The Missing Variable

Every passage, on the record.

1. 00:00Claim

   Opportunity cost is the cost of an opportunity foregone. It is the cost of the next best alternative that is given up in order to pursue a certain action.

2. 00:30Claim

   Opportunity cost represents the benefits that an individual, a business or any other entity could have received by taking an alternative action. Economics is built around this idea, this study of trade-offs. Every time we make a choice, we give up the opportunity to pursue other options.

3. 01:03Idea

   It's actually an energy allocation strategy to do an opportunity cost calculation because it doesn't cost that much energy to perform the calculation, but we can start to recognize before we make a decision whether or not that decision is going to be the most beneficial to us in our quest to transform more energy reserves in the future.

4. 01:35Claim

   Opportunity cost is also unique because it helps to illustrate the concept of scarcity. By understanding opportunity cost, we can better understand the trade-offs that are required in order to allocate resources in the most efficient way possible, or at least that is what we would like to think that it does.

5. 02:52Claim

   As a life form, both individually and the extended order, we are interested in an increase in our ability to create order, or said another way, we want energy. That's it. That's the whole point.

6. 02:52Quote

   That's it. That's the whole point.

7. 02:52Analogy

   You can't have your cake and eat it too. You can't double spend your Bitcoin. That is just how the world works.

8. 03:25Reference

   This ties in with our last podcast on understanding the relationship, the dynamic between information and energy. The less information we have on a given system, the less energy we can transform using that system.

9. 03:59Claim

   The more information, the lower the entropy, which increases the potential energy available to us. Bitcoin improves the available energy inside of our own system that can then be transformed. More information equals more energy. If you take away nothing else from this entire podcast, take away that.

10. 03:59Quote

    More information equals more energy. If you take away nothing else from this entire podcast, take away that.

11. 04:32Claim

    The decision is just a choice made between two or more alternatives. It is a process of selecting a course of action from a set of available options, which is happening all of the time.

12. 05:03Idea

    What are we allocating with every decision that we make? Energy. Every decision is a choice on where and how to allocate energy from the biggest decisions in life to the smallest.

13. 07:11Claim

    There is a serious flaw in our ability to calculate opportunity cost, it has been there, it has been unavoidable up until now. We have been missing a huge chunk of information. Technology simply hadn't progressed to the point that we were able to make sense of the entire extended order's productive capacity at any one time, and without knowing that figure, a key variable in calculating an opportunity cost is missing completely.

14. 07:47Quote

    We're playing make-believe, a type of make-believe where it's hard to see because everyone around you agrees to play the same make-believe.

15. 07:47Analogy

    You'll see in classic economics textbooks neat cookie-cutter examples of how to calculate opportunity cost. Opportunity cost calculations are very cut and dry when you're operating in a limited barter society. You have apples and bobheads and oranges.

16. 08:19Analogy

    You can easily calculate how many apples you're willing to give up for an orange based on only two factors. But in the real world it is significantly more complex, because we don't live in a barter society. In our example with Bob and the oranges, it isn't a choice between oranges or sticking with apples. It's a choice between oranges and everything else in the entire world. We use the proxy tool called money and prices.

17. 08:52Claim

    The existence of this tool means we can treat things that aren't related like they are related, because in fact, it's all energy.

18. 09:25Claim

    You need to know how much energy is in the system so you can begin to compare possible outcomes of an allocation. And we don't know that figure. We can't know that figure, not until Bitcoin.

19. 09:58Analogy

    Let's use an imaginary currency from a distant far off land, let's call it Jogums. Let's say instead of $100,000, the compensation is 5000 Jogums. What are you going to do before you're able to make an accurate decision about what is the best path forward? What information are you missing at this stage? What is a Jogum worth? What is the value of a single Jogum?

20. 11:10Claim

    How the vast majority of people do this now is by getting a vague idea of what those 5000 Jogums could actually purchase in goods and services. They calculate the energy they push into the job, then calculate the amount of energy they could convert those Jogums to based on what they are trading for. You go to the supermarket, look at a broad range of goods, figure out what the prices are, and you have a rough basis of exactly what you should be looking at in terms of exchanging Jogums for goods and services.

