Artificial Intelligence & Bitcoin

If you haven't read my recent article Gresham's Law or Thiers' Law? I'll sum it up here with a simple sentence: Absent coercive government controls, people and markets in general will always prefer to use hard currency over soft currency. In situations of freedom, strong currency “drives out” weak currency.

Therefore, when we hear the opposite, that 'weak money drives out good money', this is actually a misinterpretation of Gresham's law that makes no sense if we consider the true role that capital controls and legal tender laws play. for a weak currency to exist and be used.

In the end, this type of legislation distorts people's preferences but freedom and prosperity always pull and demand hard currency, simple as that. Absent coercive controls, hard currency 'drives' weak currency just as a better product 'drives' a worse product out of the market simply because it's better for a person to use hard currency whenever they can in their life.

I wrote that long and wordy article to explain why this has been a pattern in our monetary history and why hard currencies like the guilder in the Middle Ages or the dollar have always been the currency in markets or frontiers of new markets where there was a greater degree of freedom currency, whose classic example is the international market itself.

With these considerations in mind, I want to make some reflections on what would then be the current currency of the newest market frontier: artificial intelligence.

Arthur Hayes recently wrote an article with exactly this question: What will be the currency of choice for artificial intelligences? I suggest reading.

We can discuss how smart artificial intelligences are or will be but it's hard not to see that they have already proven to be very useful in our lives, performing tasks in seconds that a human being would take hours and often surpassing some of our abilities. We can only speculate what they will do in the future, but it is undeniable that it is a very promising technology.

I use the plural “artificial intelligence” because I believe there will be several services and utilities and that they will inhabit the most varied niches: computers, planes, houses, cars, brokerages, stock exchanges, websites, televisions and factories.

The point is, for them to work well, they need to consume a lot of energy in the form of servers and graphics cards, and they also need to easily interact with the people who want to use their services. All this in a dematerialized and global environment. Imagine that an AI program needs to use servers in the USA but its services are requested in Japan and India, everything needs to work 24/7 in several different jurisdictions. Furthermore, your business model may require micro-payments for each output generated, further refining cost and demand. For example, a Japanese meteorology company wants to use an American server to extract satellite images and generate, with an AI developed by a Canadian company, a new model for predicting sea waves. These images are generated every second and the integration between AI and servers needs to be done automatically in view of the costs involved. How to make so many payments in so many places with the traditional fiat system, with credit cards, financial institutions that need to operate in several jurisdictions and that can simply deny or stop the payment or the service?

In addition to these obstacles, the government currency payment system is extremely inflationary and artificial intelligences will need to maintain their purchasing power in the future to pay for so many inputs.

There is only one currency capable of satisfying this demand and that is Bitcoin, a native currency of the internet that is practically a monetized energy, and so far there is only one payment network open enough to make so many micro-payments easily, cheaply. and decentralized: Lightning Network.

Perhaps we are facing the most anticipated symbiosis on the planet: the best money in the world together with a technology that manages to process so much information in a frighteningly intelligent way and focused on our demands.

Strictly speaking, this symbiosis does not even need to be decided by human beings. In the AI ​​protocol itself there may be a command for it to look for the best available currency to carry out this economic integration. The only reason why Bitcoin adoption is not greater today is because of the normality bias of many people who have always used the traditional system as I tried to explain here. There wouldn't be this problem with an AI that was born in cyberspace.

For these reasons I was so excited when I read about the launch of the L402 protocol designed precisely to help with payment communication between the Lightning Network and artificial intelligence based on Large Language Models (LLMs in English).

The next few years will be very interesting and perhaps the next wave of Bitcoin adoption will not even be human. Artificial intelligences can themselves generate their Bitcoin wallets, open their Lightning payment channels and autonomously decide on their own financial architecture paying satoshis to each other forming a veritable neural network maintained and fed by the best money in the world.

This entry was posted on the substack by Guilherme Bandeira