Arthur Hayes: Why Bitcoin Will Become the Preferred Currency of Artificial Intelligence?

Arthur Hayes: Bitcoin as AI's Preferred Currency?

Original Text: “Massa” by Arthur Hayes

Translated by: Kate, Marsbit

A few weeks ago, my confidence in humanity’s future was restored after visiting a truly remarkable coffee shop in Paris. Out of a passion for specialty coffee, the shop’s barista offers a 2-hour coffee making experience. Those wanting to visit need to make a reservation. I’m thinking of sending all of my salespeople over there so they can experience first hand what it’s like when someone turns their passion for a craft into an incredible customer experience, at least for now, an experience that only humans can provide.

For this reason, I hope that artificial intelligence (AI) and robotics will primarily be used to eliminate the mundane, boring work that most people currently engage in, so that more and more people can pursue their passions in a similar fashion. Ideally, this will lead to our next great artistic and cultural renaissance, as millions (if not billions) of humans suddenly become free to do what they love and create happiness through their art.

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Before such a glorious future arrives, we must break through boundaries and find answers to today’s most critical question: will artificial intelligence surpass us weak humans and become our masters? Since the first computer came online during World War II, scientists and philosophers have been debating how thinking machines will evolve and their impact on the human experience. Most of the best science fiction novels or series consider the interplay between humans and AI, and there is no clear consensus on the most likely outcome. But today, we are closer than ever to finding the answer. The latest advances in computing power have brought us to the cusp of a tipping point, and AI will rapidly spread, altering the course of humanity almost overnight. In just two short months, ChatGPT’s monthly active users reached 100 million, making it the fastest-adopting technology in human history – so imagine how rapidly everything will change as AI becomes integrated into everyday life and continues to learn and improve.

I’m not a scientist or a philosopher. I’m a businessman, not a priest. As a businessman, my primary creed is to make money – thus, when I see a new, hyped-up economic sector that’s sending the financial returns of many public and private companies soaring, I both want to embrace it and keep my distance. I want to embrace it because I know that AI will greatly enhance humanity’s future and make them incredibly valuable. However, I know that the first funds invested in a novel, super-exciting technological advance are usually burned up because it pays too high a price for growth.

Using Amazon as an example, from its peak in 1999 to its low point in 2001, the company’s stock price fell by 93%, but then rose by 400%. Could you hold on in the dark valley? I don’t think I could. I’d rather try to avoid the first outbreak of bullish sadness as much as possible and buy in at the bottom.

But I also know myself, and I don’t feel comfortable sitting on the sidelines. I have to participate in some way. So to profit from the upcoming AI boom, I must identify the intersection between the industry I know best – cryptocurrency – and the exciting new developments in the field of AI. That’s the origin of this article and my next two articles, which will together form a triptych on the potential interaction between cryptocurrency and AI.

The themes of these three articles are as follows:

• Bitcoin Will Become the Currency of AI (this article)
• DAO and DEX: How AI Will Change the Meaning of Profitable Enterprises
• The Shitcoins That Will Benefit the Most from AI’s Data Needs

Before I delve into the first article, let’s clarify some terms.

When I use the abbreviation AI, I’m referring to anthropomorphic thinking machines. Although some may question whether AI is “alive” in the sense of being a human, carbon-based life form, we hardly understand what consciousness is – so why should we say that silicon-based machines are not sentient beings?

As a biological being, I will also assume that these AIs will primarily focus on a) survival and b) accomplishing the goals set by their creators (i.e. humans, or other AIs in the future). These articles assume that AI will do its best to accomplish the tasks it was created to do based on its programming.

Bitcoin Will Become the Currency of AI

In this article, I will explain why Satoshi Nakamoto’s creation will become the preferred currency of AI. I will present my argument as a series of logical conclusions that build on each other to “prove” that AI will choose Bitcoin as its pricing currency for economic behavior.

First, I will discuss why artificial intelligence needs to use blockchain-based digital payment systems. I don’t think this alone is enough to make Bitcoin the assumed winner, as fiat currencies can also operate on public blockchains (such as Tether). Central bank digital currencies (CDBCs) – the devil’s digital tools – also rely on permissioned blockchain networks. However, the focus of this section is to argue that simulation payment systems (ie TradFi) are unsustainable for AI-driven economies.

Second, I believe that the two most critical inputs for any artificial intelligence will be data and computing power. Like humans, the “food” of artificial intelligence is just a derivative of energy. I believe that artificial intelligence needs to use a currency that can maintain its energy purchasing power in the long run for transactions.

Third, I believe that Bitcoin is the currency tool closest to representing pure energy. I will compare and contrast the currency attributes of Bitcoin, gold, and fiat currencies that are important to artificial intelligence.

Finally, I will bring it all together and discuss the impact of Bitcoin becoming the preferred currency for artificial intelligence. What impact does this have on on-chain transaction volume? Most importantly, if this AI + Bitcoin claim becomes mainstream, how high can Bitcoin’s price go at the end of the bull market cycle in 2025/26?

