The Halving or Halvening…
By: Aleksandar Svetski
Tags: Philosophy, Blockchain, Cryptocurrency, Bitcoin, Economics

It’s important to note that no rule in life is absolute. For example, with time preferences, one can actually still live in the moment & enjoy today, whilst having a low economic time preference, which will help ensure the capital, resources, and options for a better tomorrow (not just for yourself, but for society as a collective).

This is the game of life. Knowing how to behave & when.

The problem we have today is that economically, we are not given a choice. At scale, society is skewed toward a high-time-preferenced-consume-at-all-costs infrastructure that is not only burning us out, but robbing our future generations of their chance at prosperity.

Economics is the mechanism via which we (humans & society) function at scale. At a collective level, the preference should be low, assuming we want to have a better future. This is a noble goal, and one the so-called “leaders” of today have no concept of.

Greed

As our friend Gordon Gecko said; “Greed is good”.

It’s a fundamental human drive, not only for reasons of survival, but for thriving. Prosperity is inherently linked to greed, but when left unchecked, it can completely skew time preferences & collectively lead us to ruin (ie; the path we’re currently on).

It is & it does. But….

The problem with greed unchecked, is that power concentrates, and those who’ve managed to amass it can construct the system in a way where they have an unfair advantage (again, like our current crony-socio-capitalist system). This is very much a problem with today’s version of “the state” and the medium via which society functions (money & economics).

Things have gone awfully awry, and the only way to fix it is to make changes at the base. Anything we do at the top or on the surface is just playing musical chairs, or games of intellectual sophistry.

If we want a future where freedom is respected, property & prosperity remain rights, and where the best in each of us is rewarded — the economic system needs to change. That can only truly be done at scale with an economic tool like bitcoin.

Something that has no owner, but is owned by us all.

Something that cannot be changed, cannot be compromised, and cannot be bent to anybody’s will.

Something that grows, from nothing into something, not by decree, but by its very merit.

This is why Bitcoin is the check and balance to the blind excess running rampant in the world today.

It’s the antidote to a consumption-focused high-time-preference society that’s always chasing the next hit.

It’s the contrarian philosophical viewpoint that represents sense, stability, sanity & transparency in a world that’s lost its moral compass.

It’s the antithesis to the Keynesian madness, best exemplified by charts such as these:

All courtesy of wtfhappenedin1971.com

And one which, since this Corona cluster fuck, is going to make the RHS of the chart look like the LHS very shortly:

In our desire for abundance, we’ve vilified scarcity — and in the process eroded our notion of value.

It’s sad, but luckily, there’s a lifeboat → and it’s called Bitcoin.

But before we go there, let’s understand scarcity a bit.

Scarcity & Value

Scarcity is inherently linked to our understanding of value.

Let’s use a quick set of examples.

Family

Trinkets

Art

Time (although fungible)

Why do you care about (value) your friends & family so much?

Heard the saying: “You only have one mother / father / brother / sister”?

Your family members & friends are unique. They are something you cannot replace, duplicate or just “print” more of.

We value them because they’re inherently & verifiably scarce.

The same goes for a special trinket handed down to you by your great grandparents (as an example). It’s rare / scarce / unique.

Or art. We all know why a piece of art goes up in value once the artist dies.

*Corona Update* A more recent example of “things we value” include masks or hand sanitiser. Hospital beds, ventilators, trained staff?

Yep; if you think value has nothing to do with scarcity; think again.

How about the most scarce (fungible) resource we know of?

Time.

We all know we can’t make more of it. We all know of adages like “you can’t make more time”.

It’s the same concept, although time is a little different because the aforementioned items / people / etc are not fungible. Time is more akin to energy, or money as a unit or resource that is both scarce and fungible, and that we (at least the more intelligent of us) value highly.

If as you read this, you consider how much you personally value time, then you should ask yourself the same re: Bitcoin.

Scarcity is at the core of “value”, and it’s evident when we analyse something like money:

For something to maintain “value” over time it must be scarce

Value, always ties back to scarcity, in some way.

And unfortunately, in a world where we’ve lost our sense of scarcity, we’re also losing our sense of value (as relative & subjective a term as that may be).

We’ve not learnt the lesson, and have spread the ideology to many other areas of life. An approach which is not sustainable as it erodes the foundation upon which true value is built.

But again, my hope is that Bitcoin bucks this trend, and inspires the world to think in a new vein once again.

Let’s move onto things more tangibly related to the halving.

If you’ve enjoyed this topic, you can read more here:

Supply & Demand Basics

Systems with feedback loops function by finding equilibrium when different forces interact.

They help regulate each other much like a governor does on a steam train, or a thermostat on an air conditioner.

Supply and demand are one of these systems and it drives the most important element of an economy, ie; information, or as you may more broadly know it; price.

In fact, supply & demand are probably the central pillar for a system [society] of collaboration amongst market participants [free people], at a micro level and [fractally] through to macro levels.

Price is the key piece of information that not only results from a complex, interconnected set of inputs in a functional economy, but is also (and simultaneously) the carrier of said information, in yet another form of feedback-loop-driven-system.

Saifedean Ammous has a great section in his book, where he discusses how price is the mechanism via which a market will re-stabilise the production of Copper after a natural disaster.

Markets & their information superhighway (price) are incredible things, and I urge you to study them further.

