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Bitcoin from First Principles - There is no Free Lunch so Ignore the Noise
3067 sats \ 11 comments \ @028559d218 8 Apr econ
I wasn't sure whether to post this in 'Econ' or 'Bitcoin' as it's really both... since Bitcoin and Economics are inseparable.
But since there is a lot talk lately about "trade deficits", Economics and Currencies... and what governments can or should do to "change" the economy...
I wanted to provide a gentle reminder...
THERE IS NO FREE LUNCH IN ECONOMICS.
Human Beings have a limited amount of time to produce and consume, choose option "A" or "B" and regardless of which they choose there is a competitive process to balancing Time with Choice forever deemed the Opportunity Cost.
While this administration focuses almost entirely on 'deficits', 'currencies', 'unfair trade' and 'trade imbalances'... as if they were the "super-secrets" of Rich and Prosperous Countries...
They COMPLETELY OMIT the most important thing helping people navigate Opportunity Cost, become wealthy, stay wealthy, out-earn and out-perform their economic competitors...
And that's Productivity Growth.
In general, Countries "increase their productivity" through:
  1. Education - The Skills and Knowledge to do More with Less.
  2. Infrastructure - The Planes, Trains, and Automobiles facilitating Productivity at Scale and
  3. New Technologies - the Technologies facilitating new ideas, new interactions, Faster Smarter Leaner Businesses and Brand-New ways of generating Capital.
Societies that know how to do more with less, can do more with less utilizing Technology, and in the process create faster, smarter, leaner businesses that do revolutionary things... will out-perform 99/100.
Tariffs alone accomplish none of this.
Since Bitcoin is a "Monetary Revolution" and will likely grow to become a larger and larger part of the real economy, it's helpful to review its 3 Critical Attributes, its Use Cases in the Real Economy and eventually how it maximizes Productivity, minimizes Opportunity Cost and facilitates thousands of Better Businesses, new jobs, new technologies, and customer-service models that don't exist today.
Bitcoin is first of all:
  1. Technically Sound (Free Open-Source Software tested by a huge community)
  2. Ethically Sound (Credibly decentralized and difficult to change consensus-wise) and
  3. Economically Sound - ASICs "Hash" billions and billions of times a second... and the electrical "Cost" of Hash is at the Heart of its Energy-Dynamics, Globalization of Energy, and Digitization of Power.
Therefore... Bitcoin's Economic "Use-Cases" are Multi-faceted:
  1. Bitcoin Preserves Capital - It Stores Digital Power native to the internet.
  2. Bitcoin Appreciates (as Arbitrage on the general understanding and recognition of Digital Power unfolds) and
  3. Bitcoin facilitates better business models, increased productivity, and better customer service for Capital native to the Internet.
New Technologies, New Jobs, and New Incentives for companies and 'customers' utilizing the Lightning network... will result in people being "more efficient" with their capital, better able to separate signal from noise, and safer from the bots and spam at the marginal cost of Sats. If the juice is worth the squeeze so to speak the Customer will return again and again - just like they do under today's E-Commerce.
And if E-Commerce was to become the "better home" for goods and services after the 1990s... is the Lightning Network a "better home" for Capital in the future? What happened to the Shopping Mall when Amazon expanded its reach?
  • If you haven't listened to this interview, and you are a Lightning-Entrepreneur... you should. What parallels are there to the nascent Lightning-Economy of today?
"Jeff Bezos Customer Obsession 1999"
Finally, there are critics that claim that Bitcoin is "non-productive".
Nothing could be farther from the truth.
To buy Bitcoin you need money with which to purchase it... and you earn that money through your own productivity. The more 'productive' you are (all things being equal) the more Bitcoin you're able to purchase because the costs of mining Bitcoin are grounded in Power, Competition, and are non-zero.
Therefore to the extent that Opportunity Costs are minimized and actual Wealth is generated through "Productivity Growth"...
  1. Education is your productive ability to Acquire Energy.
  2. Infrastructure is the capacity for that energy to be utilized in commerce and trade (like on the Lightning Network) and
  3. New Technologies facilitate both of the Above... while new businesses, business models, and customer incentives drive value and Capital Appreciation.
