The Information Theory of Value

Every passage, on the record.

1. 00:00Claim

   Those that used new information and leveraged it through knowledge were able to take advantage of it and significantly increase the quality of their life and, more importantly, their wealth, which is the ability to perform transformations; that definition is going to play a key role in what we're gonna talk about today.

2. 00:00Claim

   If you weren't fully allocated before you should have been, that was the wrong decision, you misallocated energy, you didn't generate information that was harder than the alternative, and because of that you suffered: you are now not as wealthy, you cannot perform as many transformations as you could have had you allocated energy in the proper way.

3. 01:30Idea · condensed

   For the moment I'm calling it the information theory of value; I haven't heard anyone else articulate this and I think that I might be on to something.

4. 02:40Claim

   All of the information that I have presented in the past on this podcast is actually getting significantly less valuable, less useful to the end user, because Bitcoin is a finite asset, absolute scarcity for the first time; we've taken the realm of the abstract and, by embedding physical energy in that abstract realm, tied a border around the total accessible supply of energy.

5. 03:29Idea

   The game of life, if you want to win at the game of life, what do you do? The secret is to exchange information, and when I mean information, I mean the physical embodiment of order that can be in products, that can be in ideas, that can be in memes; everything is information.

6. 04:00Claim

   Every piece of information has to be embedded in a physical system, there is no getting around it; you think Bitcoin doesn't have a physical representation, wrong, it's in my head, it affects the physical order of the atoms in my head, and it affects the memory of every single node running the Bitcoin architecture, that is what the miners are doing, generating order by expending energy trying to solve for the block.

7. 04:37Quote

   The information that is output by the tool that is Bitcoin, the network itself, is the hardest information to produce and therefore the hardest information to change, which makes it incredibly valuable, and that is the basis for the information theory of value.

8. 04:37Reference

   A lot of it builds on the ideas of people like David Deutsch and his understanding of good explanations, and good explanations being hard to vary.

9. 05:37Analogy

   Bitcoin is not that: Bitcoin, the map is the territory. In Bitcoin the hardest to vary information mirrors, it is the world, mapped one-to-one; it is the world, the bits are the map.

10. 05:37Claim

    A good explanation has to describe the phenomena that exists in the world around it, but it's never going to do it perfectly accurately because there is a discrepancy between the language being used to describe that information and the physical world itself; Bitcoin's hardest to vary information is not only hardest to vary, it also has perfect accuracy to what it purports to describe.

11. 07:03Reference

    This was the number one breakthrough for me when I read why information matters or why information grows by Cesar Hidalgo.

12. 07:03Claim

    Information occurs when high energy systems are operating in a state of disequilibrium, and because of the second law of thermodynamics, information, which is again order, is fleeting and constantly under attack by a universe that is increasing in entropy at all times; solids let information stay ordered long enough for computation to take place.

13. 08:07Reference

    That is what Alan Turing was able to show, right, that is the big takeaway of computation, that it is also physical.

14. 08:07Analogy

    A good example of that from Cesar Hidalgo's book is the tree: it error corrects in response to changing information of light levels based on the time of year and sun exposure.

15. 08:07Claim

    The computation of information then leads to knowledge, and it leads to a couple of different types of knowledge, but the most important being explanatory knowledge; knowledge is the ability to link information, which is another way of saying exactly what David Deutsch says, which is knowledge is information with causal power.

16. 08:07Claim

    The utility of knowledge, why it's valuable, is that we can build on previous information so as to leapfrog previously required steps, and this is what allows information to grow; humans are unique in that we can encode large quantities of information outside of our own bodies through the knowledge process, things like writing, music, art.

17. 09:37Reference

    Information growth leads to the extended order's ability, the extended order being the hive mind of humanity, right, this is we are the colony of ants, there is a direction that this colony is under that is the extended order.

18. 09:37Analogy

    We are the colony of ants; information growth leads to that hive mind's ability to then wield more energy usage as we become more efficient than a single person ever could.

19. 09:37Claim

    Because you have corporeal limits, this is the person-byte idea: a single person is limited in the amount of information they can compute and act upon; a single person simply can't remain solid long enough to compute anywhere near the volume that the extended order produces even on a daily basis.

20. 10:52Claim

    Information has to be broken down into smaller packets which can then be joined with others so that the whole picture becomes complete; this is the notion of specialization in economics, knowledge and know-how need to spread to attain peak efficiency in the hive mind.

21. 11:27Analogy

    The earth occupies a unique place amongst the universe: as a black hole is for gravity, the earth is for information. Information has skyrocketed, the generation of information and knowledge has skyrocketed, and it continues to go up.

22. 12:06Claim

    Earth is a black hole for information, which means it's attracting or transforming a tremendous amount of energy; more energy is good for the continuation of the game of life, and life itself, this order process, in reality is due to matter's ability to compute.

23. 12:54Claim

    If information is physical order then any product is information; when we share products with one another we are sharing information, and through that consumers are able to use the knowledge and the know-how of a vast number of people that they will never meet when they use a single product.

