Bitcoin and the Redemption of Economics: Lessons from Physics

Could Bitcoin Be the Key to the Redemption of Economics?

Thanks to Daniel Feather for this guest publication. Daniel is a Cambridge-trained physicist, EY partner, and chartered accountant. He helps businesses build trust in their reporting by strengthening internal control environments. His mission is to help ordinary people, especially young people, understand money so they can make better decisions, prosper, and strengthen society.

Introduction: A Tale of Two Disciplines

Why can physicists create an image of a black hole billions of light-years away, while economists fail to foresee the next financial crisis here on Earth?

The difference lies in the foundations of their respective disciplines. Physics, grounded in immutable laws and universal constants, achieves extraordinary precision and collaboration. From measuring gravitational waves to navigating spacecraft, it relies on principles that are consistent across both time and space.

Economics, a social science, on the other hand, is fragmented, with its foundational ideas mired in disagreement across schools of thought—Keynesian, Austrian, Ricardian. Its unit of account, fiat money, is inherently unstable, manipulated by central banks and distorted by inflation. Without a stable measure or intellectual consensus, economics falters in its attempts to predict and mitigate the crises it claims to address.

Imagine if the metre itself changed every year or if the speed of light varied according to the whims of policymakers. The chaos would render even the simplest experiment meaningless, much like the persistent instability of modern financial systems.

Physicist Richard Feynman once said, “It does not matter how beautiful your theory is, it does not matter how smart you are. If it does not agree with experiment, it is wrong. That is all there is to it.” This profound commitment to reality, to discarding what doesn’t work, has driven the breakthroughs of physics for centuries. Feynman himself embodied this ethos. Awarded the Nobel Prize in 1965 for his work on quantum electrodynamics, his ground-breaking theories laid the foundation for technologies that underpin our modern world—everything from semiconductors to advanced medical imaging.

Economics, by contrast, has often lacked this humility. Instead of seeking truth, it has too frequently clung to fragile models that fail under scrutiny. Consider Nobel Prize-winning economist Paul Krugman, who once likened the internet to a passing fad no more significant than the fax machine. That same scepticism now extends to Bitcoin, even as it surpasses sterling in value and becomes a bedrock of the emerging digital economy. Such dismissiveness reveals a deeper problem: a discipline too often guided by hubris rather than evidence, political expedience rather than universal principles.

Economics stands at a critical juncture. It can remain tethered to models that collapse under real-world pressures, or it can embrace the qualities that have enabled physics to thrive: humility, curiosity, and a relentless pursuit of truth. Bitcoin is more than a monetary innovation; it is a test of economics itself. Here lies an opportunity for economists to rebuild their discipline—not on the shifting sands of fiat currencies and fragile theories but on the bedrock of decentralisation, transparency, and resilience. It challenges economists to align their work with principles that serve people, not just institutions; to prioritise reality over ideology; and to approach their field with the courage to adapt.

Feynman’s legacy reminds us of what is possible when a discipline embraces intellectual honesty and seeks to serve humanity through discovery. Economics, if willing, can chart a similar path forward—not through blind adherence to outdated paradigms but by embracing Bitcoin as a tool to rediscover its relevance. In doing so, it may finally become a discipline worthy of the trust and prosperity it seeks to foster.

Physics: Universal Standards and Staggering Achievements

Physics thrives on universal constants: the speed of light, Planck’s constant, and the unchanging arrow of time. These principles enable extraordinary precision across space and time. The same equations that allowed Newton to predict planetary motion centuries ago guide modern space exploration.

Consider the Event Horizon Telescope, which synchronised observatories worldwide to create an Earth-sized instrument capable of imaging a black hole. Such collaboration is possible only because physics provides a shared framework—a universal language of truth that where experiments can be reperformed and results can be verified and trusted.

This precision has transformed civilisation. Gravitational waves, first theorised by Einstein in 1915, were detected a century later by instruments measuring distortions smaller than a fraction of a proton’s diameter. Technologies like GPS, reliant on atomic clocks accurate to billionths of a second, revolutionise daily life.

The lesson is clear: disciplines rooted in immutable truths produce not only progress but trust. Economics, lacking such a foundation, has struggled to achieve either.

Economics: A Discipline in Need of Bitcoin?

Economics, unlike physics, lacks universal constants. Its fractured schools of thought—Keynesian, Austrian, Ricardian—often fail to agree on fundamentals. Fragile models, hailed as breakthroughs, collapse under real-world pressure. Take the Black-Scholes formula: it won a Nobel Prize in 1997, only to contribute to the collapse of Long-Term Capital Management a year later, nearly toppling the global economy. Elegant on paper, disastrous in practice.