To me this is far more compelling, more interesting, and more nuanced than saying...
"Oh We're going to add Tariffs" and "Charge the Chinese!"
"If only we had cheaper currency!"
"and We just need more factories! If only trade were fair we'd make more tennis shoes!"
Really?
(My notes when writing this)
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30 sats \ 3 replies \ @Undisciplined 8 Apr
This is part of infrastructure, but it's not exactly how most people think about infrastructure: The Lightning Network is directly productivity enhancing, because it reduces financial transactions costs.
That's how I tend to think about infrastructure. Economic infrastructure allows us to do more with less, because we loose less capital in each transaction. Not only does that make things a bit cheaper for customers and a bit more profitable for producers, it reduces deadweight loss and thus expands economic activity.
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24 sats \ 0 replies \ @028559d218 OP 8 Apr
I agree 100%, and that's exactly I was trying to say. Bitcoin eventually to be more than a speculative commodity for many people...
Instead it's financial 'infrastructure' that's more efficient, with companies that makes peoples lives better and businesses more efficient.
That's why we send and receive sats - not because 'it's a lot' but because pay-2-post is a great spam filter and it's adds so much to the online experience.
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0 sats \ 1 reply \ @Solomonsatoshi 8 Apr
Yes LN enables swift low cost transactions but the importance of L1 is even greater in the context of the overall economy. L1 Bitcoin enables a very different model of capital accumulation and allocation. One that is a free market with all participants treated equally without fear of favour. Unlike fiat where the government and banks operating under the central bank enjoy the privilege of issuance and seigniorage. Private banks under fiat can issue new capital out of thin air. This gives them a significant advantage over other participants in fiat economies who must accumulate savings or apply for fiat debt finance from the banks.
Where for profit banks are allowed to issue fiat debt funding for non productive purposes, as they have been since neoliberal deregulation, they can profit easily at low risk by funding non productive investment in real estate- this is a safer investment than investment productive infrastructure or assets but it does not recompense for the debasement that occurs on every occasion fiat debt funding is issued. This has led to declining productive infrastructure and assets and a rise in capital allocation to debt leveraged non productive assets.
A Bitcoin Standard does not create such perverse and counter productive capital allocation incentives- for any project to attract capital investment under a Bitcoin standard it needs to be presenting a convincing opportunity to earn a return greater than the general rate of increase in economic activity- ie outperform the risk free holding of Bitcoin as a liquid store of capital.
Without the considerable leverage of debt that fiat debt funding has provided non productive asset prices would fall to their utility value- there would be much less incentive to hold them as a hedge against inflation, as in the absence of fiat debt issuance monetary inflation is no longer present. The over allocation of debt/capital to real estate would be curtailed and more capital would be held in liquid form as Bitcoin or allocated to productive purposes. Capital allocation would be decided by those who accumulate savings, not those who have the power under fiat to issue new currency into circulation via the bankers privilege of fiat debt issuance.
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50 sats \ 0 replies \ @028559d218 OP 8 Apr
A Bitcoin Standard does not create such perverse and counter productive capital allocation incentives- for any project to attract capital investment under a Bitcoin standard it needs to be presenting a convincing opportunity to earn a return greater than the general rate of increase in economic activity- ie outperform the risk free holding of Bitcoin as a liquid store of capital.
100% agree.
The over allocation of debt/capital to real estate would be curtailed and more capital would be held in liquid form as Bitcoin or allocated to productive purposes.
100% agree. I've seen the 'real estate' game in person... and while I can understand why real estate is nice and 'people like it'... in many areas it has gotten ridiculous.
We need better energy-based stores of value other than people just buying houses.
With reference to the above and Lightning... I really want to see more lightning-based businesses, use cases, and websites or applications. Lightning doesn't necessarily have to 'pay for things' like you pay for your groceries. It could be a long time before that is 'commonplace' if it's ever really widespread.
But I do think we'll see it become common eventually on websites because it just makes websites and small businesses so much more interesting and high-quality. It adds so much 'depth' in my opinion.
Add some lightning to a forum or a Twitch or a Youtube or a whatever... and you greatly incentivize higher-quality content, anti-spam, and the truth and consequence that comes with sending and receiving Sats.