24. 12:54Quote

    We can think then of products as capacity amplifiers.

25. 12:54Claim

    Consumers demand products that enhance their own capabilities; with products we're able to create further order, more generation of information, which leads to more knowledge to control the environment and the information around us, and as products become more complex the ability to share the large amount of information necessary for that product to exist over the extended order becomes more and more important.

26. 14:25Prediction · condensed

    A network using Bitcoin can operate more efficiently than one that relies on a trust-based system: the stronger the network, the smaller the information packets can be divided up amongst the members, and smaller information packets lead to more innovation as they offer more opportunities to rearrange pre-existing information in new and novel ways.

27. 14:25Claim

    Bitcoin offers trust, or rather removes the need for trust, because of its emerging properties; it also removes the ability for a small minority of individuals inside of that network to add noise to the signal of information, and once the rules are agreed upon there's no way to break the rules and still be using Bitcoin.

28. 15:30Prediction

    Bitcoin will incentivize knowledge by rewarding those that crystallize our imagination; creativity is problem solving, problem solving is error correction, error correction is the creation of more order, replacing information that is easier to manipulate with information that is harder to vary.

29. 16:11Claim · condensed

    In a Bitcoin world products benefit both the users and the knowledge creators: the information generated by the product will be rewarded via the information growth resulting from the product, and all the product creator has to do is store the excess reserves he or she receives into Bitcoin.

30. 17:12Claim · condensed

    By storing the excess in Bitcoin the creator is pledging that information back to the economy as a whole and refusing to consume the energy they themselves made available; this increases the energy reserves the extended order has access to while they maintain ownership over their own actions, so their wealth increases as the total accessible supply of energy inside the system they are part owners of increases.

31. 18:03Analogy

    Everything is information constantly changing around us, like water in a stream; what's useful if you want to control the water in the stream is having a stone, or a series of stones, that you can drop that is immovable. Everything else has to adapt to it because it is the information that is hardest to vary.

32. 19:13Analogy

    Armies that are easier to change or to manipulate lose to armies that are less likely to incur information loss, order loss; energy and information are channeled to increase entropy at a level and thereby decrease entropy at a higher level, while the entire time increasing entropy at the highest level, that is the funnel that is occurring when you think about physical force.

33. 19:13Claim

    We generate information that lasts by using the best information we have up until that point; we've never had information that was immutable until Bitcoin. Remembering harder information is better, there's more order and more permanence in that order, which means we can build more and more complex technology, which makes us more efficient.

34. 19:13Quote

    Remembering harder information is better. There's more order and more permanence in that order, which means we can build more and more complex technology, which makes us more efficient.

35. 20:33Idea

    The information theory of value, it's a comprehensive framework designed to quantify the value of assets by integrating multiple dimensions of information and resources; unlike traditional theories that focus primarily on factors like labor, utility, market demand, the information theory of value considers the information content, the energy expenditure required to alter or process that information, security, and the potential to generate future information associated with an asset.

36. 20:33Claim

    The information that is built on top of the hardest information, which is the bits in Bitcoin, that is the hardest thing to vary; there's no information in the world that is harder to vary than Bitcoin, and if that's true, that provides the foundation that everything else is built on top of.

37. 20:33Quote

    There's no information in the world that is harder to vary than Bitcoin.

38. 21:53Quote

    Everything else must bend its knee to those bits of information, those zeros and ones that make up the information on the Bitcoin network.

39. 21:53Claim

    The entire game of life is exchanging information that is easier to vary with information that is harder to vary, that's how you win, how you lose is you go the opposite direction; the Bitcoin holder is growing wealthier and wealthier with every passing block because they are choosing not to perform the transformations themselves that are being made available to them.

40. 22:44Claim

    One of the main concepts here is information closely aligned with physical reality, that's to say hard to vary information that leads to more reliable and valuable computations, generating greater future information, because the future information is going to be better if it's built on top of information that we know is the most difficult to change.

41. 23:45Reference

    You've got things like the labor theory of value, which is the one classical economists use, Adam Smith, which was then later developed by Karl Marx, the labor theory of value is basically the value's determined by the amount of socially necessary labor time invested in an asset's production.

42. 23:45Reference

    The labor theory of value, which is the one classical economists use, Adam Smith, which was then later developed by Karl Marx.

43. 24:20Reference

    Then you've got the marginal utility theory of value. You've got this objective theory of value, you've got the cost production theory of value.

44. 24:20Claim

    All of these other theories are trying to set up a hierarchy so that we can understand how to allocate energy, because the more intelligent we can allocate energy the better off we're going to be; the best way to allocate energy right now is to plug it into Bitcoin.

45. 24:54Analogy

    You wouldn't know that a bridge was valuable if you couldn't see the bridge and you just saw people floating over the thing, it'd be hard when you were building the bridge to say this is actually going to be useful, we can get people from A to B not using the boats anymore, using this magical invisible bridge. Once the thing is built and people can just walk over nothing, well then you go, okay, that's the bridge.