The 2008 financial crisis exposed even deeper flaws. Economists failed to foresee the collapse, offering a single solution: print trillions through quantitative easing. This modern-day counterfeiting saved banks but hollowed out savings, exacerbated inequality, and deepened mistrust in institutions.

Today, Britain faces an equally precarious reality. Wages lag behind comparable nations, inflation squeezes household budgets, and food banks have become lifelines. Public confidence in money is eroding as people watch their wealth drain away. The relentless devaluation of the pound, masked by the doublespeak of "quantitative easing," is impossible to ignore. Rising housing costs and shrinking purchasing power tell the real story: time, opportunity, and hope are being stolen. The numbers are damning. In 1971, as Britain abandoned the gold standard, the average house price was £4,265, with a price-to-average-salary ratio of 2.92. Today, the average price has soared to £292,508, with a ratio of 6.55. This isn’t progress; it’s a system trapping people in perpetual struggle.

Yet institutions like the Bank of England remain oblivious. In a 2024 paper on monetary innovation, "CBDC" was mentioned 55 times, but Bitcoin—now more valuable than sterling—was ignored entirely. To quote Mugatu from Zoolander: "Doesn’t anyone notice this? I feel like I’m taking crazy pills!" Such omissions highlight the stubbornness of institutions clinging to the status quo, prioritising self-preservation over genuine innovation.

The Inevitable Rise of Bitcoin: History’s Sound Money

Sound money prevails. Austrian economists have long understood this, recognising that money tends toward one. Bitcoin’s rise—surpassing sterling in value after starting from zero only 15 years ago—proves this point. Unlike fiat currencies, Bitcoin is adopted voluntarily, driven by individuals acting in their own best interests.

Imagine gunpowder. When the French faced the British, clinging to swords and arrows wasn’t an option. They adopted gunpowder or risked annihilation. The same applies to Bitcoin. Saving in fiat currencies feels safe until you see inflation erode your wealth. As people realise their economic energy is draining away, Bitcoin adoption shifts from choice to necessity.

This dynamic is unfolding globally. In Nigeria, the naira’s collapse has driven citizens to Bitcoin as a lifeline. In Argentina, it shields against the peso’s relentless devaluation. These nations illustrate Bitcoin’s power to empower individuals in failing systems.

In wealthier countries, Bitcoin adoption is gaining traction as a hedge against overreach and monetary debasement. Early adopters see the risks of fiat systems and act. Institutions, meanwhile, lag behind. Those closest to the money printer often lack urgency and humility, blinded by their comfort with the status quo.

A System Beyond Gatekeepers

Bitcoin doesn’t wait for institutional approval. Like gunpowder or the internet, it spreads through its inherent utility. Its principles—decentralisation, transparency, and scarcity—address timeless human needs for fairness and autonomy. Its adoption is inevitable because it solves problems fiat money cannot.

The Stakes for Economics

Bitcoin isn’t a trend; it’s a reckoning for economics. It demands economists abandon fragile theories and embrace principles that align with reality: trustless systems, incorruptible scarcity, and voluntary adoption. Those who resist risk irrelevance. Progress doesn’t wait for bloodletters or flat-earthers, and it won’t wait for those who dismiss Bitcoin.

The United States appears to understand this. The incoming president has hinted at establishing a strategic Bitcoin stockpile to reinforce the dollar’s dominance. This move flips conventional thinking: instead of Bitcoin relying on fiat legitimacy, fiat will rely on Bitcoin’s unparalleled monetary properties.

Sadly, the UK risks falling behind. While American policymakers explore Bitcoin’s potential, British economists remain stuck in Keynesian paradigms, blind to the inevitability of superior money. Still, individuals can act. Bitcoin empowers ordinary people to protect their economic energy, even when institutions fail them.

The choice for institutional economists is stark: adapt or fade into irrelevance. Bitcoin offers economics its chance at redemption. The only question is whether the discipline has the courage to seize it.

Bitcoin: The Physics of Money

Bitcoin introduces a monetary framework rooted in principles as enduring as those in physics:

• Proof-of-Work and Energy: Bitcoin’s proof-of-work system anchors its blockchain in computational power and time. Miners compete to guess a valid hash, securing each block with immense energy expenditure. Once a block is added, rewriting history becomes exponentially more difficult with every subsequent block. Within an hour, the cost and complexity of altering past transactions reach a level so astronomical that tampering is rendered impossible for all practical purposes. This design ensures Bitcoin’s ledger remains immutable, securing trust in its integrity forever.

