An essay in 14 chapters
The Paradox of Scarcity
On Bitcoin, quantum computers and a future in which we may no longer need money.
PrologueWhat is a satoshi worth?
What if a single satoshi were one day worth a dollar?
One bitcoin would then be worth 100 million dollars. The maximum planned supply of just under 21 million bitcoin would have a notional market value of around 2.1 quadrillion dollars.
An almost unimaginable number.
But perhaps we are asking the wrong question.
We try to calculate the future value of bitcoin while at the same time developing technologies that could fundamentally change our current understanding of economic value.
Artificial intelligence, robotics and possibly quantum computers could vastly expand our ability to produce goods and services.
We build machines to reduce human labor. We research new materials and forms of energy to overcome existing limits. We try to make more and more things available with less and less effort.
At the same time, with Bitcoin we have created a digital system whose essential economic feature is precisely that its units cannot be multiplied at will.
So we are working to reduce natural scarcity while at the same time creating artificial scarcity and endowing it with considerable economic value.
Is that a contradiction?
Or does it reveal something fundamental about our relationship with money, property and technological progress?
Perhaps this question will take us further than we first expect.
01An economy that lives on want
The history of human civilization can also be told as a history of how we have dealt with scarcity.
Food had to be obtained, shelter built and energy produced. Every economic achievement required time, labor or resources.
Our needs were often greater than our means.
Out of this tension grew the division of labor, trade, systems of property and systems of money.
Money does not solve the problem of scarcity. But it makes it easier for us to do business under the conditions of that scarcity.
It allows us to compare work, to store value and to exchange goods.
Yet money is not a law of nature.
It is a social instrument.
Its significance arises from the fact that people need or want to own something that is not available without limit.
A glass of water can be life-saving in a desert and almost worthless right next to a freely accessible source of drinking water.
The water has not changed.
Only the conditions of its availability have.
This simple example shows how closely economic value and scarcity are bound together.
Of course, value does not arise from scarcity alone. A thing must also be useful or desired by people. Scarcity by itself is not enough.
But it decisively shapes how we value and distribute goods.
So what happens when technologies radically change the availability of ever larger parts of our material livelihood?
This question becomes especially interesting when we connect it to a system that has deliberately made scarcity an indispensable feature.
Bitcoin.
02Bitcoin – the deliberate creation of digital scarcity
Digital technology has a remarkable property.
In principle, information can be copied at very low cost.
A document can be copied millions of times. A file can exist on countless computers at once.
Bitcoin defies this logic in a particular way.
Not by making it impossible to copy information, but by creating rules under which only certain states of a shared transaction ledger are recognized as valid.
Attempts to spend the same bitcoin twice are rejected by the network's participants according to these rules.
The supply of bitcoin follows a predetermined issuance schedule. In total, just under 21 million are to be created.
This limit is a consensus rule, not a physical constant of nature. A change would be technically conceivable, but would require a corresponding change in the rules accepted by the participants.
No one can unilaterally increase the established supply within the existing set of rules.
Bitcoin is therefore not simply digital money. It is an attempt to organize scarcity in a digital world through verifiable rules instead of a central authority.
Therein lies one of its extraordinary qualities.
We have created a system whose digital property does not have to be administered by any particular company or any single government.
And we have given this system a property that seems especially rare in an increasingly reproducible digital world.
A predictable, limited money supply.
What we have created, however, is more than a limited number of digital units.
We have started an economic experiment whose rules depend on the technical infrastructure that enforces them.
And technology never remains entirely independent of progress.
03A closed protocol in an open economy
Bitcoin has a property that is particularly interesting for this thought experiment.
Its units cannot simply leave the Bitcoin protocol.
When someone sells a bitcoin, it does not disappear from the system. A transaction assigns it to a different owner.
When someone pays 100,000 dollars for a bitcoin, both the dollars and the bitcoin change hands.
The bitcoin remains part of the network.
If its price later falls to 50,000 dollars, the bitcoin still exists. What has changed is its valuation, not the number of units transferred.