How does this relate to Bitcoin and the halving?

Well…

Bitcoin is unique, not only in this world, but anywhere else we look because it exists at a time when demand for a unconfiscatable, uninflatable & uncensorable asset is increasing, and all the while, its supply schedule is tightening.

This is unprecedented.

In a world of fiat, excess debt, inflation eroding our purchasing power, multiple asset bubbles (the everything bubble), inability to find yield anywhere, the never ending chase of marginal yield, the now “muh exponential” coronavirus and every other bit of insane chaos, people’s desire to hold something that’s finite & defined will continue to increase.

This demand, as it continues to rise, will put further pressure on a system whose supply faucet is ever decreasing.

The only “give” in the system is price, and the pressure is upward. Significantly upward.

This cannot be stressed enough.

Fixed Supply Asset.

Bitcoin is the world’s first “fixed supply” digital asset.

The closest analogy I can think of in the physical sense is land. You can’t just “make more of it” and as a result, as both global population & wealth grow, the inherent value of scarce land increases.

We’ve never had a digital corollary to this.

Traditionally, any digital item has been able to be copied or duplicated ad-infinitum. There was no cost to do so.

Bitcoin fundamentally changed this and not only gave us “digital scarcity” but something far more important, ie; monetary & information scarcity.

This is a profound concept when you really take a moment to think about it.

Aside from “time” or “energy”, Bitcoin is actually the only fixed supply, fungible unit that exists, and the fact that it was designed to be a form of money and now exists in a time of not only blind excess, but exponential chaos & monetary expansion, what lies ahead for it will be unlike anything we have seen in humanity’s entire history.

Bitcoin, Not Shitcoin

Bitcoin is extremely unique, for many reasons. We’ve done our homework, and it’s why Amber is a Bitcoin-Only company.

The one concept I’ll touch on here is the idea of digital scarcity.

By definition, digital scarcity can only happen once, and it occured with the advent of Bitcoin.

Bitcoin’s protocol and network has ossified around this strict definition of scarcity in the form of a fixed supply cap, and as a result, the market has imbued it with & reinforced its value as a scarce asset.

The community have optimised for this supply cap and it’s become Bitcoin’s core tenet, whilst all other copy-cat-crypto’s have optimised for elements that the market clearly doesn’t value, ie; transaction throughput, transaction speed, [apparently] decentralised applications, world computers, or whatever other farfetched ideas.

Bitcoin and the bitcoin community understood that it’s architecture was, from the beginning, about censorship resistance via decentralisation for the purpose of delivering an un-inflatable, un-confiscatable and uncompromisable form or money.

The fact that Bitcoin is now too entrenched, and so widely held, with so many stakeholders at so many different levels (ie; users, holders, node operators, developers, miners, exchanges, wallets and more) means that the core rules are now a social consensus which cannot be changed.

Those core rules include:

21m bitcoin

10min Blocks

Halving every 210,000 blocks (~ 4yrs)

Along with some more technical ones that are outside the scope of this article.

This idea, this consensus, these always on, always verifiable rules are what make Bitcoin Bitcoin, and why no shitcoin can ever change that.

You can copy everything from Bitcoin, but you cannot turn back time, you cannot go back to 2008 & let the cat out of the bag again, you cannot re-plant the seed and disappear (thank you Satoshi). You cannot replicate the historical record. It’s done.

Ubiquitous, verifiable digital scarcity is a one-time event, and Bitcoin is the result.

Stock to Flow

I won’t spend much time here, because PlanB’s work does it far more justice.

But suffice it to say, there is some form of correlation (and/or causation) between bitcoin’s stock to flow ratio, and its price.

In simple terms, stock to flow just means the ratio between how much “stock” is currently available / on hand, and how much “flow” or new stock is being produced.

To date, Gold has had the highest stock to flow ratio of just about any element or unit we know of — at least in a monetary / commodity sense, and that’s largely thanks to the fact that we’ve been hoarding it & storing it for thousands of years.

Bitcoin is about to catch up to Gold’s ratio, and it’s only been around for 11yrs.

This is a significant thing to come to terms with.

It’s taken >5000yrs of accumulating Gold to reach a stock to flow ratio of 62. That means it would take another 62yrs of mining to produce as much Gold as we apparently have in reserve. For reference, Silver is said to be at around 22.

Bitcoin is at 27 right now, and will double to 54 in less than 6wks.

The higher that number, the greater the scarcity.

Now…The (very critical) difference between Bitcoin and Gold (or any other commodity for that matter) is that no matter how many years one “mines” Bitcoin, its total supply is pre-determined. There’s no catching up. And furthermore, that supply schedule will continue to tighten.

Here’s the halving, in action;

2009 — Bitcoin mining rewards start at 50 BTC per block

2012 — The first Bitcoin Halving reduces mining rewards to 25 BTC

2016 — In the second Halving, mining rewards go down to 12.5 BTC

2020 — This halving will now bring us down to 6.25BTC every 10min.

2024 — After this halving, Bitcoin will have the highest stock to flow ratio that we know of.

2140 — The 64th and last Halving occurs and no new Bitcoin will ever be created

Just to blow your mind a bit, the last Bitcoin will take more than 30yrs to mine. Yes. THIRTY years.

Here’s what this schedule looks like in a graph: