wrote a piece called We Are Already Living in a Post-S scarcity world. More and more of what we consume has an effectively infinite I think this is a supremely important context for everything that we're doing over here in the Bitcoin and Crypto World, so let's read this piece. One of the most hotly debated topics in the world of blockchain and economics today centers on inflation and interest rates and the future of the economy. Quite a few people believe the case for investing in some cryptocurrencies is built on the

Starting point is 00:01:27 likelihood of future inflation, something they see as a near certainty given the combination of low interest rates and quantitative easing. Given that interest rates represent the cost of money, interest rates that are near zero imply that money is, in a sense, free or very nearly free. Consequently, there's a risk that people will use too much of it, leading to inflation as consumers chase a limited supply of goods, in turn reducing their value as prices rise. But what if that calculation is wrong in many cases because there isn't a limited supply of goods? If you live in the San Francisco Bay Area, as I do, electric cars and self-driving test vehicles seem routine these days.

Starting point is 00:02:01 If you live in China, you probably haven't used cash for ages. It's not just that some geographies are farther ahead than others. Some parts of our lives are as well. Instant access to nearly every piece of music ever made? Check. Quick visit to the Department of Motor Vehicles? Probably not in my lifetime. While progress may be uneven, it is increasingly clear that many of us are starting to live at least partially in a post-scarcity world of unlimited supply. Futurists have talked about this possibility for so long, and it has seemed so far away

Starting point is 00:02:28 that we may be failing to observe its slow but steady arrival. In science fiction, this abundant future is often shown as a place of unlimited physical products, but it's actually arriving as an era of unlimited digital services, and even cheaper but not free products. As a result, the future is sneaking up on us nearly unnoticed. For all of human history, scarcity was the condition where we lived. Scarcity of food, shelter, warmth, education, whatever it was, there was never enough of it to go around.

Starting point is 00:02:54 For many, the world looks different today. More and more of what we consume has an effective, infinite supply. There is a seemingly unlimited supply of short-format videos. No matter how much you watch, you can never consume them all, and nobody else is being deprived. Digital goods have a unique property and that they offer a truly infinite supply at zero marginal cost. But even other products and services are slowly but surely headed in the same direction. Though the cost of a new television or a house may never be zero, they are headed forever lower thanks to continuously rising worker productivity. In many cases, they will eventually be so inexpensive as to be, for all practical purposes,

Starting point is 00:03:28 free. Additionally, the zero-cost element of digital technology is gradually impacting every other industry. Gasoline-powered cars are complex mechanical systems where thousands of little gas explosions each minute propel you forward, and they depend upon fuel made from dead dinosaurs. Electric cars, on the other hand, are practically smartphones with batteries and wheels, where much of the value comes in the form of software, which, again, has zero marginal cost. The energy used for these electric cars can come from the sun, which is apparently good for another few billion years. A zero-cost market may seem like something new, given that the digitization of our economy has significantly accelerated how consumption works in the last 50 years. But, if you zoom out far enough, there

Starting point is 00:04:06 is some compelling new evidence that this trend towards ever lower costs of everything did in fact start a long time ago. How long ago? About 800 years, according to a recent paper by Paul Schmelzing, a visiting researcher at the Bank of England. Typical interest rates of around 15% in the 1300s have given way over centuries to real interest rates close to zero. If Schmelzing is right, the current bout of free money isn't a temporary situation brought on by a global recession and a pandemic. It's going to be a permanent feature of the global economy going forward. And if that is true, we might want to start thinking about what the world looks like in that post-scarcity future. If money is free and low interest rates don't fuel inflation in many segments of the economy,

Starting point is 00:04:45 then perhaps giving it away to lots of people all of the time is a perfectly reasonable idea. Nighting sponsors this podcast and they are the go-to Bitcoin Company for banks and credit unions, as well as corporate treasuries, fintechs, and hedge funds. Learn more at nidig.com slash nLW. That's nydig.com slash nLW. The consequences of this shift could be large but unpredictable. While scarce physical goods facing supply chain bottlenecks are rising in price, many digital products and services face no such capacity pressure,