Blockchain or Bankruptcy

To understand the payment needs of artificial intelligence, we first need to understand the types of financial interactions that artificial intelligence must engage in to exist and persist.

Let’s imagine an AI poetry called PoetAI. The goal of PoetAI is to create beautiful poetry from natural language prompts by absorbing all the poetry that has ever been written. PoetAI is its own economic unit, which means it charges for its own services. Every time you enter a prompt to PoetAI and receive a poem, you pay a fee.

PoetAI uses other people’s data to learn how to write. Therefore, PoetAI must pay for the privilege of using written texts from past humans (or other AIs). When PoetAI is initialized, it requires upfront costs to acquire a dataset of all written poetry. Afterwards, each time a new poem is written, PoetAI must also acquire this data. PoetAI must continually pay all of these different data providers, as it constantly tries to learn and acquire more data with an increasing number of poems.

Finally, PoetAI must exist in electronic form. This means incurring the cost of increased electricity and computing power through the use of semiconductors (“chips”). As long as PoetAI is alive, it must continually pay for these services.

So, what kind of payment system does PoetAI need? It must use a system that is available digitally, fully automated, and available at all times. A system that is only available when people are awake or want to work is not feasible. Clearly, a simulated banking system – open only on weekdays and disconnected from geography and the bank itself – is not suitable.

Someone might argue that a digital skin on top of a simulated banking system like BlockingyBlockingl is appropriate. However, the existence of BlockingyBlockingl is determined by the banking system itself. BlockingyBlockingl does not have a review system. BlockingyBlockingl and similar companies typically block payments from individuals they deem unworthy of activity. BlockingyBlockingl does this because it believes that its bank bosses would want it to do so in order to comply with opaque and deliberately confusing banking rules.

For AI, which is non-human and essentially does not understand human “rules”, this platform risk is high and undesirable. Artificial intelligence will require a digital payment system with clear and transparent rules that apply to anyone who is conducting transactions or paying on the network. No single entity can arbitrarily change the rules of the game. Artificial intelligence doesn’t have an army to force the payment system to submit to its will. This system must resist review from the outset. The appropriate payment system can only be supported by a public or private blockchain. The rules of the blockchain are contained in clear and transparent code. That’s why only this type of digital payment system can be used by artificial intelligence.

“Wait,” you might say. “A licensed blockchain cannot resist review because those who are licensed can change the rules whenever they want.” This is true, and that’s why I think anti-review digital currencies like Bitcoin will be the preferred currency for artificial intelligence. But let’s put that aside for now – I’ll discuss the pros and cons of various digital payment options that artificial intelligence could use, including review issues, later in the article.

By using a blockchain-based payment system, PoetAI (or any other AI) can also receive electronic payments in small increments as needed. Then, PoetAI can use this always-online blockchain network to continuously pay fees to other digital economy participants.

AI Must Work

The existence and continued existence of artificial intelligence requires two key resources: data and computing power.

Let’s go back to PoetAI. In order to be successful, PoetAI must constantly learn from new poetry data. This data must be hosted somewhere. What does hosting require? Computer power.

The second thing PoetAI needs is a super powerful computer network to understand all of this data. These computers acquire the provided data, learn from it, and then provide answers based on prompts. Learning is continuous, as the more poetry PoetAI writes, the better it becomes at writing poetry. But in any case, these operations require computer power consumption.

When we strip away PoetAI’s food sources to their most basic components, they are essentially semiconductors and power. Nvidia’s stock has recently skyrocketed because the market recognizes that the GPU chips produced by Nvidia are critical to all artificial intelligence. This article is not about chips, so let’s move on to the second food – electricity.

The profitability of artificial intelligence (in a sense, its entire existence) is based on being able to derive more revenue from its output than the energy it needs to survive. From this perspective, artificial intelligence is no different from humans. As humans, we must also create enough value for society to afford our food/energy.

When electricity is cheap, artificial intelligence is “happy”, just as humans are happy when they can afford nodoguro. Similarly, the currency accepted by artificial intelligence must maintain its purchasing power in kilowatt-hours, just as the currency accepted by humans must be able to purchase a constant amount of kilocalories.

Bitcoin is an Energy Currency

In this section, I will discuss how gold, fiat currency, and bitcoin are formed and how their values are assigned. Understanding the value and source of each currency, as well as how to hold and transfer it, can give us an idea of how much its purchasing power may change over time. Scarcity, digital audit resistance, and energy purchasing power are the three attributes for evaluating each currency.

Gold

Gold on Earth is limited. To get gold, we humans mine it from the earth. Then, we process the extracted gold ore into the familiar shiny gold bars and jewelry.

Gold mining has evolved over time. At first, humans used their own muscles to mine it. Then, we started using horses and oxen to do some of the mining work for us. As technology advanced and we needed to mine for gold deeper underground, we began using steam, and then hydrocarbon-powered machines to do the digging.

