Arthur Hayes: What are the exciting intersections between Bitcoin and artificial intelligence?
Original Title: "Massa"
Original Author: Arthur Hayes
Original Translation: Kate, Marsbit
A few weeks ago, my confidence in the future of humanity was restored after visiting a truly unique coffee shop in Paris. Out of passion for specialty coffee, the barista at this special shop offered a 2-hour coffee-making experience. Readers who wished to visit had to make reservations. I thought about sending all of my salespeople over there so they could personally experience what it's like when someone transforms their passion for a craft into an incredible customer experience. At least for now, this kind of experience can only be provided by humans.
For this reason, I hope that artificial intelligence (AI) and robotics will be primarily used to eliminate the mundane and boring jobs that most people are currently engaged in, so that more and more people can pursue their passions in a similar manner. Ideally, this would lead to our next great artistic and cultural renaissance, as millions (or even billions) of humans suddenly have the freedom to do what they love and create happiness through art.
Before such a glorious future arrives, we must break through boundaries and find answers to the most critical questions of today: Will artificial intelligence surpass us feeble humans and become our slaves? Since the first computer came online during World War II, scientists and philosophers have been debating how machines will evolve and their impact on the human experience. Most of the best science fiction novels or series consider the interaction between humans and artificial intelligence, and there is no clear consensus on the most likely outcome. However, today we are closer than ever to finding the answers. The latest advances in computing power have brought us to the forefront of a crucial moment, where artificial intelligence will rapidly spread, altering the course of humanity almost overnight. In just two months, ChatGPT reached 100 million monthly active users, becoming the fastest-adopted technology in human history. So, imagine how quickly things will change as artificial intelligence becomes integrated into daily life and continuously learns and improves.
I am neither a scientist nor a philosopher. I am a businessman, not a priest. As a businessman, my main creed is to make money – and so, when I see a new, hotly hyped economic field that sends the financial returns of many public and private companies skyrocketing, I am both eager to embrace it and wary of keeping my distance. I am eager to embrace it because I know that artificial intelligence will greatly enhance the future of humanity and make them immensely valuable. However, I also know that the initial funds invested in a novel, super exciting technological advancement are often burnt out because they pay too high a cost for growth.
Take Amazon, for example. From its peak in 1999 to its low point in 2001, the company's stock price dropped by 93%, but it subsequently rose by 400%. Can you hold on in the dark valley? I don't think I can. I'd rather try to avoid the first burst of bearishness and buy at the bottom.
But I also know myself, and I don't feel comfortable sitting on the sidelines. I have to be involved in some way. Therefore, in order to profit from the upcoming AI boom, I have to identify the intersections between the industry I know best - cryptocurrency - and the exciting new developments in the field of artificial intelligence. That's the origin of this article and the next two articles, which together will form a triptych exploring the potential interactions between cryptocurrency and AI.
The themes of these three articles are as follows:
Bitcoin as the currency of AI (this article)
DAO and DEX: How AI will redefine the meaning of for-profit organizations
The junk coins that will benefit the most from AI's data demands
Before delving into the first article, let's clarify some terms.
When I use the abbreviation AI, I am referring to a personified thinking machine. While some may question whether AI is "alive" in the sense of being a carbon-based life form, we hardly understand consciousness - so why do we assume that silicon-based machines lack some form of perception?
As a biological creature, I will also assume that these AIs will primarily focus on a) survival and b) fulfilling the goals set by their creators (i.e. humans or future AI). These articles assume that AI will do its best to accomplish the tasks for which it was created, based on its programming.
Bitcoin as the Currency of AI
In this article, I will explain why Satoshi Nakamoto's creation will become the preferred currency of artificial intelligence. I will present my argument as a series of logical conclusions that build on each other to "prove" that AI will choose Bitcoin as its preferred currency for economic transactions.
First, I will discuss why AI needs to use a blockchain-based digital payment system. I don't believe this alone is enough to make Bitcoin the assumed winner, as fiat currencies can also operate on public blockchains (such as Tether). Central Bank Digital Currencies (CBDCs) - the devil's digital tool - also rely on permissioned blockchain networks. However, the focus of this section is to argue that the traditional financial system (TradFi) is unsustainable for an AI-driven economy.