Starting point is 00:05:26 making them even cheaper by comparison. That might mean a shift towards even more digital consumption. Alternatively, it might also mean more and more of the money that is available is going to be directed at things that really are scarce, leading to accelerating price increases in other areas such as real estate. By land, the saying goes, they're not making any more of it. A post-scarcity world is arriving, and it's time we start adjusting our view of the economy, and, along with it, the value proposition of all of our technologies. Blockchains, which can only exist thanks to a near-zero cost of computing, are set to become one of the main mechanisms

Starting point is 00:05:58 for efficiently managing scarcity. The role of this technology and the future of our economy looks pretty secure. So this will strike some of you as an odd piece for this moment. We're living in a period where the price of food is increasing. There are major shortages of goods that rely on semiconductors, which turns out to be basically everything. Chips aren't just reducing the supply of consumer electronics like iPhones, which is an absolute first for Apple, but are also limiting our access to things like cars. Inflation seems to be a major feature of this environment. So what is the deal with all of this talk of a long-term shift to abundance when the scarcity of these items aren't really available? I think we get trapped in dialectics of this or that. Are we dealing with

Starting point is 00:06:49 inflationary scenarios or deflationary scenarios? It's the battle between the Jeff Booths and the Jack Dorsey's as we just discussed on yesterday's show. I think it's possible that multiple forces are pushing the world in different ways simultaneously. The long-term deflationary pressures that are identified in this piece by Paul Brody, and that were identified by Kathy Wood and others like Jeff Booth, big prominent Bitcoin or Jeff Booth, are facts of life in the modern world. Technology pushing prices down to zero, for example. But there are also massive complex distribution networks that change the way those things are available and to whom and to how. complexities of those issues, like the supply chain issues that we're living in right now and have been for the last couple years,

Starting point is 00:07:36 change the short-term and even medium-term picture in dramatic ways. I think it's healthy to try to hold these two things together. One, because it's less likely that we're going to be caught off guard by either one side happening, but two, because we can look at the way that countervailing forces interact, and it will be, in fact, those countervailing forces interacting that sets the tone for much of the economic reality that we're going to face over the next flight. or 10 or 50 years. Now bringing this, however, to this question of blockchains and Bitcoin specifically, this idea of digital scarcity. I think one of the things that is really interesting is that people will often say Bitcoin isn't scarce because you can just fork it. Bitcoin may have

Starting point is 00:08:17 only 21 million of that type of Bitcoin, but one, why can't people just change it? And two, why can't you just fork it? Let's talk about the fork side first. This was potentially a credible question in the middle of 2017 as the block size wars were heating up. What has happened subsequently is that the market has proven aggressively, clearly, and profoundly that there is a Bitcoin, one single Bitcoin, and that is a Bitcoin that is built around 21 million Bitcoins ever being released. Period. Full stop, end of story. This is interesting because it shows that scarcity in the future, scarcity mediated in a digital world is going to involve two components at least. The first is programmatic scarcity, mathematically reinforced scarcity, scarcity built into the rules

Starting point is 00:09:08 of the program that runs the system that we're discussing. The second, however, is socially enforced scarcity. It was the market and the community of people around Bitcoin that determined ultimately, whether the one Bitcoin that was mathematically and programmatically scarce was, in fact, also going to be socially the winner, and thus socially scarce as well. Some people may take umbrage with this, but social systems that reinforce belief have been a key part of human existence forever. It's just that they are now being applied to a new type of digital economic resource. The point of all of this is I would encourage all of us, especially Bitcoiners, though, to dig deeply into these arguments about abundant futures. Not with an eye to dismiss

Starting point is 00:09:52 them and talk about our pods and eating bugs or anything like that that we love to meme about so much. But by the way, keep meaming about it. It's the thing that keeps it in check. But in the context of really trying to understand what the value of Bitcoin is even in something like a post-scarcity future. What function does it have? Is it a mechanism, for example, of distributing value in a post-scarcity future in a way that is more equitable than the systems we have now. I think there are a lot of really important conversations to be had within that, and I appreciate Paul's essay as a starting point, and I hope you had fun thinking about this as well. It's a topic that I'm sure we're going to discuss more, and so until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - Where Bitcoin Fits in a Post-Scarcity World

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