„You don’t change Bitcoin. Bitcoin changes you.”

— Jack Mallers

Many good books have already been written about Bitcoin. This book is about you. About how Bitcoin changes you.

A central image of this book is the free energy landscape of money that you see on the cover. Here it is, to play with:

To exist across time, every living thing has to be able to predict the future well enough, from the single cell all the way up to you. Karl Friston was the first to put this far-reaching insight on a formal footing, in 2006: derivable mathematically from just a few assumptions, he calls it the Free Energy Principle (FEP). Better predictions of the future mean less free energy. Bitcoin is the first form of money that lets people reliably predict aspects of their economic future. By design, Bitcoin thereby reduces the free energy of its users.

What matters here is understanding that you don’t see reality as it is. You experience a simulation generated by your brain. It’s corrected in real time by electromagnetic signals coming from your senses, and it rests on a kind of inner map: a model of reality that constantly optimizes itself by minimizing its free energy, so that it experiences fewer (unpleasant) surprises. This process, running without interruption, is what keeps you alive in the first place. So what exactly does Bitcoin do to you, to your brain, and to the models it uses to grasp the world?

Through the lens of the FEP, that question reveals a physics of hyperbitcoinization: the process in which Bitcoin becomes the global standard, that is, the base of our financial system. The FEP connects Bitcoin’s properties to the human psyche and produces a positive feedback loop that drives a paradigm shift: Bitcoin stabilizes human expectations, people stabilize Bitcoin through adoption, and every round deepens the synchronization. In the end the loop converges on the Bitcoin standard: full symbiosis between the economic part of our world models (the layer we use to understand prices, scarcity and value) and the Bitcoin protocol.

The free energy landscape on the cover gives you one view of this physics:

Two valleys, separated by a hill. In the left one — the shallower valley, the energetically less favorable of the two — sits a ball with a dollar sign. In the right one, deeper and more stable, Bitcoin glows. And the question this book answers is simple enough to ask a child: how does the ball get into the deeper valley?

These valleys don’t exist out there. They exist in your head. This hilly landscape is the free energy of the different models your brain uses to predict its sensory input. Karl Friston shows that less free energy is better predictive power. Fewer unpleasant surprises. So the question is: which monetary system does your brain prefer when it has the choice? And why do so many stay stuck so stubbornly in the shallower valley?

The ball can’t simply roll across. Between the valleys lies a hill, and to get over it the ball first has to go up before it can fall deeper. Without an energy boost it stays where it is. Forever.

An analogy makes it tangible: the singing bowl.

Strike it with a felt mallet. The tone is clear, pure, it carries. That’s no accident: the atoms in the metal sit in an ordered structure. The bowl vibrates as a whole, and its shape determines the tone.

Now take a hammer and knock a few dents into the singing bowl. Strike it again with the felt mallet. The tone is off, dull, it dies immediately. The abrupt deformation has forced the atoms out of their equilibrium; they’re now jammed into strained positions that are energetically less favorable.

This situation, too, can be described with the image on the cover. After the hammering it took, the total energy of the atoms sits in the shallower valley. Not at the lowest point, but in an energetically suboptimal well that the atoms can’t get out of without help. The bowl stays strained as long as you leave it alone.

But there’s a way back.

Heat the bowl until the metal glows. At five to six hundred degrees Celsius the atoms become mobile and the tensions dissolve. They are now free enough to overcome the barrier between the tensed and the relaxed arrangement, and all the while they migrate, try a spot, reject it, settle. Then you cool it slowly. Too fast, and they freeze somewhere in between, seized up again. Only with sufficiently slow cooling do they find their way back into the ordered arrangement. Not because someone tells them to, but because this order is the energetically more favorable state. Self-organization according to the principle of free energy minimization. They find their way into the deeper valley entirely on their own.

And now strike the bowl again. The tone is back. Slightly altered by the dents. But clear again. It carries. Pure. The tensions between the atoms have dissolved.