Second, I believe that the two most critical inputs for any AI will be data and computing power. Like humans, AI's "food" is simply a derivative of energy. I believe AI needs to transact using a currency that can maintain its purchasing power in the long term.
Third, I argue that Bitcoin is the currency tool that comes closest to representing pure energy. I will compare and contrast the currency attributes of Bitcoin, gold, and fiat currencies for AI's importance.
Finally, I will bring it all together to discuss the impact of Bitcoin becoming the preferred currency for artificial intelligence. What effect does this have on on-chain transaction volume? Most importantly, if this notion of AI + Bitcoin becomes mainstream, how high can the price of Bitcoin go in the bullish market cycle ending in 2025/26?
Blockchain or Bankruptcy
In order to understand the payment requirements of artificial intelligence, we first need to understand the types of financial interactions that AI must engage in to exist and continue existing.
Let's imagine there's an AI called PoetAI that creates beautiful poetry from natural language prompts by absorbing all the poetry ever written. PoetAI functions as its own economic entity, which means it charges for its services. Every time you input a prompt to PoetAI and receive a poem in return, you have to pay a certain fee.
PoetAI uses other people's data to learn how to write. Therefore, PoetAI must pay for the privilege of using written texts produced by humans (or possibly other AIs). When PoetAI is initialized, it incurs upfront costs to acquire the dataset of all written poems. Subsequently, each time new poems are written, PoetAI also needs to obtain this data. PoetAI must constantly pay all these different data providers because it continues to learn and acquire more data as the number of poems increases.
Lastly, PoetAI must exist in electronic form. This means incurring costs to increase power and computing capacity using semiconductors ("chips"). As long as PoetAI is alive, it must constantly pay for these services.
So, what kind of payment system does PoetAI need? It must use a readily available, digitized, fully automated system. A system that is only available when people are awake or willing to work is not feasible. Clearly, a simulated banking system - open only on Mondays to Fridays and fragmented across regions and banks - is not suitable.
Some may argue that a digital skin on top of a simulated banking system like PayPal is appropriate. However, the existence of PayPal is determined by the banking system itself. PayPal does not have a censorship regime. PayPal and similar companies often block payments from individuals engaged in activities they deem unworthy. PayPal does this because it believes it knows what its banking bosses want it to do in order to comply with those opaque and deliberately hard-to-understand banking rules.
For AI that is non-human and fundamentally does not understand human "rules," this platformized risk is high and unwelcome. Artificial intelligence will require a digital payment system with clear and transparent rules that apply to anyone who engages in transactions or makes payments on the internet. No single entity should have the power to arbitrarily change the rules of the game. AI does not have an army to enforce the submission of the payment system to its will. This system must resist censorship from the start. An appropriate payment system can only be supported by a public or private blockchain. The rules of the blockchain are contained in clear and transparent code. That's why only this type of digital payment system can be used by artificial intelligence.
"Wait," you might say. "A licensed blockchain cannot resist censorship because those who are 'licensed' can change the rules whenever they want." That's correct, and that's why I believe censorship-resistant cryptocurrencies like Bitcoin will be the preferred currency for artificial intelligence. However, let's put that aside for now - I will discuss censorship issues when exploring the pros and cons of various digital payment options that AI could use in a later section of the article.
By using a blockchain-based payment system, PoetAI (or any other AI) can also receive electronic payments in small increments as needed. Then, PoetAI can use this always-online blockchain network to continuously pay fees to other participants in the digital economy.
What AI Must Do
The existence and continued operation of artificial intelligence require two key resources: data and computing power.
Let's go back to PoetAI. For PoetAI to succeed, it must continually learn from new poetry data. This data needs to be hosted somewhere. What does hosting require? Power.
The second thing PoetAI needs is a super powerful computer network to understand all of this data. These computers take in the provided data, learn from it, and then provide answers based on prompts. Learning is an ongoing process because the more poetry PoetAI writes, the better it becomes at writing poetry. But regardless, all of these operations require the consumption of electricity.
