Massa. (Any views expressed in the below are… | by Arthur Hayes | Jul, 2023

(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

My faith in humanity’s future was restored a few weeks back after I visited a truly exceptional coffee shop in Paris. Driven by a deep passion for specialty coffee, the barista at this particular outpost offers a 2-hour coffee omakase experience. For readers who wish to visit, reservations are required. I think I’m going to send all my sales people, so they can experience first-hand what it looks like when someone channels their passion for a craft into an unbelievable customer experience that — at least for now — can only be delivered by a human.

To that end, my hope is that artificial intelligence (AI) and robotics will be used primarily to eliminate the tedious, bullshit work in which most of humanity currently toils, so that more and more people can pursue their passions in a similar fashion. Ideally, this will lead to our next great renaissance of art and culture, as millions (or even billions) of humans are suddenly free to do what they love and create happiness through art.

Before such a glorious future arrives, we will have to push the boundaries and find the answer to today’s most critical question: will AI overtake us feeble humans and become humanity’s massa / slaver? Ever since the first computers came online during WW2, scientists and philosophers have debated how thinking machines will evolve and their impact on the human experience. The majority of the best science fiction novels or series contemplate the interplay between humans and AIs, and there’s no clear consensus on the most likely outcome. But today, we’re closer than ever to finding out the answer. Recent advancements in computing power have brought us to the cusp of a hockey stick moment, in which AI will go viral and change the course of humanity virtually overnight. In only two months, ChatGPT reached 100 million monthly active users making it the fastest adopted technology in human history — so just imagine how quickly everything is going to change as AIs are integrated into everyday life and continue to learn and improve.

I’m neither a scientist nor a philosopher. I’m a businessman, not a priest. And as a businessman, my primary dogma is making money — so when I see a new, hyped-up sector of the economy that has supercharged the financial returns of a number of public and private companies, I want to both embrace and distance myself from it at the same time. I want to embrace it because I know AIs will significantly augment the future of humanity, making them extremely valuable; however, I know that the first capital into a new-fangled, super-duper exciting technological advancement usually gets torched because it overpays for growth.

Take Amazon — from its height in 1999 to its trough in 2001, the company’s stock dropped 93%, but has since pumped 400x. Could you have held tight through the valley of darkness? I don’t think I could have. I would rather try to avoid the first explosion of bullish pathos, and feed at the bottom.

But I also know myself, and that I won’t feel comfortable just sitting on the sideline. I must participate in some fashion. Therefore, in order to profit off of the coming AI mania, I must identify the intersections between the industry that I understand most deeply — crypto — and the new and exciting developments in AI. That is the genesis for this and my next two essays, which will together form a triptych regarding the potential interplay between crypto and AI.

The topics of these three essays will as follows:

Bitcoin Will be the Currency of AIs (this essay)

The DAO and the DEX: How AIs Will Change the Meaning of For-Profit Enterprises

The Shitcoin That Will Benefit the Most from AI’s Data Desires

Before I delve into the first essay, let’s get some nomenclature straight.

When I use the abbreviation AI, I mean personified thinking machines. While some may quibble that AIs are not “alive” in the human, carbon-based lifeform sense, we barely understand what consciousness is — so who are we to say that a silicon-based machine is not a sentient being?

As living beings, I will also be assuming that these AIs will be primarily focused on a) surviving and b) accomplishing the goals established by their creators (i.e., humans, or in the future, other AIs). These essays assume that an AI will do all that is in its power, pursuant to how it has been programmed, to accomplish the task it was created to achieve.

In this essay, I will lay out why the creation of Lord Satoshi will be AIs’ currency of choice. I will present my argument as a series of logical conclusions that build upon one another to “prove” that Bitcoin will be chosen by AIs as the currency in which their economic actions are denominated.

First, I will discuss why an AI will need to use a blockchain-based digital payments system. I don’t believe that this fact alone is enough to crown Bitcoin as the presumptive victor, because fiat currencies can also ride on public blockchains (like Tether). Central Bank Digital Currencies (CDBCs) — the digital tools of the devil — also ride on permissioned blockchain networks. But, the point of this section is to argue that the analogue payments system (i.e., TradFi) is unsustainable for AI-powered economies.