21. 11:48Quote

    Price is information. Information is good.

22. 11:48Claim

    There is a chasm between this and knowing the truth. There's a tremendous amount of leeway in this method, so many factors to take into account that yes, it's better than no understanding, but it's nowhere near crystal clear. It's nowhere near optimal.

23. 12:22Claim

    Suppose you could figure out how many entities use Jogums money and were able to verify exactly how many total Jogums were currently circulating the system, and not only that, but also how many Jogums there would ever be. You are taking something that was subjective before and making it objective. The out of what calculation becomes exponentially more beneficial. It's perfect clarity. Every decision made without this knowledge is inferior to ones made with this information, because there's less information in the previous version, and less information means less energy.

24. 12:22Idea

    The out of what calculation becomes exponentially more beneficial. It's perfect clarity.

25. 12:57Quote

    When we are deciding right now whether or not to buy a car for thirty thousand dollars or a dollar bottle of water, and we don't know out of how many dollars, there's a giant blind spot in our ability to efficiently allocate energy.

26. 12:57Claim

    No one can tell how much money is in the legacy system. No one knows, not the highest of the high or the lowest of the lows, not the people making the policies in the first place.

27. 13:31Claim

    Let's take an optimistic approach and say that even though the extended order lacks this key figure in its energy allocation decision making, 99 percent of the time we still get it right, we still do exactly what is best. That means if we had the whole picture, we could improve by one percent, a measly one percent.

28. 14:01Claim

    One percent across the extended order is massive. One percent compounded is even more impressive. In reality we're much worse than 99 percent. The real answer is that we simply don't know how efficient we've been up until now. There has never been a way to actually measure it. Now, Bitcoin fixes this. This gives us a scorecard that we can start to reliably measure and we can hold ourselves against.

29. 14:01Quote

    Now, Bitcoin fixes this. This gives us a scorecard that we can start to reliably measure and we can hold ourselves against.

30. 14:36Analogy

    I like to think of it with an analogy to our current market environment where insider trading is a well-known phenomenon and generally frowned upon. Insider trading refers to the buying and selling of publicly traded company securities by someone who has access to material, non-public information about the company. Are people with insider information more likely or less likely to successfully trade a stock? The answer is more.

31. 15:09Claim

    With more information, we have less disorder. We are better able to predict the future of a given system as our information on that system grows. Less entropy. Someone who uses Bitcoin as a unit of account has more information than someone who uses fiat, a lot more information.

32. 15:09Quote

    Someone who uses Bitcoin as a unit of account has more information than someone who uses fiat. A lot more information.

33. 15:41Claim

    You don't need to track the news. You don't need to listen to 12 people in a room in a country you've never been to. You don't have to guess what giant banks are doing behind the scenes to enrich themselves at your own expense. Think about the time and the energy that you have to allocate to that, and you don't need to do any of that, and you can be more accurate not doing it.

34. 16:12Claim

    Poor decision making becomes more difficult. Bitcoin is actually making it harder to make the wrong choice. An entire variable in the opportunity cost equation has gone from being unknown and unknowable, the best we could do was a, was a guess, an approximation.

35. 16:12Quote

    Bitcoin is actually making it harder to make the wrong choice.

36. 16:12Quote

    The guess is even more dangerous because most people don't even realize it's a guess. And if you fool yourself into thinking that you actually know the number, that's more dangerous than realizing the truth.

37. 16:47Claim

    It is an exact figure that cannot be manipulated, that we all know for sure cannot be changed by you, by me, by the most powerful governments and people in the world. No one can change it.

38. 16:47Prediction

    It might be the case that it won't always be the best move to allocate all of your excess energy reserves to Bitcoin in the future, but it is certainly the move now.

39. 17:20Prediction

    You can do the opportunity cost math on anything in the world versus Bitcoin and see that everything is currently overpriced in Bitcoin terms. The rational thing to do is to buy Bitcoin and wait until the rest of the world catches on.