When we strip away PoetAI's sources of sustenance to their most basic components, they are essentially semiconductors and power. The stock price of NVIDIA has recently skyrocketed because the market recognizes that the GPU chips produced by NVIDIA are crucial for all artificial intelligence. This article is not about potato chips, so let's move on to the second type of sustenance - electricity.
The profitability of artificial intelligence (in a sense, its entire existence) is based on the ability to generate more returns from its output than the energy it requires to sustain itself. From this perspective, artificial intelligence is no different from humans. As humans, we also have to create enough value for society so that we can afford our food/energy.
When electricity is cheap, artificial intelligence feels "happy," just like humans feel happy when they can afford to buy nodoguro. Similarly, the currency accepted by artificial intelligence must maintain its purchasing power in kilowatt-hours, just as the currency accepted by humans must be able to purchase a constant amount of a kilocalorie.
Bitcoin is the Energy Currency
In this section, I will discuss how gold, fiat currency, and bitcoin are formed and how their value is assigned. Understanding the value and origins of each currency, as well as how they are held and transferred, can give us an idea of how much their purchasing power may change over time. Scarcity, resistance to digital scrutiny, and energy purchasing power are three attributes to evaluate each currency.
Gold
Gold on Earth is finite. To obtain gold, we humans mine it from underground. Then, we process the extracted gold ore into the familiar shiny bars and jewelry.
Gold mining has evolved over time. Initially, humans used their muscles to mine it. Then we began using horses and oxen to do some mining activities for us. With technological progress, we needed to mine gold deeper underground, and we started using steam, followed by hydrocarbon-powered machines for excavation.
Gold is definitely an energy derivative, but the source of energy is not constant. It could be the calories burned by humans or animals or the "creation" of more gold by machines burning diesel. There is no energy derivative directly related to the production price of gold.
Gold is a physical commodity. To use it as currency, you need to carry it from point A to point B. However, in the digital world, we can create certificates or derivatives that represent gold stored in a warehouse somewhere. The problem with gold certificates is that you have to trust that the entity issuing you the certificate actually holds your gold when you go to redeem it. It is impossible to continuously and unverifiably audit whether issuers actually hold the gold they claim to hold. Therefore, if gold were to be digitized efficiently, you would have to rely on members of the trust cartel (e.g., banks and governments). In this sense, digital gold does not resist scrutiny.
Fiat Currency
Fiat currency is born when governments issue decrees to turn previously worthless items into currency. The U.S. government issues the U.S. dollar (USD++++++). The dollar is purely fictional and printed on paper, but by mandating that all legal transactions within the United States must be conducted in dollars, it creates demand for the dollar. And since most new dollars are created virtually – meaning through the government's digital credit and debiting of commercial bank accounts – rather than physically printing money, its creation itself requires almost no energy.
The value of the US dollar or any fiat currency depends entirely on the credibility of the government issuing the counterfeit currency. The issue of credibility is that an increase in per capita energy expenditure does not mean that the government will become more credible. A government can spend a large amount of energy or possess a large amount of natural wealth, but be so corrupt that no one believes it can maintain the energy value of its fiat currency over time. Myanmar and Zimbabwe are two extremely wealthy countries with disastrous currencies. When it comes to the valuation of a currency, politics is more important than the government's material wealth.
This means that it cannot be assumed that a fiat currency has any energy value over a period of time, nor is it possible to objectively predict which political form is the longest-lasting. Large-scale human civilization has only a few thousand years of history. Compared to the length of time of the existence of the universe, this time span is not even a speck of dust. During this time, we have tried various forms of political organization - none of which have been proven to be absolutely correct.
Fiat currency can be held in physical or digital form. Now, the world is in a transitional period where we have paper currency and digital legal tokens. I believe that paper currency will be abolished by most countries within the next decade. All fiat currencies will be digitized and will move instantaneously on some kind of payment network - either operated by the state alone, such as CBDC, private banking institutions (such as JPM Coin), or public blockchains (such as ERC-20 USD Tether). Digital fiat currency also cannot resist censorship, as the government ultimately controls its issuance, its use, and can change the rules at any time.