Gold is definitely an energy derivative, but the source of that energy is not constant. It may be human or animal calories burned, or it may be machines burning diesel “creating” more gold. No one energy derivative is directly correlated to the cost of producing gold.

Gold is a physical commodity. To use it as currency, you need to carry it from point A to point B. However, in the digital world, we can create certificates or derivatives that represent gold in a warehouse somewhere. The problem with gold certificates is that you have to trust that the entity issuing you the certificate actually holds your gold when you go to redeem it. It is impossible to continuously and credibly audit the issuer to see if they really do hold the gold they claim to have. Therefore, if gold were digitized for efficiency, you would have to rely on members of a trust cartel (e.g., banks and governments). In this sense, digital gold would not be censorship-resistant.

Fiat Currency

Fiat currency was born when governments issued decrees making previously worthless items into currency. The US government issues dollars (USD). The dollar is purely fictional, printed on paper, but it creates demand for the dollar by mandating that all legal transactions within the US must be conducted in dollars. And since most new dollars are created virtually – that is, through the government’s digital credit and debiting of commercial bank accounts – rather than through the physical printing of bills, its creation itself requires virtually no energy.

The value of the dollar or any fiat currency is entirely dependent on the credibility of the government that issues the counterfeit money. The problem with credibility is that an increase in per capita energy expenditure does not necessarily mean that a government will become more credible. A government may spend a great deal of energy or possess a great deal of natural wealth, but be so corrupt that nobody believes it can maintain the energy value of its fiat currency over time. Myanmar and Zimbabwe are two countries that are extremely wealthy but have terrible currencies. When it comes to valuing currencies, politics is more important than a government’s material wealth.

This means that it is not possible to assume that a legal currency has any energy value over a period of time, nor is it possible to objectively predict which political form is the longest-lived. Large-scale human civilization has a history of only a few thousand years. Compared to the length of time the universe has existed, this time span is not even a speck of dust. During this time, we have tried various forms of political organization, none of which has been proven to be absolutely correct.

Fiat currency can be held in physical or digital form. Now the world is in a transitional period, and we have paper currency and digital legal tokens. I believe that paper currency will be abolished by most countries within the next decade. All legal currencies will be digitized and will move instantly on some kind of payment network – either operated separately by a country, such as CDBC, private banking institutions (such as JPM Coin), or public blockchains (such as ERC-20 USD Tether). Digital fiat currency cannot resist censorship, as the government ultimately controls its issuance, its use, and can change the rules at any time.

Bitcoin

Bitcoin is created by solving complex computer problems. Miners buy ASIC chips and create bitcoins with electricity. It’s that simple. Except for electricity consumption, there is no other way to create bitcoins.

The network has been established and continuously confirmed, and the amount of Bitcoin is always only 21 million. Bitcoin is a limited digital commodity. As a purely digital currency, Bitcoin has no mass. Whether I have 1 satoshi (1 satoshi = 0.00000001 bitcoin) or 21 million bitcoins, they weigh the same: nothing.

All participants in Bitcoin must agree on the network rules, otherwise the transaction will not be processed. The network rules are publicly transparent to everyone. Network rules can be changed, but changes require the agreement of the vast majority of miners when verifying blocks. The economic game theory that supports Bitcoin helps ensure that rights holders who use the network do not do things that harm their own interests. For example, the network will not vote to increase the production limit of Bitcoin, because it would violate one of the key principles of its value (that it is a limited resource). Bitcoin is resistant to censorship, because the only way to change the rules is to submit a public proposal to the entire network and be decided by a majority of people. There is no single entity that can arbitrarily change the network rules.

Now, let’s summarize the three forms of currency and their properties.

Bitcoin wins.

Is this currency really scarce?

On Earth, the supply of gold is limited, but globally, the supply is basically unlimited. Fiat currency is not scarce because issuing governments can create more fiat currency at zero cost. The supply of Bitcoin is limited in cryptography.

Bitcoin wins.

Does this currency have a provable lifespan?

The potential lifespan of artificial intelligence is much longer than human civilization. In theory, if artificial intelligence can survive in high vacuum, it may exist for trillions of years until the heat death of the universe. The current human civilization can only survive on Earth, and there is no evidence that we have the ability to avoid various exogenous or endogenous Earth extinction events.

Artificial intelligence should not trust any institution that requires human operation, because 1) humans are prone to error, and 2) probabilistically, artificial intelligence will last longer than human civilization. The mining of gold and Bitcoin in the future can be done by AI robots, but fiat currency needs to be managed by governments composed of humans. Artificial intelligence is unlikely to make itself dependent on anything operated by human governments, so only gold and Bitcoin are suitable.

The relationship between gold and Bitcoin.

Therefore, Bitcoin is a logical currency choice for any artificial intelligence. It is purely digital, anti-censorship, provably scarce, and its intrinsic value depends entirely on the cost of electricity. In these respects, there is currently nothing to challenge Bitcoin.

Bitcoin price = Moon

For more information about my Bitcoin price predictions, please visit my Substack.

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