BTC #30: IN BITCOIN, IS SUPPLY AND DEMAND YOKED TO PRICE?

The short answer is they are not.  This post is a scientific post of why they are not linked.  The outcome that supply and demand are not linked to price is found in the picture above from live on-chain data.  Nicholas however, did not believe the on-chain data was accurate.  This is when I decided to go deeper for the answer.  This post was created because of a conversation that occurred on ClubHouse between a gentleman name Nicholas and myself in Crypto N Coffee.  

Wisdom is knowledge applied.

The internet of wisdom is found by challenging everything you believe right now using nature’s laws.

Wisdom is knowing what not to think about any longer........

Are humans wise? We have named ourselves Homo sapiens—‘wise person’. It is clear that as a species we have taken control over the environmental and biological future of Earth. Maybe Homo dominatus—which translates as ‘dominant person’ or ‘tyrannical ape’—would be more apt???

Wisdom and knowledge are not synonyms. Knowledge/data is fundamentally useless until it is connected by nature’s blueprint to become crystallized into a coherent organization. 

Whatever matter actually does itself, ironically doesn’t matter. Matter needs light to tell it what to do. It is the information linking matter which is primordial. Water = alphabet magnetism = circuit board, light is the photo-electric current that carries the information and energy matter requires.

Wisdom and knowledge are not synonyms. Those who seek wisdom must seek many truths to gain insight. They must be tenacious. Knowledge is a part of ignorance that man arranges and classify. Knowledge has the shelf life, like fish do in a market. 

Common sense is that supply and demand have to be linked to price.  Is this true based on what we know today?

It is not.   

It is not sustainable and does not always lead to truth. If knowledge is information, wisdom is the understanding and application of that knowledge and insight is the awareness of the underlying essence of a truth.

Sadly we can gain a lifetime of knowledge, yet never see the wisdom in it. We can be wise but still miss the deeper meaning of facts. Today, Bitcoin price is a good example of this.

BITCOIN IS A DIGITAL INFORMATION NETWORK = VOPSON PARADOX

Because it is, this explains why its supply and demand are not linked to price.  Sounds very counterintuitive doesn't it?  

WHO IS VOPSON?  WHAT IS HIS PARADOX ABOUT?  HOW DOES IT SCALE TO BTC? 

Dr. Melvin Vopson of the University of Portsmouth, in the UK, has a hypothesis he calls the mass-energy-information equivalence. It states that information is the fundamental building block of the universe, and it has mass. This accounts for the missing mass within galaxies, thus eliminating the hypothesis of dark matter entirely.  Not only does his paper explain why dark matter is a bad idea, it also explains why price is not always coupled to supply and demand.  

WHERE DID VOPSON'S IDEA COME FROM? 

In 1933, Swiss astronomer Fritz Zwicky, while observing the motion of galaxies in the Coma Cluster, began wondering what kept them together. There wasn't enough mass to keep the galaxies from flying apart. Zwicky proposed that some kind of dark matter provided cohesion. But since he had no evidence, his theory was quickly dismissed by conventional science of his day.

Then, in 1968, astronomer Vera Rubin made a similar discovery. She was studying the Andromeda Galaxy at Kitt Peak Observatory in the mountains of southern Arizona when she came across something that puzzled her. Rubin was examining Andromeda's rotation curve, or the speed at which the stars around the center rotate, and realized that the stars on the outer edges moved at the exact same rate as those at the interior, violating Newton's laws of motion. This meant there was more matter in the galaxy than was detectable. Her punch card readouts are today considered the first evidence of the existence of dark matter in astrophysics.

HOW DOES VOPSON DARK MATTER PAPER LINK TO BITCOIN? 

The bitcoin network is a peer-to-peer payment network that operates on a cryptographic protocol. Users send and receive bitcoins, the units of currency, by broadcasting digitally signed messages to the network using bitcoin cryptocurrency wallet software. Transactions are recorded into a distributed, replicated public database known as the blockchain, with consensus achieved by a proof-of-work system called mining. PoW systems requires energy input and when a transaction is submitted to the Bitcoin network, the information is passed on through all Bitcoin nodes—all computers connected to other computers in the blockchain—at the same time (through the blockchain).

