The Path to Bitcoin

Episode #138 – The Information Theory of Value

The Value Equation:

V=ϕ×Io​×M×Q+ψ×E

1. Information Content (Io​)

Represents the amount of original information in an asset, quantified in bits. It’s the foundational data that the asset contains, whether it’s software code, design specifications, or any other form of data.

2. Energy Expenditure (E)

Denotes the total energy consumed in creating, maintaining, and securing the asset. This includes human labor, computational resources, and manufacturing processes.

3. Difficulty of Alteration (Da​)

Measures how challenging it is to change or manipulate the asset’s state. High Da​ implies greater security and immutability, crucial for maintaining the asset’s integrity.

4. Information Multiplier (M)

A critical component that captures the cumulative future information generated as a result of the original information. It serves as a proxy for the information’s quality and impact, indicating how much additional value the original information can produce over time.

5. Quality Factor (Q)

Quantifies the quality or significance of the information beyond its quantity. It encompasses attributes like novelty, utility, accuracy, and impact, providing a nuanced measure of the information’s value.

6. Value per Bit (ϕ\phiϕ) and per Joule (ψ\psiψ)

Assign economic values to each bit of information and each joule of energy expenditure, respectively. These metrics bridge the gap between abstract information and tangible economic value.

7. Total Value (V)

The aggregate value of the asset, integrating information content, quality, energy expenditure, and the ability to generate future information. It’s the comprehensive measure of the asset’s worth within the ITV framework.