46. 26:06Quote

    This mathematical formula is not perfect, right, it's kind of dogshit, but the theory comes first then we figure out the rest of it and the theory I think holds true.

47. 26:06Claim

    Information content, which you would write as uppercase I, measures the original amount of information embodied in an asset, and this can be quantified in bits: think of it as the foundational data that makes up the asset, for example the source code of a software application or the design specifications of a product.

48. 27:11Claim

    Energy expenditure, which we could label as E, calculates the total energy required to produce, to maintain and secure the asset, measured in joules, for instance the electricity consumed by servers hosting a digital platform or the energy used in manufacturing a physical product.

49. 27:11Claim

    The difficulty of alteration assesses how challenging it is to change or tamper with an asset's information, the physical order of the information; the Bitcoin time chain has the highest ever difficulty of alteration, making it incredibly secure and resistant to changes.

50. 27:11Idea

    The information multiplier, this really is the heart of information theory of value. This represents the cumulative future information generated from the original asset; you can think of this as a proxy for the quality of the information, so the more stuff that is built on top of the foundation laid by the original piece of information, the more useful it's going to be.

51. 27:11Analogy · condensed

    There are examples of this in academic research, something like bibliometrics, where you can make a map of how impactful research papers have been based on how much they've been cited.

52. 28:32Reference

    Think of an idea like E equals MC squared, think of how many things are built on top of that; if you were going to calculate how valuable that particular piece of information is, it's incredibly valuable, not for the amount of bits that it needed to encode that information or the energy spent encoding that information, but for how much more information can be generated because of that initial information state.

53. 29:26Claim

    The quality factor is the area of the theory that needs the most amount of work; this measurement would quantify the significance and the utility of the information beyond its mere quantity, encompassing attributes like novelty, accuracy, relevance, a software library that is not only widely used but also highly reliable and efficient would have a high quality factor.

54. 29:26Claim

    Value per bit and value per joule assign economic value to each bit of information and each joule of energy expenditure respectively; they help translate the abstract components of the information theory of value into monetary terms.

55. 30:40Claim

    Information that is hard to vary and difficult to generate, and that serves as a platform for more information to be built on top of it, is the most valuable, because if it cannot change every time it's interacted with, whatever is on the other side of that collision by definition has to change.

56. 30:40Open question

    So you're saying there's a formula that you can use to plug all this stuff in and actually spit out a number on the other side that says how valuable something is? Sort of, sort of right, but what I can definitely say is I can definitely state the concepts of the theory rather than the specific formula.

57. 32:03Claim

    If we go off of something like David Deutsch's good explanations, valuable knowledge consists of explanations that are hard to vary without losing their explanatory power; the immutability of information in the time chain represents a hard to vary explanation that serves as a reliable foundation, and this immutable information embodies knowledge that is resistant to corruption, making it exceptionally valuable.

58. 33:03Claim

    Progress occurs through the creation of new knowledge and the correction of errors; immutable information systems solve the problem of trust and security in value exchange by providing a reliable and tamper-proof foundation.

59. 33:03Claim

    As information becomes more compressed and more stable it gains value by serving as a robust foundation; knowledge then forms as information with causal efficacy that enables systems to adapt, to innovate, and to create more efficient pathways for generating order, and that contributes to the universe's complexity.

60. 33:51Claim

    From a scientific standpoint these processes are intrinsic to how life operates under the laws of physics and biology: organisms survive, adapt and evolve within their environments by importing energy and exporting entropy, life creates and maintains order, and from genetic codes to human knowledge, the production and refinement of information is core to life's progression.

61. 34:31Reference

    You can see this in Jason Lowery's work as well, the idea of a state machine that rather than is getting easier to manipulate, easier to change the state of, it's getting more difficult.

62. 34:31Claim · condensed

    The way that a state machine like this would provide benefit is by being the foundation for which all other information is built on top of, because it cannot change; durable foundational information facilitates further complexity and innovation, and that's the whole game.

63. 35:05Open question

    The main problem in coming up with the numbers for the theory is the information multiplier, which is very difficult to predict; it's much easier to look back on and say aha, E equals MC squared is going to be responsible for these things, but looking forward, if you had that knowledge, it would already be in the past because you would have already come up with it.

64. 36:21Claim

    If you're trying to exchange between information that is easier to vary and information that is harder to vary, you want to get all the way until the end, till there's nothing else that is harder to vary, because that affords you the most wealth, since you can then perform the most amount of information transformations, you have the thing that transforms everything else.

65. 37:27Prediction

    Bitcoin is going up forever against everything else because everything else is a shitcoin and it's easier to vary than Bitcoin, so I won't be wrong in that.

66. 37:27Quote

    I could be out of my fucking mind, absolutely 100% possible, but Bitcoin is going up forever against everything else because everything else is a shitcoin and it's easier to vary than Bitcoin, so I won't be wrong in that.