When the 'sats are down' even just a few people care they pay attention... and I think that's a better quality internet and everyone would want that eventually.
Plus you get rid of a lot of the bots and spam - I can't go on Twitter anymore because of all the spam and bots everywhere. With pay-to-post the bots couldn't afford it it cleans up an experience in my opinion
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250 sats \ 2 replies \ @Solomonsatoshi 8 Apr
'While this administration focuses almost entirely on 'deficits', 'currencies', 'unfair trade' and 'trade imbalances'... as if they were the "super-secrets" of Rich and Prosperous Countries...'
The reason this administration is taking such a focus is that the status of the USD as the primary global reserve currency has become the primary mechanism for the maintenance of US wealth and power. As US productivity and competitiveness has declined, USDs have been printed to fund the military and government deficits and general consumption greater than production.
The level of accumulated debt is now such that USD reserve currency status is under threat. China has begun enabling trade payments outside of SWIFT and USD. mBridge is a digital trade payments protocol developed initially by China, UAE, Thailand and Hong Kong. It is now reaching capability for wider application and provides a scalable alternative to USD hegemony over trade payments. Saudi Arabia recently joined BRICS and mBridge.
So the US must address the chronic debt that now burdens the viability of its status as the primary reserve currency issuer. Tariffs may do that in the short term by reducing governments fiscal deficit and reducing the trade deficit by reducing imports. Tariffs are unlikely to greatly improve US productivity and competitiveness- they might do more harm than good in fact. But in the short term Trump has little choice but to act quickly and seek to preserve the pretense of solvency.
China has already won the trade war and Trumps tariffs seem very unlikely to fix the massive gap that exists between US and Chinese productivity. All the tariffs achieve might be to enable the roll over of debt that is required in the short term and delay the insolvency that is almost inevitable in the medium term.
All empires were built upon trade surpluses and the military advantage they can fund. All empires decline and fall on trade and fiscal deficits and the reluctance of citizens to accept the reality of the decline. Fiat money can delay acceptance of the decline but does not soften the ultimate reckoning. There is no free lunch in economics!
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28 sats \ 1 reply \ @028559d218 OP 8 Apr
The level of accumulated debt is now such that USD reserve currency status is under threat. China has begun enabling trade payments outside of SWIFT and USD. mBridge is a digital trade payments protocol developed initially by China, UAE, Thailand and Hong Kong. It is now reaching capability for wider application and provides a scalable alternative to USD hegemony over trade payments.
There was an article today about 'the alternative to the dollar' in Bloomberg. It didn't mention anything about mbridge. In fact... I have heard mbridge mentioned once but only once before in Bloomberg... and it was in the middle of an article almost nobody read months ago. Otherwise the US financial publications never mention it.
According to Bloomberg today the alternative to the Dollar (potentially) is the Euro and the Germand Bund. (?)
https://www.bloomberg.com/news/articles/2025-04-08/the-world-suddenly-has-a-plausible-alternative-to-us-treasuries?srnd=homepage-americas
I don't know if this is true (because Bloomberg is obviously biased) but it's what they say...
So the US must address the chronic debt that now burdens the viability of its status as the primary reserve currency issuer. Tariffs may do that in the short term by reducing governments fiscal deficit and reducing the trade deficit by reducing imports.
This is something I never understood. If the tariffs reduce imports... then even with the tariffs the revenue raised from imports won't be that much because people won't be buying the expensive imported goods.
On the other hand, if people still buy the imported goods (because there is no alternative) then the government raises revenue through those taxes. But the trade deficit remains.
So what I don't understand is if the President and his team are so concerned about the fiscal deficit and US debt (which they should be)... why then are they passing tax cuts? They should postpone the tax cuts for next year, cut spending meaningfully through congress, and raise revenue wherever they can. Tariffs would help but only if people still buy imported things, and if those things get "made in America" then there is no tax, no tariff, but those things still get more expensive.
It seems like making things 'more expensive'... without necessarily raising US wages which happens with productivity increases (like i wrote about above) is a really dumb idea.
Which is why I don't understand the President's fascination with tariffs.
