Opportunity Cost

Every passage, on the record.

1. 00:42Claim

   Why can't we know what the true opportunity costs are of our past, present and future decisions? This is such a massive concept that I think the majority of Bitcoiners are sleeping on. I know the fiat world is oblivious to the power this problem carries, and that's because they can never provide an actual answer.

2. 01:19Claim

   The system prevents anyone who's inside the system to accurately measure such a thing. So then naturally, why would anyone talk about it? If we have a problem that doesn't have a solution, then why would we waste any resources considering what the solution might be. This was true up until Bitcoin.

3. 01:50Reference

   I have done an entire episode on the background of opportunity cost, why it's important, what it actually means in energy terms rather than fiat, economic think-speak. If you're interested in hearing more, you can listen to episode number 69, the missing variable.

4. 02:23Claim

   Opportunity cost is the cost of an opportunity foregone and the second best alternative, the cost of the next best alternative that is given up in order to pursue a certain action. The study of economics is built around the idea of analyzing trade offs, we have scarce resources and we want to make the best use of those resources possible.

5. 02:55Claim

   If we are informed, we can make better energy allocations because we can more accurately project what the results of option A over option B might be in the real world. This kind of calculation is imperative to our evolution and to life itself, a very low cost strategy on an energy scale versus the actions that follow.

6. 04:01Claim

   The less information we have on a given system, the less energy we can transform using that system, the more information, the lower the entropy, which increases the potential energy available to us. Bitcoin provides information which we know to be true, and that just so happens to be the best kind of information, which cannot be provided by the legacy system.

7. 04:32Analogy

   Take Bitcoin itself as an example, you can think of Bitcoin as a monument in the digital realm, just like the great pyramids in the physical realm. Take one look at them and instantly we as human beings are struck by just how much energy was necessary to create such a structure.

8. 05:42Claim

   Have someone look at Bitcoin's code and there is almost no connection to the amount of energy necessary to create the protocol. In fact, it might have taken more energy to make Bitcoin. Remember that information is energy, it is data that has been processed. That processing requires energy. Without it, there's nothing but ones and zeros.

9. 06:16Claim

   As this information builds over time, we're able to transform more energy from the system itself. Satoshi had to have access to all of this information that was processed not by himself, but by those who came before him. Armed with that information, he was able to generate a tool that made us exponentially more efficient.

10. 06:47Quote

    Bitcoin is the largest monument to life that has ever existed.

11. 07:20Claim

    The most important thing is, does Bitcoin provide more information than the current fiat regime or less? This will tell us how useful Bitcoin is. If it does provide more, that means we can use Bitcoin to transform more energy from the extended order as a whole.

12. 08:02Idea

    By providing an economic constant, by capping the supply at 21 million units of TASO, of the total accessible supply of energy inside the Bitcoin economy, the closing of the circle of possible energy supplies means we can now accurately gauge opportunity cost for the very first time.

13. 08:38Analogy

    If I know nothing about cars, I just know how to drive a car, I have limited information on what actually makes a car work. When the car stops working, am I going to be able to deal with it by myself? Probably not, and I lack information on what makes the system work.

14. 09:08Claim

    There are no gatekeepers of information in Bitcoin. The system is completely transparent. Everyone knows everything at all times. The speed at which new information is spread through the system is almost instant and fast enough to not give an advantage to anyone trying to game the system.

15. 09:38Claim

    The hard cap and absolute scarcity make this possible. Bitcoin's instant settlement on layer twos like Lightning, its near zero transaction costs and its ability to be divided into, at this stage, 100 million sets, plus the fact that anyone can use the system, means markets will spring up at any value level where there are energy efficiencies to be had.

16. 10:15Prediction

    These markets are not possible where a middleman is required for exchange and settlement, the efficiency gains would be swallowed by the fees alone. More likely it's going to be artificial intelligence systems that have found a niche that they can deliver value in, and it can happen at lightspeed anywhere in the world between any two entities regardless of trust in one another.

17. 11:33Claim

    It looks so unimaginable that an opportunity cost could be so high, and the ramifications of a decision to not plug your energy into Bitcoin are so drastic that it doesn't seem realistic. Bitcoin actually has a problem in that it's too efficient at the moment for looking after your energy reserves, but that will not last forever.

18. 12:05Prediction

    Eventually the opportunity cost of plugging your energy into Bitcoin will not be as extreme as it is now. Once that window closes, the question is then what will the system look like going forward after hyper Bitcoinization, after everyone has understood just how much was left on the table.

19. 12:36Prediction

    My prediction is that it will lead to an open market for everything at all times. Know what energy you could be stepping into, should you so decide, and therefore which energy you are deferring by continuing to do whatever action it is that you're currently doing.

20. 13:08Claim

    It is the development of these market systems, again impossible before Bitcoin, that will see efficiency truly skyrocket to levels now unimaginable, by removing the friction points caused by middlemen.