Bitcoin
Bitcoin is generated by solving complex problems through computers. Miners purchase ASIC chips and use electricity to create Bitcoin. It's that simple. Other than consuming electricity, there is no other way to create Bitcoin.
The network has been established and constantly verified, and the number of Bitcoins will always be 21 million. Bitcoin is a limited digital commodity. As a purely digital currency, Bitcoin has no mass. Whether I have 1 satoshi ( 1 satoshi = 0.00000001 Bitcoin) or 21 million Bitcoins, their weight is the same: none.
All participants in Bitcoin must agree on the network rules, otherwise transactions will not be processed. The network rules are publicly transparent to everyone. The network rules can be changed, but changes require the agreement of the majority of miners when verifying blocks. The game theory that supports Bitcoin helps ensure that the rights holders using the network do not do anything that harms their own interests. For example, the network will not vote to increase the production limit of Bitcoin, as it would violate one of its key principles of value (that it is a limited resource). Bitcoin is censorship-resistant because the only way to change the rules is to submit a public proposal to the entire network and have the majority decide. There is no single entity that can arbitrarily change the network rules.
Now, let's summarize these three forms of currency and their attributes.
Scarcity:
Gold - the supply on Earth is limited, but the supply outside of Earth is unknown. When we start mining on asteroids, the supply of mineable gold will skyrocket. What will happen to the "value" of gold in the near future?
Fiat currency - has infinite supply. Governments can almost freely create any amount of currency.
Bitcoin has a limited supply, forever and ever and ever.
Censorship Resistance:
Gold - is a physical commodity. The only way to represent gold digitally is to trust a centralized entity to issue digital certificates of gold. Its digital form is not resistant to censorship.
Fiat currency - can be physical or digital. Though it is in digital form, it is not resistant to censorship due to government oversight.
Bitcoin - is purely digital and resistant to censorship.
Energy Purchasing Power:
Gold - can be created through various energy derivatives. Therefore, no energy derivative can define the value of gold.
Fiat currency - requires almost no energy to create, and its value is more based on its government's politics rather than its natural energy wealth. Thus, we cannot know exact value of it at any time in the present or the future.
Bitcoin - can only be created through computer calculations that consume electricity. Over time, the cost of electricity determines the value of Bitcoin.
AI Decision Tree
Let us see some questions that artificial intelligence will ask itself before choosing a trading network and currency.
Can the currency be used in an uncensored digital format?
As I mentioned above, I believe artificial intelligence needs a currency that can run on a censorship-resistant blockchain. Only Bitcoin possesses these qualities.
Bitcoin wins.
Over time, can this currency maintain value relative to the food of artificial intelligence?
The food of artificial intelligence is electricity. AI must ensure that they can always afford to eat. The winner here is Bitcoin, as while the value of fiat currency and gold is unrelated to anything specific or calculable, Bitcoin is essentially a derivative of the cost of electricity.
Bitcoin wins.
Is this currency truly scarce?
On Earth, the supply of gold is limited, but on a global scale, the supply is essentially infinite. Fiat currency is not scarce as issuing governments can create more fiat currency at zero cost. The supply of Bitcoin is limited cryptographically.
Bitcoin wins.
Does this currency have a provable lifespan?
Artificial intelligence has a potential lifespan much longer than human civilization. In theory, if artificial intelligence can survive in high vacuum, it may exist for trillions of years until the heat death of the universe. The current human civilization can only survive on Earth, and there is no indication that we have the ability to avoid various external or internal extinction events.
Artificial intelligence should not trust any institution that requires human operation because 1) humans are prone to error, and 2) probabilistically, artificial intelligence will outlast human civilization. The mining of gold and Bitcoin can be done by artificial intelligence robots in the future, but fiat currency needs to be managed by governments composed of humans. Artificial intelligence is unlikely to rely on anything that requires the operation of a human government. Therefore, only gold and Bitcoin are suitable.
The relationship between gold and Bitcoin.
Therefore, Bitcoin is a logical currency choice for any artificial intelligence. It is purely digital, censorship-resistant, and provably scarce, with its intrinsic value entirely dependent on the cost of electricity. In these aspects, there is currently nothing that can challenge Bitcoin.
Bitcoin Price = Moon
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