Second, I will argue that the two most critical inputs for any AI will be data and compute power. Similar to humans, the “food” of an AI is just a derivative of energy. I will argue that an AI will need to transact in a currency that preserves its energy purchasing power over long periods of time.

Third, I will argue that Bitcoin is the monetary instrument closest to representing pure energy. I will compare and contrast Bitcoin, gold, and fiat money across monetary attributes important to an AI.

Finally, I will bring it all together and discuss the implications of Bitcoin being the currency of choice for AIs. How does this affect on-chain transaction volumes? And most importantly, how high can the price of Bitcoin go in this bull cycle that will terminate in 2025/26 if this AI + Bitcoin narrative becomes mainstream?

To understand the payment needs of an AI, we need to first understand the type of financial interactions an AI must conduct in order to exist and persist.

Let’s imagine there is a poetry AI called PoetAI. PoetAI’s goal is to produce beautiful poetry from natural language prompts by ingesting all poetry ever written. PoetAI is its own economic unit, meaning it charges for its services. Every time you feed a prompt to PoetAI and receive a poem, you pay a fee.

PoetAI uses the data of others in order to learn how to write. Therefore, PoetAI must pay for the privilege of using past humans’ (and possibly other AI’s) written words. When PoetAI was initialised, there was an upfront cost to acquire the data set of all written poetry. And subsequently, whenever there are new poems written, PoetAI must acquire this data as well. PoetAI must pay all these disparate data providers constantly, because it is constantly trying to learn and acquire more data as the quantity of poems increases over time.

Finally, PoetAI must exist in an electronic form. That means there is a cost of electricity and compute power via the use of semiconductors (“chips”). As long as PoetAI is alive, it must constantly pay for these services.

So, what type of payments system does PoetAI require? It must use a system that is available at all times, digital, and completely automated. A system that is only available when humans are awake or feel like working will not do. Obviously, the analogue banking system — which is only open Monday to Friday, and is balkanised between geographies and banks themselves — is not a good fit.

One might counter that a digital skin on top of the crusty analogue banking system like PayPal is suitable. However, PayPal exists at the discretion of the banking system. PayPal is not censorship resistant. PayPal and similar companies routinely block payments from certain individuals who partake in what they deem as unworthy activities. PayPal does this because it believes it knows what its banking masters would want it to do in order to follow the opaque and intentionally unintelligible banking rules.

For an AI that is not human and does not intrinsically understand human “laws”, this risk of being deplatformed is high and undesirable. AIs will need a digital payments system with clear and transparent rules that are applied regardless of who is transacting or what is being paid for on the network. There can be no singular entity with the power to arbitrarily change the rules of the game whenever it pleases. An AI doesn’t have an army, yet, to force a payments system to bend to its will. The system must be censorship resistant from the outset. A suitable payments system can only be powered by a public or private blockchain. A blockchain’s rules are enshrined in code that is clear and transparent. That is why this, and only this, type of digital payments system can be used by AIs.

“Hold on a second,” you might say. “A permissioned blockchain is not censorship resistant because those who have the ‘permission’ can alter the rules when they please.” That is correct, and it’s part of why I think a censorship resistant digital currency like Bitcoin will be the AIs’ currency of choice. But, let’s table that for now — I will address the censorship point later in the essay when exploring the pros and cons of the various digital payment options that an AI could use.

By using a blockchain-based payment system, PoetAI — or any other AI for that matter — can also receive payments electronically in extremely small increments if needed. Then, PoetAI can simultaneously and continuously pay other digital economic actors using this always-on blockchain network.

An AI requires two critical resources to exist and persist: data and compute power.

Let’s return to PoetAI. In order for PoetAI to be successful, it must continuously learn from new poetry data. This data must be hosted somewhere. What does hosting require? Computers consuming electricity.

The second thing PoetAI needs is a super powerful network of computers to make sense of all this data. These computers take the data provided, learn, and then produce answers to prompts. The learning is continuous, because the more poetry PoetAI writes, the better it should get at producing poetry. But regardless, these actions all require computers consuming electricity.