Tariffs are unlikely to greatly improve US productivity and competitiveness- they might do more harm than good in fact. But in the short term Trump has little choice but to act quickly and seek to preserve the pretense of solvency.
The US is basically insolvent with that I agree. However... I think the tariffs do more harm than good. Like in the article I wrote if he really wanted to help Americans he would spend the money (because the US is broke anyway) to fund a massive amount of retraining and education for workers, new infrastructure projects, and deregulate new technologies so they can make Americans (like you said) more competitive.
New tech, more school, better roads and bridges. "Grow" your way out of the debt if possible... but he never mentions these things.
All empires were built upon trade surpluses and the military advantage they can fund.
I'll... have to do more research on this. I don't think that trade is a "zero sum" game, and I don't think that the US trade deficits are inherently bad. It's the federal deficit and unsustainable borrowing that's the issue and Mr Trump still won't deal with it meaningfully.
There is no free lunch in economics!
With this I agree ;)
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0 sats \ 0 replies \ @Solomonsatoshi 8 Apr
The conventional wisdom in western economic circles has been that USD reserve currency status is secure despite USAs chronic and growing trade and fiscal deficits. Say something enough and it becomes the accepted wisdom, especially when it serves the interests and biases of everyone saying it. The idea that China could engineer an alternative trade payments regime has generally been dismissed with the argument that Chinas financial system does not have the depth, legal system transparency backing and universal acceptance that the USD/US does. There is some truth in this argument but it is clearly not as robust as mainstream western commentators have believed it to be. China has made no secret of its intention to build an alternative to USD/SWIFT trade payments, but it has also recognised the scale of what is required to achieve this ambition and the risk inherent in launching an alternative while China remains still reliant upon the USD/SWIFT system- it is a delicate process. But Chinas economic/trade strength has reached the point where it would be extremely difficult for the US to apply broad SWIFT trade payments sanctions on China and meanwhile China has quietly built alternative/shadow banking trade payments options, like mBridge in collaboration with other nations.
Regaining control over Hong Kong has been crucial in assisting in developing this. Hong Kong being an integral part of the global banking system built by Britain and the US. China has enabled alternative trade payments with Iran and Russia to enable them to bypass the US/SWIFT sanctions imposed upon them- demonstrating that capacity to others who might be interested. Chinas ability to now supply almost all of the manufactured product lines required for a modern economy assists in this.
With Russia and Iran now settling their oil and gas trade outside of the SWIFT/USD hegemony others are also showing interest. The Saudis and others have recently joined BRICS and mBridge. More recently BIS abandoned its patronage of mBridge because it had reached a point where it could be used to breach SWIFT sanctions. With Iran, Saudi Arabia and UAE as members, Brics countries produce about 44% of the world's crude oil.
How exactly China enables trade payments for Russia and Iran is unclear- but we know is it is not directly via SWIFT and probably denominated in Yuan. Like the shipments themselves which are done mostly using 3rd tier tankers and small non state independent Chinese oil traders called teapot refiners, the payments appear to be made via a shadow banking network. One outside of US/SWIFT control and jurisdiction. Demonstrating such a capacity appears to have attracted the interest of the Saudis whose secret preferential access to USTs over 50 years ago formed the basis of the petrodollar. Trumps tariffs alienate traditional allies of the US, like Europe, Japan and others and the trust in and reliance on the USD is weakened. This advances the use of the Euro and the potential for Chinas mBridge and other mechanisms to be used instead of USD.
Europe was long reluctant to sanction Iran but could be relied upon to support the US sanctions in the end. That unity of western powers is now much reduced.
There is an opening for China to rapidly advance its long held ambitions to launch an alternative or alternatives to the USD/SWIFT hegemony. They could more probably now involve links with the Euro, Yen and other major economies.
Since the IMFs reserve currency board invited China to join its exclusive club post GFC, because of Chinas huge economic ballast and significance in the post GFC recovery, China has been an integral part of the traditional SWIFT/USD hegemony- but at the same time has been working to build alternatives.
China was and still is the only IMF reserve currency board member that is not monetarily and militarily subservient to the US.