• Time and Immutability: Bitcoin’s blockchain serves as an incorruptible ledger, recording every transaction in a precise and unalterable sequence. It eliminates the need for trust in institutions, replacing it with trust in a decentralised and transparent system governed by mathematical certainty.

• Scarcity and Predictability: Bitcoin’s 21-million-coin cap is hardcoded and immutable, offering a level of scarcity that fiat currencies can never replicate. Its transparent and unchanging issuance schedule provides an unprecedented degree of monetary reliability, ensuring no surprise interventions or inflationary pressures. This design inspires long-term confidence, making Bitcoin not just a store of value, but a foundation for financial stability in an unpredictable world.

Bitcoin is perfectly engineered money: decentralised, transparent, and resistant to manipulation. It embodies the principles economists have long sought but never achieved.

Conclusion: A Nation at a Crossroads

We stand at a defining moment in monetary history. Much like today, England in 1696 faced a currency crisis that threatened its stability. Silver coins were clipped, trust in money was eroded, and the economy faltered. In response, the government turned to physicist Isaac Newton, appointing him Master of the Royal Mint. Newton stabilised the currency, eradicated counterfeiting, and set Britain on a path to centuries of economic strength under the gold standard.

Institutions can no longer dismiss Bitcoin. It is not just another innovation; it is the most transformative monetary breakthrough in modern history. Bitcoin offers a monetary system that restores trust, preserves value, and operates without manipulation. The decisions made now will determine whether Britain once again leads the world—or fades into irrelevance. Newton’s example shows us that progress depends on principled leadership: the courage to confront failing systems, the discipline to rebuild trust, and the vision to create a future that endures.

Yet too much of today’s debate is shaped by shallow critiques. Publications like The Economist, Financial Times, and The Guardian repeat the same warnings about volatility, energy use, and illicit activity. These arguments fail to engage with the facts. As Appendix A demonstrates, Bitcoin’s volatility reflects its growing adoption, its energy use is driving renewable innovation, and its transparency makes it less attractive for criminal activity than cash or traditional banking.

The responsibility for shaping the future of money cannot be left to those clinging to failed models. Like Newton, leaders today must be willing to question outdated assumptions and act boldly in the public interest. Britain can no longer afford to ignore Bitcoin. A sincere, unbiased evaluation of its potential is not just necessary—it is urgent. This is about more than adopting new technology. It is about reclaiming trust, redefining prosperity, and embracing a system that can restore stability for generations to come.

The United States is already moving forward, with policymakers openly debating the merits of a strategic Bitcoin reserve. Meanwhile, Britain risks being left behind. This is a sobering moment for a nation that has shaped the world with bold ideas and unshakable principles. From Newton to Darwin, from Churchill to Crick, Britain has always thrived on ingenuity and courage.

We cannot afford to stand still. The time has come to break free from outdated conventions and lead with conviction. Do we embrace a monetary system that empowers individuals, preserves value, and restores trust? Or do we allow our institutions to remain on autopilot, serving their own convenience while leaving the public to bear the cost?

This is our moment. Britain can reclaim its legacy as a global leader in innovation and strength. A future of trust, opportunity, and resilience is within our reach. The only question is whether we have the courage to seize it.

Daniel Feather, November 2024

Appendix A: Common Misconceptions About Bitcoin

This appendix explores key concerns frequently raised about Bitcoin, including its volatility, energy use, association with illicit activities, the possibility of government bans, comparisons with other cryptocurrencies, and critiques from chartalists. The goal is to provide finance professionals and policymakers with evidence-based insights into Bitcoin’s unique value and resilience.

1. Volatility: A Temporary Feature of a Growing Asset Class

Concern: Bitcoin’s price volatility undermines its utility as a reliable store of value or medium of exchange.

Response: Volatility reflects Bitcoin’s early stage of growth and adoption. It is a common characteristic of transformative innovations and is expected to decrease as the market matures.

• Long-Term Perspective: Historical data shows that all holders who have kept Bitcoin for four or more years have realised gains, even when buying at peak prices.

• Declining Volatility: As institutional adoption grows and liquidity deepens, Bitcoin’s volatility has steadily decreased, mirroring the trajectory of other disruptive technologies like the internet and early tech stocks.