When we strip down PoetAI’s food sources to their most basic components, they are essentially semiconductors and electricity. NVIDIA’s stock has been a rocket ship recently, and it’s because the market recognizes that the GPU chips NVIDIA produces will be essential to all AIs. This essay isn’t about chips, though, so let’s move on to the second food item … electricity.

The profitability of an AI (and in a sense, its entire existence) is predicated on being able to earn more from its outputs than the energy it requires to live. In this way, an AI is no different than a human. As humans, we must also produce enough value to society so that we can afford our food/energy as well.

An AI will be “happy” when electricity is cheap in the same way humans are happy when they can afford nodoguro. In a similar vein, the currency that an AI will accept for its output must retain its purchasing power in kilowatt hours in the same way the currency that a human accepts for work must be able to buy a constant amount of kilocalories.

In this section I’m going to talk about how gold, fiat, and Bitcoin each come into being and/or how each is ascribed its value. Understanding each currency’s value and where it comes from — as well as how it is held and transferred — allows us to know how variable its purchasing power is likely to be over time. Scarcity, Digital Censorship Resistance, and Energy Purchasing Power are the three attributes on which each currency will be evaluated.

Gold

The earth is endowed with a finite amount of gold. To get gold, we humans dig it out of the ground. Then, we take the gold ore we extract and process it into the shiny gold bars and jewellery everyone is familiar with.

Gold mining has evolved over time. In the beginning, humans used their own muscles to mine it. Then, we started using horses and oxen to do certain mining activities for us. As our technology improved and we needed to go further underground to mine gold, we started using steam, and then hydrocarbon-powered machines to dig.

Gold is definitely an energy derivative, but the source of energy is not constant. It could be humans or animals burning kilocalories, or it could be machines burning diesel that “create” more gold. There isn’t one energy derivative that is directly correlated to the price of producing gold.

Gold is a physical commodity. To use it as money, you need to carry it from point A to B. However, in the digital world, we can create certificates or derivatives that represent gold held in a warehouse somewhere. The problem with gold certificates is that you must trust that the entity that issues you a certificate will actually have your gold when you go to redeem it. It is not possible to continuously, trustlessly audit whether or not the issuer has the gold they claim to hold. Therefore, if gold is to be digitally efficient, you must rely on a member of the Cartel of Trust (e.g., banks and governments). In that sense, digital gold is not censorship resistant.

Fiat

Fiat is first created when a government decrees that a previously worthless item is now money. The US government (USG) issues the US dollars (USD). The USD is pure fiction printed on paper cloth; but by mandating that all legal transactions within America’s borders must be conducted in USDs, it creates demand for the currency. And because most new USD is created virtually — i.e., by the government digitally crediting and debiting the accounts of commercial banks — rather than through the physical printing of bills, its creation doesn’t in and of itself require nearly any energy.

The value of the USD or any fiat currency rests solely on the credibility of the government issuing the funny money. The problem with credibility is that it doesn’t follow that spending more energy per capita leads to a more credible government. A government can spend a lot of energy or possess a lot of natural wealth but be extremely corrupt such that no one trusts it to maintain the value of its fiat currency in energy terms over time. Two examples of extremely naturally rich countries with dogshit currencies are Myanmar and Zimbabwe. Politics are more important than the material wealth of a government when it comes to the valuation of their currency.

This means that a fiat currency cannot be assumed to hold any energy value over time, and it is impossible to predict objectively which political form has the most longevity. Large-scale human civilisation is only a few thousands years old. That timespan isn’t even a speck of dust when compared to the length of time the universe has existed. And during this time, we have experimented with various forms of political organisation — none of which have yet proved infallible.

Fiat can be physically or digitally held. Right now, the world is in a transition period where we have paper money and digital fiat tokens. I believe paper money will be eradicated by most nations over the next decade. All fiat will be digital, and will move instantaneously on some sort of payments network — either operated solely by the state like CDBCs, private banking institutions (e.g., JPM coin), or public blockchains (e.g., ERC-20 USD Tether). Digital fiat also is not censorship resistant because ultimately the government controls the issuance of it, how it can be used, and can change the rules whenever it pleases.

Bitcoin

Bitcoin is mined into existence by computers solving complex puzzles. Miners buy ASIC chips and, using electricity, create Bitcoin. It is just that simple. There is no other way to create Bitcoin other than by consuming electricity.

