Bitcoin Has Already Won The Energy Game

It’s all about energy. Few understand this.

In 1985, General Foods was acquired by Philip Morris Companies for $5.6 billion, the largest non-oil acquisition ever at the time.

Most people might know General Foods from some of their famous products: Cocoa Pebbles, Fruity Pebbles, Honey Bunches of Oats, Shredded Wheat, Oreo, Chips Ahoy!, Kool-Aid, and Jell-O.

But Marjorie Merriweather Post didn't become the wealthiest woman in the United States because her company made the best cereal and cookies. Her success can be largely attributed to two brilliant business decisions:

1. acquiring Joel Cheek's vacuum packing pre-ground coffee company, Maxwell House, in 1928

2. acquiring Clarence Birdseye's frozen-food company, General Seafood Corporation, in 1929 (and hiring him on as director of research)

Post realized the potential of vacuum sealing and frozen foods before any other major brand did. And once the infrastructure caught up with her vision - through the development of refrigerator technology, changing of consumer purchasing habits after World War II, proliferation of larger and larger supermarkets, and acceleration of American commerce - the payback was enormous.

Food could finally be kept fresh for more than a few days at a time. This meant housewives could take fewer trips to the market which, over time, allowed for more women to leave the traditional housewife role and move into the workplace. It meant factories could mass-produce food weeks in advance of selling, spawning the concept of the modern grocery store.

General Foods wasn't a food company. It was actually a technology company, or more specifically, an energy storage company. Their largest innovation was bringing the ability to store chemical energy in food for longer periods of time to the masses.

Why was it important to specify General Foods as "the largest non-oil acquisition ever at the time"?

Because Standard Oil made John D. Rockefeller the wealthiest person in modern history. And Saudi Aramco ($1.87T) is the 4th largest company in the world by market cap today, bigger than #6 Facebook ($1.07T) and #7 Tesla ($738B) combined. Six of the top-23 companies in the world by revenue are oil companies.

Oil is literal energy storage - it stores potential energy in chemical form. For example, fossil fuels store energy that ancient organisms captured from the sun through photosynthesis hundreds of millions of years ago. That energy can be used today, or anytime in the future, by burning the oil. It's quite remarkable when you think about it; no wonder oil is so coveted.

Energy has a very specific physical definition: it's the ability to do work. Everything we do requires energy.

We also know that energy cannot be created or destroyed, only altered from one form to another. This is the first law of thermodynamics, or the law of conservation of energy.

These are the rules of energy and work in physics, but extrapolate these ideas and apply them to a broader sense of expending energy and doing work - using up effort and resources to do things - and the same general principles still hold.

For example, at this moment I’m spending my energy (time, consciousness, intellectual capacity, etc.) writing this article. I could also be spending it doing a number of other things, like reading a book or playing basketball. But I have to choose. And each method of spending my limited amount of energy has an opportunity cost attached to it (doing “nothing", like laying down, still uses energy that I could've spent doing something).

Thus, the capability to store or leverage energy harnessed today so it can be used tomorrow is the most fundamentally valuable thing in the world. All of the largest fortunes in modern history have been made by capitalizing on this. Don't get caught up in what form it takes or the semantics of the phrase “energy storage”. Apple, Microsoft, Saudi Aramco, Amazon, Alphabet - they're all doing it, directly or indirectly.

Imagine we have $1B of energy we want to store for 100 years. In other words, we can spend $1B worth of resources today to create $1B worth of value, and store it in whatever form that can retain all or most of it for 100 years. What are our best options?

Vacuum-sealed dried grains or frozen meat? An unopened box of Honey Bunches of Oats will last around 12 to 18 months before losing its quality. A frozen raw steak will only last around 8 months to a year before the meat begins to degrade. Sorry, Marjorie Merriweather Post and Clarence Birdseye. After 100 years, our expired cereals and decayed steaks would be worth much less than $1B.

Oil? Once oil is refined into usable fuel products like gasoline and diesel, it only has a shelf life of 3-6 months before losing its combustibility from oxidation and evaporation. Nope.

Batteries? A battery’s condition is called its state of health (SOH). Batteries start their life with 100% SOH and over time they deteriorate. Even the best batteries in the world will lose ~10-20% in capacity within 5 years, then continue to decline at a moderate pace, before a final significant drop towards the end of their lives. Our $1B in energy would be down significantly in 10 years, and be worth virtually nothing in 100 years if kept in batteries. That won't work either.

Fiat currencies? The US Dollar is the world's dominant reserve currency, the de facto global standard for trade and reference. Let me just Google "purchasing power of the US Dollar" and skim through the history of war and conflicts amongst the people who have controlled our fiat currencies over time real quick… hmm… ok, fiat definitely ain’t it.

Gold? As it turns out, gold is actually a very decent option. It's fairly scarce, and requires energy to mine. It's one of the least reactive elements on the Periodic Table; it doesn't react with oxygen, so it never rusts or corrodes. Gold is pretty neat. There’s a reason why its purchasing power has remained relatively stable and it has a market cap of $11.55T (~5x that of the second largest asset in the world, Apple). Because for thousands of years, it was by far our best option to store energy.

Until now.

Just like how gold mining turns energy expenditure into monetary value, in the form of gold, Bitcoin’s Proof-of-Work (PoW) mining turns energy expenditure into monetary value, in the form of bitcoin ($BTC).

But bitcoin is also more fungible and durable than gold. It's much more secure and scarce than gold. And it's orders of magnitude more divisible, portable, and programmable than gold.

Bitcoin is simply better than gold.

And since it’s open, borderless, and connected to the internet, it will likely be winner-take-all. When it comes to stores of value, there will be Bitcoin, and then there will be everything else.

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It’s always been about energy.

All assets have to be secured by a true source of work.

For the US Dollar, this is the amount of resources the American government spends on its military. The military protects global trade and shipping, which protects the strength of the US economy, which gives the US government’s word (“the US Dollar has value”) credibility.

For Nike’s brand, this is the amount of resources they spend on marketing, advertising, signing celebrity athletes with large fanbases to represent them, etc.

For religion, this is the amount of resources believers and/or people who benefit from it spend on storytelling, education, marketing, persuasion, coercion - whatever you want to call it.

But all of those sources of work are putting trust in people. People are irrational. People make mistakes. People can have bad intentions.

Satoshi understood that in order to create a digital, scarce asset, without central issuance, it has to be backed by a physical, finite, valuable resource that can’t be forged or faked. Trust in basic physics.

So for Bitcoin, this resource is energy. Because as far as we know, we can’t cheat the laws of thermodynamics. Using computation that has no shortcut (a guessing game) and requires energy to secure the Bitcoin network and give it value is brilliant. It’s a bridge between the informational realm and the physical realm (for Bitcoin, the map IS the territory). The fact that the cost of PoW mining is irretrievably sunk and accumulates both in the ledger and the mining hardware is a feature, not a bug.

I’m willing to entertain the possibility that in the future, we might find something that’s even better suited to be an anchor for truth than energy. And if someone figures that out and uses it to secure an open, decentralized, censorship-resistant, permissionless, and trustless network for value exchange without compromising any of those qualities, that hypothetical future network could eventually dethrone Bitcoin as the best store of value.

Until then, and barring any world-shattering breakthroughs in physics, mathematics and/or quantum computing, Bitcoin is and will be the one.

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Thanks to Rohun Vora, Sarah Du, Kyla Scanlon, Alex Hugh Sam, and a girl I matched with on Tinder for reading drafts of this.

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