• Market Opportunities: While challenging for short-term use, volatility presents opportunities for long-term investors and institutions seeking diversification and inflation protection. Volatility is not a flaw but a feature of Bitcoin’s dynamic growth phase. Stability will increase as adoption and infrastructure develop.

2. Energy Use: An Opportunity for Environmental Innovation

Concern: Bitcoin mining consumes significant energy and contributes to environmental harm.

Response: Bitcoin’s energy consumption has been mischaracterised. It is increasingly recognised as a driver of environmental innovation and sustainability.

• Leadership in Renewables: Nearly 60% of Bitcoin’s energy comes from renewable sources, according to the Bitcoin Mining Council, placing it among the most sustainable industries globally.

• Methane Mitigation: Miners are capturing waste methane from sources like landfills and flared gas, turning one of the most harmful greenhouse gases into usable energy. These efforts make some operations carbon-negative.

• Grid Stability: Bitcoin miners act as flexible energy consumers, using surplus energy during off-peak periods and reducing demand during peaks. This supports grid stability and the integration of intermittent renewable energy sources such as wind and solar.

Bitcoin mining is not a liability—it drives renewable energy development, reduces harmful emissions, and contributes to a more stable energy grid.

3. Illicit Activities: Transparency as a Strength

Concern: Bitcoin’s pseudonymity facilitates criminal activity, such as money laundering or ransomware payments.

Response: Bitcoin’s transparency and traceability make it one of the least effective tools for illicit activity.

• Traceability: Every Bitcoin transaction is recorded on a public, immutable ledger, allowing authorities to trace and prosecute criminal activity. High-profile successes, such as the recovery of ransomware payments, demonstrate this capability.

• Comparative Scale: Chainalysis reports that only 0.24% of Bitcoin transactions in 2022 were linked to illicit activity. By comparison, the UN estimates $1.6 to $4 trillion—up to 5% of global GDP—is laundered annually through traditional financial systems.

• Failures of Traditional Banking: Major banks like JPMorgan Chase and HSBC have facilitated large-scale money laundering, leading to billions of dollars in fines—far exceeding anything linked to Bitcoin.

Bitcoin’s public ledger ensures a permanent digital trail, making it a poor choice for criminals compared to cash or opaque banking systems.

4. Government Bans: A Realistic Assessment

Concern: Governments might ban Bitcoin to protect their monetary systems.

Response: While governments have restricted Bitcoin in some jurisdictions, outright bans are rare and becoming increasingly impractical.

• Technological and Legal Barriers: Bitcoin is decentralised and global, making enforcement of bans difficult. Even in countries like China, where restrictions exist, Bitcoin activity continues via peer-to-peer networks.

• Economic Opportunities: Nations such as El Salvador have embraced Bitcoin to attract investment and foster innovation. The United States is exploring a strategic Bitcoin reserve, recognising its economic potential.

• Historical Precedents: Technologies like the internet faced similar resistance initially but were ultimately embraced due to their transformative value.

Governments are more likely to regulate Bitcoin than ban it, as its economic and geopolitical benefits outweigh the risks.

5. Other Cryptocurrencies: Bitcoin Stands Apart

Concern: Why focus on Bitcoin when thousands of other cryptocurrencies exist?

Response: Bitcoin’s design, governance, and ethical foundation set it apart from most other cryptocurrencies.

• Decentralisation: Bitcoin operates without a central authority or founder, making it uniquely resistant to censorship or manipulation.

• Proof-of-Work: Bitcoin’s consensus mechanism ensures robust decentralisation and security. Most other cryptocurrencies use proof-of-stake or other mechanisms that concentrate control among large holders.

• Pre-Mines and Founder Control: Many cryptocurrencies launched with pre-mines, allocating large portions of the supply to founders or insiders, leading to centralisation and ethical concerns.

• Unpredictable Monetary Policies: Bitcoin’s fixed supply of 21 million coins ensures scarcity, while other cryptocurrencies often change their monetary policies, undermining trust.

• Speculative Nature: Many cryptocurrencies are speculative projects or “performance art” on a blockchain, lacking the ethical and technical rigour that Bitcoin embodies.

Bitcoin remains the only cryptocurrency with proven resilience, decentralisation, and a transparent, unchanging monetary policy.

6. Chartalism: Addressing State-Centric Economic Theories

Concern: Proponents of chartalism argue that money derives its value from the state’s authority to levy taxes and enforce monetary policy. From this perspective, Bitcoin, which operates outside government control, is seen as fundamentally flawed or illegitimate.