This does not mean, however, that economic value is trapped in the bitcoin market.
Capital can flow out. People can sell and spend the dollars they receive on real estate, companies or any other goods.
At the level of its bookkeeping, Bitcoin is a self-contained system; at the level of its economic value, it is fully connected to the outside world.
The blockchain does not record any particular amount of dollars permanently locked inside the network.
Rather, it documents the conditions under which bitcoin can be spent.
The market decides what price these units fetch at any given moment.
This distinction is important.
Because it also means that bitcoin do not have to be physically removed from the network in order to lose their economic value.
A bitcoin can continue to exist and become almost worthless.
Conversely, its market price can rise considerably without an equally large amount of new capital having to flow into the market.
The protocol limits the supply.
It does not limit the value.
And that is precisely why, within a technically limited system, an economic incentive can develop whose effects reach far beyond that system.
04The threat of quantum computers
Bitcoin uses cryptographic signatures to prove the right to spend its units.
The methods used today are based on mathematical problems that, as far as we currently know, cannot practically be solved efficiently by classical computers.
A sufficiently powerful, fault-tolerant quantum computer could change this security assumption.
Using Shor's algorithm, it would in principle be possible to derive the corresponding private key from a known public key.
This would endanger in particular those bitcoin whose public keys have already been revealed.
Other bitcoin outputs initially hide the public key behind a hash. These constructions offer additional protection against certain attacks, but that protection can be lost, among other times, when the bitcoin are later spent.
So not all bitcoin would be vulnerable in the same way and at the same time.
To this day there is no publicly demonstrated quantum computer with the capability needed for such real-world attacks.
When such a machine might be developed is uncertain.
But even this uncertainty is a problem.
Because an actor who first gains this capability would not have to announce the breakthrough right away.
They might have an interest in keeping it secret.
The most dangerous feature of a future quantum attack may therefore lie not only in its technical feasibility, but in the fact that we might not even recognize the moment it becomes feasible.
This raises a fundamental question.
How should Bitcoin respond to a threat whose actual existence may only become visible through a successful attack?
05A possible answer: a quantum-secure Bitcoin
One obvious solution is to evolve the Bitcoin protocol in time.
New cryptographic methods could be integrated that, according to our current knowledge, should be secure even against sufficiently powerful quantum computers.
Such post-quantum signature schemes already exist.
Integrating them securely into Bitcoin, however, would be a technical challenge in its own right. Signature sizes, verification costs, transaction fees, wallet support and network consensus would all have to be taken into account.
Ideas along these lines are already being discussed.
The proposal BIP 360, for example, envisions a new type of bitcoin output designed to make certain long-range attacks on exposed public keys harder.
Full protection would additionally require suitable quantum-secure signatures.
But let us assume this development succeeds.
Bitcoin gains a new way to hold balances under quantum-secure conditions.
Participants can move their holdings into this new form.
The existing network evolves without having to lose its fundamental economic character.
A large part of the problem would then be solvable.
At least for those people who actually migrate their bitcoin.
The real challenge begins with the bitcoin whose owners can no longer act – or choose not to.
06The bitcoin left behind
It must be assumed that some portion of all bitcoin can never be moved again.
Private keys have been lost. Storage devices have been destroyed. People have died without passing on their access credentials.
Other owners might deliberately leave their bitcoin untouched for the long term.
A voluntary transition to quantum-secure methods would therefore probably not migrate all bitcoin.
Some could remain under the old cryptographic conditions.
Should those conditions one day be breakable by quantum computers, and should the protocol still permit the corresponding spends, an extraordinary situation would arise.
The original owners might still hold the legal claims to their bitcoin.
But technically, another actor might be able to produce the required signatures.
Bitcoin would then face a decision that goes far beyond cryptography.
Should the network keep accepting old signatures, even if this means bitcoin could be stolen? Or should it restrict these signatures at some point, and thereby possibly lock rightful owners out of their holdings as well?
Both paths have consequences.
The first option could create a considerable economic incentive to develop such attacks.