Physicists call this process annealing. The heat gives the atoms the energy to leave the shallow valley and find the deep one. Without heat they stay stuck in the first arrangement they land in. With heat they find the best one. The same procedure is at work wherever structures have to find their optimal arrangement: smiths anneal the sword after hammering and cool it slowly — otherwise the blade breaks. Semiconductor chips are annealed at 500 to 950 °C after every ion bombardment so the atoms find their places in the crystal lattice again — the processor in your phone has been through this a few dozen times. Large telescope mirrors like Hubble’s are cooled down degree by degree over weeks after casting, because rapid cooling locks internal stresses in and would distort the image. Even software uses the principle: simulated annealing finds the shortest route for a delivery service through a hundred cities, the best wiring of a microchip, or crew rosters for a railway. On the level of information as well, your brain does something similar under psychedelics or in deep sleep — entrenched beliefs soften, new configurations become accessible (neural annealing).

Annealing works wherever there’s a rugged energy landscape with local valleys — and a system that’s looking for the deepest valley. Annealing is the tool. When a system uses it to tip out of one regime into a qualitatively different one, that has a name of its own: phase transition. Water freezes, iron becomes magnetic, applause synchronizes, a monetary system tips. Annealing often lowers the barrier that stands in the way of such a transition. Remember that word, it comes back.

What annealing really does is give the atoms more room to explore. How many of them are open to the atoms is what entropy measures. At room temperature most alternative configurations are energetically out of reach — every atom is effectively locked in its strained position. During annealing the barriers become surmountable: the atom can migrate, try, reject, and therefore finds the deeper spot.

And now to the point.

The same process happens in our brain when it optimizes its models of the world. When it settles on its own on the one world model that best explains and predicts its sensory input. Replace “atoms” with “beliefs about the world”, replace “tensions in the metal” with “contradictions in the world model” — and you have the same picture.

Instead of tensions between atoms, the brain dissolves tensions between pieces of information: contradictions, gaps. In the fiat system, the economic part of our world model is stuck in exactly that kind of strained structure. The difference from the singing bowl, however, is this: the fiat system raises its own entropy.

Every time a central bank prints money, bails out a corporation or bends interest rates, uncertainty arises, which is to say entropy. This uncertainty acts like heat, not on atoms but on information. More precisely, on the beliefs that make up the world model in the head of every single person: what money is, what a dollar will be worth tomorrow, which rules hold, what can still be taken seriously at all. Every intervention softens these beliefs: they come to count as less reliable. And a softer belief means the world model becomes more flexible, less rigid, and therefore more easily replaced by another. The fiat money system knocks dents into the bowl and heats it at the same time. It produces the tensions and delivers the entropy needed to overcome them.

Fiat generates the entropy for its own phase transition.

The ball on the cover doesn’t need to be pushed. The shallow valley lowers the barrier all by itself. — exactly what you can try above: turn the entropy up, and the barrier melts on its own.

One question remains open, and it leads straight into the next chapter. What actually makes your bowl vibrate? A bowl alone makes no tone. It needs something it can vibrate in sympathy with: a sound that fits it. What produces this sound, and why Bitcoin of all things is the gong whose tone synchronizes economic world models: that is what comes now.

The Thesis

Before the thesis is spoken out loud, here are the concepts it’s built from.

Twelve central concepts

The following concepts are the building blocks the argument is made of. They build on each other. Don’t worry if they don’t land right away — the rest of the book deepens them. There are three categories.