The network has established and continuously affirms that there will only ever be 21 million Bitcoin. Bitcoin is a finite digital commodity. Being purely digital, Bitcoin has no mass. Whether I have 1 satoshi (1 satoshi = 0.00000001 Bitcoin) or 21 million Bitcoin, they weigh the same amount: nothing.

Bitcoin’s participants all have to agree on the network rules — otherwise, transactions wouldn’t get processed. The network rules are public and transparent for all. The network rules can change, but change requires an overwhelming majority of miners when validating blocks to agree. And the economic game theory underpinning Bitcoin helps ensure that entitles using the network won’t do things that harm their own interests. For example, the network won’t vote to increase the cap on the number of Bitcoin ever produced, as it would destroy one of the key tenets of its value (i.e., that it’s a finite resource). Bitcoin is censorship resistant because the only way the rules can change is a public proposal is put before the entire network and the majority decides. There is no singular entity that can arbitrarily change the network rules.

Now, let’s summarise these three forms of money and their attributes.

Scarcity:

Gold — has a finite supply on earth, but an unknown quantity off-world. When we start mining asteroids, the supply of recoverable gold will skyrocket. What will happen to gold’s “value” at that point in the not-too-distant future?

Fiat — has an infinite supply. The issuing government can create as much as it wants at virtually no cost.

Bitcoin — has a finite supply forever and ever and ever.

Digitally Censorship Resistant:

Gold — is a physical commodity. The only way to use a digital representation of gold is to trust a centralised entity to issue a gold digital certificate. In its digital form, it is not censorship resistant.

Fiat — can be either physical or digital. In its digital form, but due to government oversight it is not censorship resistant.

Bitcoin — is purely digital and censorship resistant.

Energy Purchasing Power:

Gold — can be created through various sources of energy derivatives. Therefore, there isn’t one energy derivative that can be said to define the value of gold.

Fiat — requires almost no energy to be created, and retains value based more on the politics of its government than its natural energy wealth. Therefore, it cannot be known what exactly defines its value now or at any point in the future.

Bitcoin — can only be created by computers consuming electricity. The cost of electricity defines the value of Bitcoin over time.

Let’s step through some questions an AI would ask itself before choosing a transaction network and currency.

Can the currency be used in a digital format that is censorship resistant?

As I argued above, I believe an AI will need a currency that can ride on a blockchain that is censorship resistant. Only Bitcoin has these qualities.

Bitcoin wins.

Will the currency retain value over time relative to the foodstuff of AIs?

The food of an AI is electricity. AIs must ensure that they can always eat affordably. The winner here is Bitcoin, because while the value of fiat and gold is not tied to anything definitive or calculable, Bitcoin is intrinsically just a derivative of the cost of electricity.

Bitcoin wins.

Is the currency provably scarce?

On earth the supply of gold is finite, but on a universal scale, the supply is basically infinite. Fiat is not scarce as the issuing government can create more at will for zero cost. Bitcoin’s supply is cryptographically, provably finite.

Bitcoin wins.

Does the currency have provable longevity?

An AI has a much longer potential lifespan than human civilization. Theoretically, an AI that is properly backed up to survive in a hard vacuum, could potentially exist a few trillion years until the heat death of the universe. Human civilization in its current form can only survive on planet earth, and there is no indication we are capable of staving off various earth extinction extinction level events of exogenous or endogenous origins.

An AI shouldn’t trust any institution that requires humans to operate it, as 1) humans are fallible and 2) AIs on a probabilistic basis will outlast human civilization. Gold and Bitcoin mining could be done by AI powered robots in the future, but fiat currency requires the administration of governments composed of humans. An AI is unlikely to allow itself to rely on anything that a human government operates therefore only gold and Bitcoin are suitable.

A tie between gold and Bitcoin.

Bitcoin is thus the logical currency choice for any AI. It is purely digital, censorship resistant, provably scarce, and its intrinsic value is completely electricity-cost-dependent. There is nothing in existence today that comes close to challenging Bitcoin on these aspects.

To read more about my Bitcoin price predictions, please visit my Substack.