The second would increase the network's protection, but could hit people who missed the migration or only regain access to their wallets later.
There is no entirely conflict-free outcome.
And that is exactly why this part of the debate is so interesting.
Because it leads us directly from technical security to questions of property, responsibility and economic incentives.
07When a vulnerability becomes a research incentive
We usually regard technical weaknesses as flaws to be fixed as quickly as possible.
But from an economic perspective, weaknesses can also create incentives.
Let us imagine a hypothetical scenario.
A large part of the bitcoin supply has been successfully moved to quantum-secure methods.
Five million bitcoin, however, remain under older spending conditions.
At that point, the bitcoin price stands at 100,000 dollars.
The notional market value of these five million bitcoin is therefore 500 billion dollars.
Not all of them would have to be immediately vulnerable.
And even if an actor managed to gain access to a significant share, they could hardly sell those holdings at an unchanged market price.
Still, the order of magnitude remains extraordinary.
What if the mere prospect of a fraction of this fortune were enough to make the development of powerful quantum computers more economically attractive?
Companies could fund additional research.
States could regard such capabilities as a strategic advantage.
Private investors could try to take part in developments whose potential economic payoff goes far beyond ordinary research returns.
The unmigrated bitcoin could thus unintentionally become a kind of decentralized research incentive – a potential reward that no one ever explicitly offered.
What is special about this is the origin of the incentive.
There would be no central institution administering a research prize.
No government would have to put up the money.
No company would have to commit to paying for a scientific breakthrough.
The potential incentive would arise solely from the combination of technical vulnerability, a limited money supply and socially ascribed market value.
And it would be visible in the very same public system that records the assets in question.
This is where the real paradox emerges.
Through its economic success, Bitcoin could make the development of the very technology that threatens its original cryptographic security more attractive.
A system created to protect property through mathematics could itself become an incentive to overcome those mathematical protections.
That, however, would be no ordinary research funding.
It would be a risky and possibly unlawful prospect of appropriating other people's property.
An economic motive is not yet a moral or legal justification.
Nor is it at all certain that this additional incentive would be enough to overcome the enormous technical challenges of quantum development significantly faster.
But the mechanism remains remarkable.
A scarce digital good could generate economic incentives that act outside its own technical architecture.
08A decision about the ownership of the future
At this point a question arises that often disappears behind the technical discussion.
Who owns the bitcoin that are never moved to new cryptographic methods?
A lost private key does not automatically mean that the corresponding property right has expired.
Likewise, possessing a technically valid signature does not in every case mean that a transfer is legally permissible.
Bitcoin verifies certain technical conditions.
It does not make a final judgment on the moral or legal legitimacy of every transaction.
That is precisely why deliberately keeping quantum-vulnerable spending conditions open would be a far-reaching social decision.
It could mean that the security of certain bitcoin depends, in the long run, on whether their owners respond to a new technology in time.
Conversely, a complete restriction of old signatures could leave millions of bitcoin permanently inaccessible, unless secure recovery methods are developed.
Both paths could affect the economic distribution within the Bitcoin system.
The difference, however, is fundamental.
In one case, bitcoin could gain new owners through technically successful attacks.
In the other, bitcoin could remain immobile forever.
The cap of just under 21 million bitcoin therefore does not answer the question of who will own these units, or still be able to spend them at all, in a technologically transformed future.
And perhaps this is exactly where it becomes clear that, despite its fixed monetary policy, Bitcoin is not a system detached from the development of society.
Its rules are developed, reviewed and accepted by people.
Its security depends on scientific knowledge.
Its economic value arises in society.
The blockchain can technically enforce the conditions of ownership.
Which conditions we consider legitimate, however, remains a human decision.
09Do we even need quantum computers?
So far, we have looked at quantum computers as a possible threat and as the object of economic research incentives.
But perhaps we overestimate their role in the economic future.
Quantum computers could enable extraordinary progress in certain fields, for example in studying quantum-mechanical systems and simulating certain chemical processes.
They are not, however, machines that can solve every task faster in principle.