21. 13:42Analogy

    The big buildings in all the clown cities around the world exist because they are hubs of some exchange, they siphon some small amount of energy off of every exchange by making the market. This has been true in every energy category since the dawn of civilization.

22. 14:17Quote

    The signs of the success of this model litter the skylines of every major hub in the last 500 years. The bigger the skyline, the more middlemen there are.

23. 14:50Claim

    Bitcoin will allow the energy that gets diverted to these middlemen to be severely restricted because there is no trust necessary when using Bitcoin. Usually it is middlemen, not middleman, two trusted entities standing between two entities that don't know one another and therefore don't trust one another.

24. 15:59Analogy

    All this energy just sitting there stagnant, like water that doesn't move, this pool of energy starts to go bad. eBay comes along and removes that friction. This unlocks a tremendous amount of energy that was previously inaccessible, in spite of the various middlemen involved.

25. 16:31Claim

    By leveraging a new domain, eBay is able to provide value through a boost in energy efficiency. Still, there's a limit to what you can do, and a big one is trust. The seller's bank or payment provider communicating and trusting the buyer's bank or payment provider means there will be a fee for this.

26. 17:14Claim

    If there's a fee for this, then that means there is a floor for efficiency that eBay cannot access below. To access this sub-fiat floor market, we need to eliminate trust while at the same time having a unit of account small enough to track these efficiency increases.

27. 17:49Quote

    There's no market too small, or better said no problem too small, that Bitcoin cannot address. No trust is needed. Payment is possible peer to peer. This changes how markets interact at the base level.

28. 18:21Claim

    You want to watch a film, stream sats as you watch. You want to use the internet, stream sats to the provider while you do it. This isn't possible in the fiat world because of the money system. It doesn't allow for these minute transactions to take place.

29. 18:53Quote

    Bitcoin bankrupts the middleman. Anywhere there's a middleman, it is either for the connection or trust. The internet removes the need for connection and Bitcoin removes the need for trust.

30. 18:53Prediction

    Any service that you pay a monthly fee for is toast. It'll be streamed.

31. 18:53Idea

    In this Bitcoin world, there will be streams, actually more like rivers of available energy. Just like rivers in the real world, anyone can come along and jump in at any time. You don't need permission to swim in these rivers of energy and you don't need to be next to the river in physical meat space because the rivers will float straight past you regardless of where you are.

32. 20:04Analogy

    Imagine you're a company that has a product they want to sell. The company starts a river of energy in cyberspace. If you divert your energy as a consumer, you can get access to some amount of energy for your effort.

33. 21:12Claim

    An economy is just a group of people who are willing to pool their energy reserves, and the Bitcoin economy can scale to any size. The average Joe inside that economy now has a plethora of streams to choose from, and these opportunity costs don't have to be general, they can be hyper specific as well.

34. 21:43Reference

    In the past, I've used the example of Michael Saylor. His energy is highly valued because he's very efficient. The best use of his time is not stepping into the stream to get the 10 sats for consuming the ad for a new vacuum. But that doesn't mean even he knows what the best use of his time is, he just knows what is below his own personal floor.

35. 22:15Idea

    These streams, again, a term I use for always accessible flows of energy made possible by Bitcoin, can be very targeted and therefore much larger in current flow. What if I could create a stream with others who wanted the same thing? We could pool our energy into that stream and once it was large enough, it would then be the best use of Michael's energy.

36. 22:48Claim

    He could set a threshold to be notified if any stream got large enough for him to then look into. If he accepts, the dam holding the funds opens up and the stream goes to his Bitcoin balance.

37. 23:21Claim

    What if he rugs the stream contributors? He gets Bitcoin one time, but he provides no value in the long run, and he ends up with less Bitcoin because if he did provide value, entities would continue to seek out this value. It's in his best interest in energy terms, which is the only real term we need to track, to provide value.

38. 23:56Reference

    This is in part, this is Michael's Orange Check idea, the verification in cyberspace with a tie to physical reality where there's an actual cost associated with these actions.

39. 23:56Claim

    There needs to be a cost for breaking trust that is larger than the trust action itself in these smaller exchanges. Can you get electricity to your house now without a middleman? No, not without Bitcoin.

40. 24:28Claim

    This means you will now know for certain what you are passing up in real time to pursue whatever action you're doing. It also makes us more accurate when predicting future energy foregone based on present decision making, because of the hard cap and absolute scarcity.

41. 25:08Quote

    Better accuracy equals more energy reserves. Where are you most valuable? This is an important question that Bitcoin can help answer.

42. 25:08Open question

    In the future, there will be a lot of these streams. We're going to need markets for these streams, but these markets for streams will also be streams. Ways lead on two ways. But then again, it might be nothing. Who knows?