Money is not energy

 Money is energy

Dear ————-,

There is a real, academic, commonly-recognized distinction between the definitions “currency” and “wealth,” and it is important to mind this difference in speech. The reason it is important to mind this distinction in speech is because it would be bad to mix the two up, in the same way it would be bad to confuse “volume” and “mass.”

Now, how is this point related to the word “money”? Money is a vernacular word that blurs the definitions of currency and wealth into one, since that is just how everyday people talk. However, as discussed, this is bad. Therefore, anyone who intends to engage seriously on the topics of economics and business knows to avoid using the word “money” as much as possible. Because otherwise it would be too confusing to communicate with others.

I now reach the point I want to make. When someone is properly educated in the humanities, they know not to say “all XYZ people are ABC”, because blanket statements are inaccurate. Thus to make a blanket statement makes someone sound dumb. When someone says “money is energy”, it sounds like too much of a blanket statement. (It sounds too dumb). One, because “money” is a really ambiguous word. Two, because “money” is not literally 1:1 exchangeable with other forms of energy in physics. 

“Money is energy.” If this statement is clarified and qualified, it can express a very useful point about the relationship between human society and energy sources/energy flows, or a point about labor in society. For instance, “Human society is fundamentally dependent on energy sources, especially for the more interesting things that it does, and so more of our economic activity than we realize revolves around the acquisition and transformation of energy.” Or, in another, unrelated sentence, “Currency represents an IOU for one’s prior work done for someone else, and so can be used to motivate someone else to do current work for oneself. Therefore one’s savings account is kind of like a battery that can be used when needed.”

To say “money is energy” by itself sounds like an ignorant slogan you are repeating from someone else, and so because of that it is making you sound unnecessarily ignorant. I don’t know where this slogan is most common or where it is coming from. My hunch is that this is a slogan repeated by people who are very enthusiastic about Bitcoin and use this slogan to explain to themselves what is going on during Bitcoin mining because they don’t exactly grasp what is going on on a technical and economic level. I could be wrong? 

It seems that people like this are confused about the motivation and mechanism behind Bitcoin mining. To their understanding, you provide electricity to a computer, the computer uses this electricity for the task of “Bitcoin mining,” then this Bitcoin mining results in a Bitcoin allocation, then this Bitcoin allocation can be exchanged for USD. When they try to understand what happens during the Bitcoin mining process, they get confused when someone explains to them that the computer is doing useless computations (brute force algorithm). “How could it possibly be that this processes ultimately results in USD, especially when this thing is doing useless computations?!”, they think to themselves. “Normally, people acquire USD by doing labor, and labor means doing useful tasks, so this is weird.” 

The incorrect conclusion they arrive at is that, since electricity was the input to this system and USD was the output to this system, that the electricity was quite literally converted into USD. Moreover, because they feel guilty about the whole ordeal (because now they can trade this USD for someone else to do useful labor for them) (and because they think to feel guilty about wasteful uses of electricity), they tell themselves, “I turned electricity into money, and then that money ‘powered’ someone to do work for me. Therefore, money must be energy.”

In actuality, Bitcoin mining is successfully remunerated in a Bitcoin economy because the collective process of Bitcoin mining happens to contribute to security and therefore trust in the Bitcoin medium of exchange, and trust is economically valuable. However, the incidental conversion of electricity to friction heat during the process of Bitcoin mining is not intrinsically valuable. This friction heat bears no connection to the calories a laborer may expend to be compensated in USD. Money is not energy.

I wasted a lot of time writing this up, but I bothered to because, as my friend and business partner, I want you to be the best that you can be. My fear is that nobody else will care enough to explain to you why “money is energy” sounds ignorant, and that one day someone will just snicker at you and walk away. This person might even be an important business connection who is sizing up our business acumen in how we speak, think, and present ourselves. Perhaps I worry too much. But I care.

I welcome you to respond if you feel the need to. Before you make an ad hominem attack, I should clarify that I have read the 2011 Bitcoin whitepaper, and that I understand the benefits of Bitcoin as a noninflationary currency. Just, for the love of God, please stop running around saying “money is energy.” 

Warmly,

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