Nor is there any reason to assume that we necessarily need quantum computers to automate large parts of our economy.
Artificial intelligence is already advancing on classical computer systems.
Robotics does not necessarily require quantum computing power.
New energy sources, improved production processes and automated infrastructure can enable considerable gains in productivity even without this technology.
Perhaps the quantum computer is not a prerequisite at all for a world in which we have to work far less.
Perhaps it is merely one of several possible accelerators.
And with that, the perspective shifts.
We are thinking about a technological race in which enormous digital assets are a possible incentive.
Yet at the same time, other technologies are developing that could change our relationship with economic wealth in the long run.
What if the struggle over control of billions in bitcoin one day takes place in a world where basic material provision has long ceased to be a comparable problem?
What if we develop technologies to protect or seize digital wealth, while other technologies reduce the need to own such wealth for our own survival at all?
That might be the greater paradox.
10When machines produce almost everything
Let us imagine a society in which artificial intelligence and robotics take over most of the necessary work.
Energy is generated in large quantities and at low cost.
Agricultural production is largely automated.
Machines erect buildings, maintain infrastructure and manufacture goods.
Medical systems detect diseases early and support their treatment.
Many goods and services on which people today must spend a considerable part of their income could become much cheaper.
That does not mean material scarcity would disappear entirely.
Land, raw materials, energy, production capacity and environmental resources still have physical limits.
Nor would the cost of the technology itself be zero.
But the economic burden of meeting basic human needs might fall dramatically.
And with it, our idea of work could change.
Today, most people have to spend a substantial part of their lifetime earning an income.
We work in order to have a home, to eat, to provide for our families and to prepare for the future.
Many of our economic decisions stem from the need to cope with uncertainty.
But what happens when technical systems are increasingly able to secure these basic provisions?
If people no longer necessarily have to work to meet their basic needs, it would not only change our economy. It would change our relationship with our own lifetime.
There is, however, a decisive caveat.
Technological abundance does not automatically mean social abundance.
If a few companies control all the means of production, a largely automated economy could create new dependencies.
If energy, housing and machines are only accessible in return for high payments, people could remain under economic pressure despite enormous productivity.
The central question would therefore not only be how much our technology can produce.
But also who owns the means of production and who has access to their output.
A technologically advanced society is not automatically a just society.
Overcoming material scarcity would be technical progress. Distributing its benefits fairly would remain a social task.
11Money in a world of abundance
Let us nonetheless assume this challenge is at least partly met.
Basic material needs can be covered with little effort.
Food, energy and numerous services are readily accessible to a large part of humanity.
Would we still need money?
Probably yes.
Because even in such a world there would still be things that are not available without limit.
Land in particularly sought-after places.
Unique objects.
Rare raw materials.
Personal services.
And above all, the limited attention and lifetime of other people.
Markets and prices could continue to emerge for such goods.
But the role of money might change considerably.
Today, for many people, money is above all an instrument of security.
We save to be able to weather crises.
We invest to become more independent over time.
We try to build wealth so that one day we no longer have to work.
But if our basic living conditions no longer depend on paid work to the same extent, the motivation to accumulate wealth could change as well.
Money would not disappear.
But for many people it could lose part of its existential significance.
Perhaps the greatest economic progress would not be that everyone becomes a millionaire. But that no one has to be a millionaire to lead a good and secure life.
That would be a fundamental shift in our current notion of prosperity.
12And what does this mean for Bitcoin?
Bitcoin could continue to exist in such a future as well.
Its limited supply would not automatically become meaningless.
After all, rare things can hold considerable value even though nobody needs them to survive.
Works of art, historical objects and coveted land show that economic value extends far beyond basic needs.
Digital scarcity could also remain in demand.
Perhaps Bitcoin will become a long-term store of value in a highly automated world.
Perhaps it will remain an important means of transferring property independently of central institutions.
Or perhaps its social significance will change completely.
Because once basic economic needs are largely secured, a different question arises.
Why would people still want to accumulate ever greater fortunes?