40. 17:51Claim

    You make one better energy allocation today and you have more energy reserves than the alternative, and it's only going to compound from there. That energy that you were able to transform and now have an excess, it needs a home, you have to use it or lose it. It takes energy to transform more energy. That one improved return is the foundation for millions of returns to follow. You make 10 in a day and it grows exponentially. Imagine a million in a day.

41. 18:25Analogy

    If you're going out to breakfast and trying to decide if it's worth it to spend twenty five dollars on avocado toast or not, you have to ask yourself how many dollars are in the system. How many dollars will be in the system twelve hours from now, twelve days from now, twelve months from now?

42. 18:25Quote

    So next time you start thinking in your fiat brain, you have to ask yourself out of what? Out of what is the question?

43. 18:59Claim

    It's very difficult to accurately gauge true opportunity cost inside a money based economy if we can't accurately gauge the properties of money. The utility of the opportunity cost calculation drops significantly.

44. 18:59Prediction

    I believe that as more and more people begin to understand the power of this idea, a more accurate opportunity cost calculation combined with other aspects of the Bitcoin network and the layers on top of it will lead to dials of energy in our lives.

45. 19:42Analogy

    You'll be able to dial up and down how much energy you have access to based on your personal preferences in real time. The quality of the market feedback will be pristine and communicated filter free to all participants.

46. 19:42Claim

    Personal responsibility moves to the front. You can't blame the variable you couldn't identify before now. It's up to you to make the best decisions. No one can rug you on what you thought was an efficient energy allocation strategy. The market will provide that feedback and quicker than ever before.

47. 19:42Quote

    You can't blame the variable you couldn't identify before now.

48. 20:14Quote

    The scoreboard will be sat based. If you're winning, your score will increase.

49. 20:14Analogy

    There's a problem right now, someone somewhere that I could fix right now with my own particular knowledge set, and that would increase energy if I were to exchange with that person. If that problem can find me and I can actually gauge my opportunity cost of choosing not to answer or answer, the world is going to be a much better place.

50. 20:50Reference

    In the past, I think on this podcast, I've talked about the idea of not knowing where we are most useful and how big of a problem that is.

51. 20:50Analogy

    If you're the best physicist in the world, should you be grading exams between lectures at a university? Is that something that you should be spending your energy on? Probably not. You're probably leaving some energy on the table by doing that.

52. 21:22Claim

    We need a real time market where people can exchange value at near zero friction no matter who they are or where they are in the world. Bitcoin is the solution and the foundation to build more layers on top of to make this a reality. In this example, the professor just sets a sat threshold, which is just dialing in a level.

53. 21:54Claim

    The real problem here is that we don't know what we don't know. In financial markets, we have a complete mispricing in assets because we can't trust our benchmarks, we can't trust the things that we are measuring all of our asset prices against. The people that are responsible for our benchmarks, they can't even measure them accurately.

54. 22:27Quote

    Pick the system that lowers the entropy by providing more information that we know to be true.

55. 22:27Claim

    The struggle that you'll have to deal with in the near future is that almost any decision that isn't allocating to more sats is not going to be the most rational choice.

56. 23:01Prediction

    This information won't be insider for very long. The cat will eventually be out of the bag.

57. 23:31Reference

    I saw someone tweet out this idea before, just to give you an understanding of the kind of impact that Bitcoin is going to have: the value of a solution is equivalent to the size of the problem it fixes.

58. 23:31Claim

    Complexity increases with more variables. Decreasing variables means we are cutting computational power necessary to perform the calculations in the first place. Less energy needed.

59. 23:31Claim

    If we can improve our ability to allocate energy by throwing a rope around the entire capacity of the extended order to transform energy into the energy reserves that we currently have access to, if we can do that through absolute scarcity, through the 21 million hardcap of Bitcoin and no one being able to change that, that seems like a solution to a very large problem.

60. 24:17Quote

    Everything comes down to the decisions that we make about the energy we have access to. So allocate accordingly.