In this way, BTC functions much like a public ledger, accounting for economic transactions and providing a way to verify that all Bitcoin users have been equipped with the same information. Everyone can download a copy of the blockchain and use it to trace the path of Bitcoins from one Bitcoin transaction to another. (It should be noted that although there is a record of every Bitcoin transaction ever made, they are linked to a specific Bitcoin address, rather than a personally-identifying name or email. For this reason, Bitcoin is considered pseudonymous.

Proof of Work blockchains codifies that an information transfer has happened. In 1961, Landauer first identified the link between thermodynamics and information theory by postulating that the logical irreversibility of a computational process implies physical irreversibility. His idea indicates that information is a physical quantity in digital systems, his idea demonstrated the link between information theory and thermodynamics.

The goal of a blockchain is to allow digital information to be recorded and distributed to every participant, but never edited. 

If the blockchain is editted information is destroyed. Rolf Landauer paper predicted that erasing even one bit of information would release a tiny amount of heat.  His theory has been experimentally validated many times.  It is OPERATIONAL in the digital world and BTC code is part of the digitial world.  What are the thermodynamic implications of Landauer's paper for Bitcoin price?

A loss of heat = lowered hashrate = lowered price.  This is why the recent Chinese miner re-deployment has affected price without having any on chain affect to supply.  I tweeted this pic below out to the creator of the Crypto N coffee room.  I decided to make this blog post after researching the topic of how information loss could affect price without affecting demand.  Landauer's paper proves why Nicholas conventional advice is not operational for Bitcoin.  

When heat is lost as energy, mass must also be lost from the network according to Vopson recent paper extending Landauer's idea from 1961. As mass is lost, the lever of BTC effect on other financial instruments would decrease. The loss of mass shows up in Bitcoin by a loss in price.  This likely would affect the price until information loss from the hash rate change stabilized.  The hash rate is equivalent to the metabolic rate of the digital algorithm that is BTC.  In this way, it mimics what a lowered T3 hormone level does in human thyroid.     

BITCOIN IS NOT ABOUT GAME THEORY:  IT IS ABOUT WHERE INFORMATION THEORY AND THERMODYNAMICS INTERMINGLE.  

PoW is fundamentally more decentralized and censorship-resistant than PoS because of how it handles information. With PoW, cheap energy is the strongest determining factor in participating in transaction selection. With PoS, wealth is the determining factor. Cheap energy is far more distributed than wealth but energy networks must always preserve information to keep this relationship intact.  When the hashrate drops, information is lost in PoW Bitcoin blockchain.  This decouples price from supply and demand.  

Decentralization links chaos and order ONLY when information is conserved. 

Nature is a 100% decentralized energy network.  The burden of performance NEVER ENDS within this organizing principle.

Is BTC like Nature?

Only when information on its blockchain is conserved by the network by a healthy hash rate. This implies within Bitcoin supply and demand are not linked.

As an analogy, If Proof of Work blockchains are Troy, Hashrate is its Trojan Horse.

Game theory vs information theory.

Both disciplines have a far-reaching impact on modern science and society: Information theory underpins the creation and the engineering of the digital age; game theory informs economics and social sciences. Bitcoiners believe that BTC is all about game theory. It is not.

Why?  

INFORMATION:

To be clear, the idea that information is an essential building block of the universe isn't new. Classical Information Theory was first posited by Claude Shannon, the "father of the digital age" in the mid-20th century. The mathematician and engineer, well-known in scientific circles—but not so much outside of them, had a stroke of genius back in 1940. He realized that Boolean algebra coincided perfectly with telephone switching circuits. Soon, he proved that mathematics could be employed to design electrical systems.

Shannon wrote about the code algorithm concept in a 1948 paper entitled “A Mathematical Theory of Communication.” For the first time ever, he explored the idea of quantifying the previously qualitative concept of communication, transforming it from nebulous to numerical. He used the thermodynamics of light as his backbone idea in the paper.  Shannon did this by connecting the well-established measures of probability (statistics = quantum probabilities) and entropy (thermodynamics = transformation of energy) to a new measure of communication, called information. Once Shannon connected these dots mathematically, it opened the door to signal processing, compression, and converting messages into an algorithm code to transmit them digitally.