Perhaps for influence.
Perhaps for status.
Perhaps for the chance to own special things.
Or perhaps out of a need for control over their own future that would not disappear entirely even in a society of abundance.
Bitcoin could then still be valuable.
But its value might carry a different meaning than it does today.
The irony would be that a system whose appeal rests largely on artificial scarcity could endure in a society that has increasingly overcome many forms of natural scarcity.
That is not necessarily a contradiction.
Because Bitcoin does not attempt to produce material abundance.
It attempts to provide rules for digital property and money.
But perhaps future generations would look at our present fascination with a limited digital asset through different eyes.
They may not ask how much a bitcoin is worth.
But why, in a world of enormous productivity, we still placed so much importance on accumulating scarce units.
13The value of time
Perhaps over the centuries we have grown used to a particular idea of prosperity.
A wealthy person is someone who owns a lot.
Money, real estate, companies or other assets.
Yet for many people, property is not an end in itself.
It is a means.
A means to gain security.
To be able to make decisions independently.
To have time for family.
To not have to judge every activity by its economic return.
And to one day have the freedom to shape one's own life more according to one's own ideas.
If we look more closely at this motivation, it becomes clear that it is often not only about money.
It is about the possibilities money opens up.
Perhaps for many people money is therefore less the actual goal than a tool for gaining control over their own lifetime.
It is precisely at this point that technological progress could take on extraordinary significance.
Not because it necessarily makes everyone rich.
But because it could reduce the cost of many of life's essentials.
Economic freedom might then no longer be solely the result of large individual fortunes.
But increasingly a feature of our social infrastructure.
That might be one of the most important changes we could ever achieve.
14The paradox of scarcity
When we bring all these considerations together, a remarkable picture emerges.
With Bitcoin, we have created a system that deliberately organizes digital scarcity.
Its units remain within a self-contained protocol, while their economic value is determined by the open world.
Its cryptography could one day be threatened by quantum computers.
The network could prepare for this and introduce new protective mechanisms.
But the bitcoin left behind under old conditions could become an economic incentive for developing precisely those quantum computers.
Bitcoin could thus – at least hypothetically – help drive a technological race whose results reach far beyond cryptocurrencies.
At the same time, artificial intelligence, robotics and other technologies are developing that could keep improving our ability to produce material goods.
Perhaps these developments will one day fundamentally reduce our dependence on paid work and economic scarcity.
And then a remarkable situation would arise.
We would have made enormous efforts to protect the value of scarce digital units.
We might even have created additional economic incentives to develop new technological capabilities.
Yet the same technological development could, in the long run, help reduce our dependence on owning large fortunes.
We would thus use economic scarcity to stimulate technological progress, which in turn could help make economic scarcity less significant.
Perhaps this scenario will never come to pass.
Perhaps quantum computers will play only a minor role in this development.
Perhaps a hundred years from now Bitcoin will have far greater economic significance than it does today.
Or perhaps future generations will develop entirely different systems whose properties we can hardly imagine today.
All of this remains open.
But regardless, this thought experiment leads us to a question that reaches far beyond Bitcoin.
What is the actual purpose of our technological and economic progress?
Is it about creating ever greater fortunes?
Reaching ever higher valuations?
Building ever more powerful machines?
Or is it ultimately about giving people more freedom?
Perhaps the most important development of the future is not a bitcoin worth 100 million dollars.
Not a quantum computer that can solve previously unsolvable problems.
And not an artificial intelligence that takes over almost every economic task.
Perhaps the greatest progress lies in the fact that one day we will no longer have to spend most of our lives securing our basic economic existence.
Perhaps we will then no longer measure prosperity primarily by how much someone owns.
But by how freely they can decide over their own time.
And perhaps, looking back, we will realize that for centuries we tried to earn more and more money in order to one day depend on it less.
The greatest success of our economy might one day be that we need it less and less for our personal happiness.
Because if one day we no longer have to work to live, the question is not only what we still need money for.
But above all: what do we then actually want to live for?