World model

the inner map of the world that every living system — cell, brain, or society — carries. It encodes what the system fundamentally expects: what exists at all, what is connected to what, and what follows from what. The world simulation activates these expectations for the current moment: what you experience as “the world”, including the prediction of what comes next. The simulation is readjusted in real time with every sensory impression; the world model itself learns only slowly, over time. World model is the structure, world simulation the running output. What you take to be reality out there is the simulation. Picture it: the world model is like a musical instrument, the world simulation the music it’s playing right now. (Ch. 2)

Belief

building blocks of the world model. Each has four properties: what it is about (“rain tomorrow”), which value is most probable (“around 3 p.m.”), how certain the system is (“±2 hours”), and how tightly it is coupled to other beliefs (the rain belief pulls beliefs about temperature and your own mood along with it, for example). (Ch. 2, 7)

Surprise

the difference between what the world model expects and what the senses deliver. That is what happens when a belief is off. Living things minimize expected surprise, meaning surprises in the future. That is how their beliefs keep getting better. (Ch. 2)

Free energy

the measure of expected surprise. Karl Friston has shown that every living system minimizes it incessantly. A system that keeps minimizing stays intact. One that stops falls apart. Deeper in the energy landscape means less surprise, a better world model and a more useful world simulation. (Ch. 2)

Synchronization

the dynamic process in which systems bring their information into alignment. What goes on in one is tied to what goes on in the other. That can be a single world model aligning itself with reality (cell to sensory input, brain to sensory impressions), or many individual parts coordinating with each other. Either with a conductor as in an orchestra, or without, as in the cases that interest us. The same thing happens on every level, from small to large: neurons in the brain, cells in an organ, metronomes on a board, soccer fans to a shared song, people to a shared currency. (Ch. 4, 6)

Information coherence

the stable state that arises after synchronization, when many parts stay locked in a stable relationship to one another. Four directions: horizontal (between parts on one level), vertical (between levels: cell → organ → body → market), backward (memory), forward (prediction). All four are at work in the soccer fans singing their shared song. Without temporal and cross-scale coherence there is no living system. (Ch. 4)

Top-down causation

when the whole influences its parts without commanding them individually. Precondition: vertical and temporal coherence. Top-down causation then produces horizontal coherence out of it (Haken’s slaving principle). Just as the shared song in the stands influences every single voice, Bitcoin shapes the economic world model of its users and synchronizes them horizontally into a shared economic reality. (Ch. 4)

Self-organization

what top-down causation produces over time: systems slide into energetically more favorable states on their own, because every single part minimizes its free energy. No conductor, no plan, no choirmaster in the stands, and yet everyone sings the same song. Only physics plus coupling. (Ch. 4, 6)

Deeper energy valley

the point self-organization pulls a system toward. A stable state that is energetically more favorable than the alternatives. A system that finds the deeper valley does not need to know where it is going. It flows there because there is less surprise there. The cover of this book is built on this image. (Ch. 6, 8)

Entropy

a measure of disorder or uncertainty. The same measure in two languages: for atoms, how chaotically they move, and for beliefs, how uncertain the system is. High means chaotic and flexible, low means fixed and ordered. Annealing raises entropy temporarily so that entrenched states can reorder themselves. Fiat’s unreliability drives the entropy of economic beliefs upward. That is the mechanism by which fiat lowers its own barriers. (Ch. 7, 8)

Annealing

how a system overcomes the barrier to the deeper valley through raised entropy. Entrenched structures soften, the system becomes mobile and finds the energetically more favorable state. The same in the head: when uncertainty rises, beliefs soften, and the world model can reorder itself. Analogy: the singing bowl. (Ch. 8)

Phase transition

what happens when a system tips over qualitatively: one state becomes another with entirely different properties. Water freezes, iron becomes magnetic, applause synchronizes, a monetary system tips. With the monetary system, the barrier to the deeper valley has many layers: entrenched beliefs about money and social attachment to the status quo; the entropy that lowers it comes from fiat itself. (Ch. 6, 8)

And now the thesis. Don’t worry if you don’t understand it right away. Every term in it is defined above, and the seven steps that follow open it up so that in the end you can formulate it yourself.

This densely packed thesis unfolds in seven steps, each with an image you can remember and a payoff that physics or math nerds can check. At the end of these seven steps you already have the whole idea in your hands. The rest of the book deepens it, develops intuition, presents examples and illustrations, fills in the missing details and makes the argument mathematically watertight.