Response: Chartalism, like many economic theories, is far from universally accepted among economists. It is most closely associated with the Modern Monetary Theory (MMT) school, which emphasises the state’s role in creating and managing money. Advocates of MMT, such as Stephanie Kelton, view chartalism as a framework for understanding the mechanics of fiat currency systems and argue that governments with sovereign currencies have far greater flexibility in managing economic outcomes than traditionally believed.

However, critics of chartalism—including many Austrian economists, such as Friedrich Hayek and Ludwig von Mises, as well as monetary historians—point out that money has historically arisen not from government decree but from voluntary, peer-to-peer exchange. Humans did not wait for bureaucrats to define money; they gravitated toward commodities like gold and silver, chosen for their inherent properties such as scarcity, durability, and divisibility. These qualities, not state enforcement, are what gave such commodities their value. Bitcoin follows in this tradition as a form of "digital gold," offering a decentralised, incorruptible alternative to state-managed systems.

Furthermore, chartalism assumes that trust in the state is universal and enduring. In practice, this trust can falter—especially in nations suffering from hyperinflation, corruption, or economic mismanagement. Bitcoin thrives in precisely these contexts, empowering individuals to preserve wealth and transact freely, regardless of their government’s monetary policies.

Bitcoin does not aim to replace state money but complements it by providing a decentralised alternative, offering resilience against systemic risks and inflation. Chartalism’s focus on state power overlooks the growing demand for monetary systems based on voluntary adoption, trustless security, and global accessibility—all of which Bitcoin embodies.

7. Social Inclusion: Empowering the Marginalised

Opportunity: Bitcoin is a tool for financial inclusion and empowerment, bridging systemic inequalities.

• Banking the Unbanked: Over 1.4 billion adults globally lack access to banking services.

Bitcoin enables them to save, send, and receive money without intermediaries.

• Empowering Women: In restrictive societies such as Afghanistan, Bitcoin has allowed women to bypass patriarchal controls, save securely, and achieve financial independence.

• Equalising Opportunities in Developed Economies: In the West, Bitcoin provides alternatives for those excluded by high fees, poor credit systems, or restrictive banking policies.

Bitcoin aligns with principles of equity and inclusion, addressing gaps in financial access worldwide.

Conclusion

Concerns about Bitcoin—volatility, energy use, illicit activity, government bans, competition from other cryptocurrencies, and critiques from chartalists—are often based on misconceptions or incomplete information. Bitcoin’s transparent, decentralised design makes it a transformative tool for financial inclusion, environmental innovation, and economic sovereignty.

For finance professionals and policymakers, Bitcoin represents an opportunity to address systemic challenges and lead the way toward a more transparent, equitable, and sustainable financial system.

Appendix B: Further Reading Recommendations

Understanding Bitcoin doesn't require genius—just curiosity and a willingness to learn. This list is your gateway to transformative knowledge, helping you become an informed participant in one of today's most significant innovations.

Books

• The Bullish Case For Bitcoin by Vijay Boyapati. A concise and compelling exploration of why Bitcoin is the superior form of money.

• The Bitcoin Standard by Saifedean Ammous: A definitive guide to understanding Bitcoin’s role in economics and as sound money.

• The Bitcoin Handbook by Anil Patel: A practical and accessible reference for Bitcoin beginners and enthusiasts.

Videos

• Matthew Kratter’s Bitcoin University: Daily 10-minute podcasts offering insightful commentary on topical Bitcoin issues.

• What is Bitcoin and Why Does it Matter by Andreas Antonopoulos: A foundational explanation of Bitcoin’s purpose and impact.

• What is Money? with Michael Saylor and Robert Breedlove: A profound discussion on the evolution and significance of money.

• The Pleasure of Finding Things Out by Richard Feynman: While not Bitcoin-specific, this video is an inspiring exploration of curiosity and discovery, reflecting the mindset needed to understand Bitcoin.

Podcasts

• What Bitcoin Did: With over 800 episodes, this podcast covers everything from Bitcoin fundamentals to its geopolitical implications.

• The Stephan Livera Podcast: Featuring more than 600 episodes, this podcast delves into Bitcoin's technical, economic, and social aspects. "How-To" Guides

• BTC Sessions: A treasure trove of hundreds of practical, step-by-step video tutorials for navigating all aspects of Bitcoin.

• Arman the Parman: Concise, practical guides on Bitcoin security, self-custody, and privacy.

Courses

• Bitcoin for Everybody at Saylor.org: A comprehensive course designed to equip anyone with the knowledge to understand Bitcoin’s role in a modern economy.