Chinas CBDC appears to be crucial to its trade payments protocol ambitions- Jack Mas alipay posed a threat to Xis CBDC and Ma was swiftly sidelined. Now China is in a better position than ever before to match its trade mass leverage with trade payments infrastructure. mBridge is a protocol designed to enable trade payments between nations using their respective CBDCs. So it is a global monetary system protocol designed to succeed SWIFTs 1960s analogue technology. Ever since the Opium Wars where Britain positioned its banks in Hong Kong and enable predatory trade upon China, China has understood the strategic alignment of moinetary and military systems.
As China now builds most of the worlds merchant shipping it also builds most of the worlds military vessels...and it along side military expansion building the monetary protocols to align with and be supported by its military power projection. It took more than 100 years for China to assimilate and respond to western imperialism, but it has learned the lessons we imposed...and is now reverse engineering the mechanisms we employed- mercantilism, militarism and monetary hegemony.
USA and The West in its woke entitled spendthrift fiat debt funded indulgence has been caught vulnerable and now, in disunity.
Trumps tariffs, crude and short term fixes that they are, recognise the urgency of the challenge. They should enable the roll over of debt obligations expiring this year, but for how long? The market will speak its judgement.
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150 sats \ 1 reply \ @SimpleStacker 8 Apr
Great post. Always good to remind people to think back to the basics when it comes to economics.
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30 sats \ 0 replies \ @028559d218 OP 8 Apr
Thank you. Number-Go-Up eventually has to correspond with better businesses, more productive online experiences, better transparency when you're "deploying capital" online and a more predictable, higher-quality internet experience overall.
Take Stacker News: SN takes 'a cut' of everything that moves through Stacker News. All the posts, all the boosts, revenue, everything as I understand it. But a cut also goes to the posting community at large regardless... and the good posters themselves get zapped so everyone feels happy.
And there are no advertisements which is amazing.
Business is facilitated, the pay-to-post keeps the bots and spammers away if it isn't obvious what's spam from moderation alone (which is impossible on a really big platform) and everyone likes getting a few sats if they put the time in.
In writing this... I really wanted to 'tie in' traditional economics which is all about productivity and 'growth.' In my opinion more people will come to Bitcoin eventually... and there will be an economic 're-look' at Bitcoin beyond the noise and speculation. And even though there will only be 21 million Bitcoin, that doesn't mean there can't be growth and huge improvements in productivity from 'online capital.'
When that happens, we should be ready with business models, more productive activities (like Stacker News) and better incentives for capital so that all the future Lightning businesses and start-ups get built.
It's way more than just "selling Bitcoin" - a business that uses Lightning can have new and better customers than one that doesn't... and I believe we'll have to see that in the future for this to work.
Like Bezos said, it's not about "the internet" - it's about the customer and what keeps them coming back.
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100 sats \ 1 reply \ @ContraMundum5 9 Apr
This is such a solid breakdown of how Bitcoin actually reflects real productivity, not the lack of it. A lot of critics miss the deeper point. Bitcoin doesn’t just show up out of nowhere. You earn it by putting in work, creating value, and being productive in the real world.
I really like how you connected productivity with education (learning to harness energy), infrastructure (putting that energy to use), and technology (amplifying both). Bitcoin sits right in the middle of all that—it rewards people who build, adapt, and innovate.
The contrast you made at the end is perfect too. Instead of relying on top-down slogans like tariffs or currency manipulation, Bitcoin pushes us to focus on actual progress and real value creation. It’s not about quick fixes, it’s about doing the work. Well said.
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0 sats \ 0 replies \ @028559d218 OP 9 Apr
This is such a solid breakdown of how Bitcoin actually reflects real productivity, not the lack of it. A lot of critics miss the deeper point. Bitcoin doesn’t just show up out of nowhere. You earn it by putting in work, creating value, and being productive in the real world.
100%! Bravo!
Bitcoin sits right in the middle of all that—it rewards people who build, adapt, and innovate.
Bingo! 100%! That has to be its future.
Bitcoin pushes us to focus on actual progress and real value creation. It’s not about quick fixes, it’s about doing the work.
100% that's why it's called proof-of-work! Bravo!!!
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