Shannon was hired at Bell Labs to figure out how to transfer information over a system of wires. He wrote the bible on using mathematics to set up communication systems, thereby laying the foundation for the digital age. Shannon was also the first to define one unit of information as a “bit.”

There was perhaps no greater proponent of information theory than another unsung paragon of science, physicist John Wheeler. Wheeler was part of the Manhattan Project, worked out the "S-Matrix" with Niels Bohr and helped Einstein develop a unified theory of physics. In his later years, he proclaimed, "Everything is information." Then he went about exploring connections between quantum mechanics and information theory.

He also coined the phrase "it from bit" or that every particle in the universe emanates from the information locked inside it. At the Santa Fe Institute in 1989, Wheeler announced that everything, from particles to forces to the fabric of spacetime itself "… derives its function, its meaning, its very existence entirely … from the apparatus-elicited answers to yes-or-no questions, binary choices, bits."

Wheeler’s ideas have been expanded recently by Vopson who says:

If there is no dark matter in the universe than information must carry mass in the world.

Vopson, mentioned above, took Wheeler’s notion one step further and it explains why demand and supply are divorced from price in the Bitcoin ecosystem. 

His paper says that not only is information the essential unit of the universe but also that it is energy and it has to have mass. To support this claim, he unifies and coordinates special relativity with the Landauer Principle. That principle is named after Rolf Landauer who I mentioned above.   Because, Landauer predicted that erasing even one bit of information would release a tiny amount of heat, a figure which he calculated. Landauer said this proves information is more than just a mathematical quantity. This connects information directly to energy.  PoW is an energy consuming blockchain. Through experimental testing over the years, the Landauer Principle has held up.  Now we can see this effect in Bitcoin's price action as Chinese miners have been banned.  

Landauer first identified the link between thermodynamics and information by postulating that logical irreversibility of a computational process implies physical irreversibility. This indicates that information is truly physical and demonstrates a hard scientific link between information theory and thermodynamics.  

Remember BTC code is all about being a ledger of information.  This means VOPSON's new ideas link to Bitcoin.  

If information is energy, Information, once created has to "finite and quantifiable mass." to satisfy the mass equivalence equation of Einstein (E=mc^2) It so far applies only to digital systems, but could very well apply to analogue and biological ones too, and even quantum or relativistic-moving systems.   Bitcoin's ecosystem is one such digital system.  I'm sorry to break it to you Nicholas,  but science has definitive proof that price can be independent of supply and demand when information is lost for some reason.  I'd like to thank Nicholas for tickling my curiosity to find the answer why price is not linked to supply and demand in Bitcoin.  This blog scientifically explains it.  

New data must be assimilated to form new ideas.  

This blog shows you wisdom and knowledge are not synonyms. Those who seek wisdom must seek many truths to gain insight. They must be tenacious. Knowledge is a part of ignorance that man arranges and classify. Knowledge has the shelf life, like fish do in a market. It is not sustainable and does not always lead to truth. If knowledge is information, wisdom is the understanding and application of that knowledge and insight is the awareness of the underlying essence of a truth.

Sadly we can gain a lifetime of knowledge, yet never see the wisdom in it. We can be wise but still miss the deeper meaning of new facts on our old ideas. Today's blog is a good example of this using Bitcoin price as an example.

There are many who know things among us on ClubHouse,  but they maybe lacking in wisdom because they have not added in new data that changes what we used to believe. Your mentors should be filled with wisdom because they will be the connectors of life.

Their insight will be indefatigable for you. Not even ‘father time’ can destroy the natural truth of Mother Nature.

Creativity, which is the evocative visual storytelling of Nature's recipes, come at a price. Consider becoming a member of my tribe at KruseatDestin.com to find out how much time you have to sacrifice for your technologic addictions.  Once you do all my Patreon blogs are included in that entanglement.  I want to take your health game to new levels.  Are you ready?  

CITES:

 https://aip.scitation.org/doi/10.1063/1.5123794

https://www.mdpi.com/1099-4300/10/3/150

https://www.youtube.com/watch?v=z2Whj_nL-x8&t=1s