Filling the hole in Bitcoin's Heart

A response to Brett Scott's fantastic post, 'The Hole in Bitcoin's Heart'

So I finally got around to reading Brett Scott’s fantastic post, The Hole in Bitcoin’s Heart. I typed up a bit of a lengthy reply, which turned out to be too long to put in a comment there, so I’ll post it here instead. There are some rough ideas I haven’t had a chance to flesh out better, but this felt like a good opportunity to get some thoughts down.

The original post makes many important points, and is well worth reading. It also includes a quite excellent “structural definition” of modern capitalist money. I won’t recap its arguments much here. I tried to organize my comments according to some themes, unrelated to the organization of the original post itself.

Nouns vs. Adjectives

The post uses a “nouns vs. adjectives” analyses to suggest that the “numbers” in the Bitcoin network are meaningless “noun numbers” that don’t reference anything, rather than “adjective numbers” that point to something meaningful. The idea that Bitcoin’s numbers are just nouns and not adjectives, that they don’t point to anything beyond themselves, is the crux of the “hole in Bitcoin’s heart.”

The noun vs adjectives analysis is itself great. But something is conspicuously missing: verbs. Every noun (“object”) is really a convenient label for a much more complex verb (“process”). A simple chair is a collection of rapidly moving particles comprising its material substance. Even pure number nouns are defined in terms of a set theoretical, inductive process. The verb “to be” itself derives from the verb “to grow” or “to become”. If you want to get metaphysical about it, there is no “being”, only “becoming”.

Sometimes the process description of the object isn’t that convenient (chair is fine, we don’t need to describe the particle physics and force dynamics holding it together). But other times, using nouns can obscure and distract from an important underlying, and often complex, process. Bitcoin is a complex process, and the numbers Bitcoin produces point to that process. Whether or not and why the process is special might be another question, but if we don’t acknowledge the verb nature of things, we can’t even talk about that. Appreciation for this process might be enough to fill the hole in Bitcoin’s heart, but it probably requires more exposition.


The post suggests that you never buy something “for Bitcoin”, because Bitcoin isn’t used to price goods. Bitcoin and goods are both priced in fiat (e.g. dollars), so when you are “buying something with Bitcoin”, you are really performing a “countertrade”. That’s fine. Countertradability is indeed a great property of Bitcoin, and as noted in the post, it bestows a kind of “quasi-moneyness”. Countertradability feels a lot like what Menger called “saleability” in his story of the origin of money. But even if Menger’s story isn’t historically accurate, this property turned out to be pretty important to what sovereigns would ultimately choose to mint their units of account in (precious metals like silver and gold). Bitcoin is not a particularly good unit of account yet, and may never be, but its countertradability is a compelling start.


The post suggests that real money is a redeemable legal promise and Bitcoin is not. Some other comments on the post touch on Bitcoin’s redeemability for block space in the Bitcoin blockchain (i.e. its used for transaction fees), but this point seems to be discounted because block space is only used for the silly reflexive activity of moving the tokens themselves around. But I think tx fees might just doing in real time what taxes do on a deferred basis. Consider the “fiat loop” of spending and taxing to create a Unit of Account, which enables a payments network to form so the UoA token we pay the taxes in can in the meantime be transferred about the network, lubricating exchange. Bitcoin might be considered an experiment in constituting the “fiat loop” by taxing in real-time as tx fees, rather than on a deferred basis as taxes (once a year or whatever). And the block space Bitcoin provides access to is potentially extremely valuable because of the payment properties it provides (which has to do with Bitcoin the verb). It’s true that Bitcoin tx fees aren’t “burned” in the way taxes are conceived to be, but this might just be an implementation detail (e.g. Ethereum’s EIP1559 does burn the base fee). Interesting to explore this notion further.

Unit of Account

A lot of the post focuses on the importance of the “Unit of Account” function of money, especially because Bitcoin has so far failed to provide a meaningful unit of account (things aren’t actually priced in Bitcoin, at least besides its own block space). There’s a few things to say more generally about the Unit of account: its legal reality, its price in goods, the cost of its provisioning, and its price in foreign exchange.

Historically, UoAs seem to have been created largely through a process of coercion. Bitcoin is an attempt to create a UoA through a voluntary process. Coercion is really good at bootstrapping a UoA because it’s a practical means to marshal real resources to defend yourself in time of war. And it’s important to recognize the role played by violence in the history of money (metals mined by slaved, coins invented to pay soldiers, constitution of money in general a means to enforce power dynamics in social relations, etc.). Perhaps it’s naive to think we could really have money that’s not grounded in some kind of violence. In a sense, “Defense” is the ultimate public good, and the Unit of Account is its symbolic representation. But Bitcoin is a bold experiment to ground a new UoA in a voluntary process. There have been previous attempts (time banks, Owen’s labour exchanges, etc.), but none have achieved Bitcoin’s scale. Bitcoin constitutes a kind of proto legal system with its own set of rules and enforcement. It may not be a very good legal system from a more philosophical perspective of justice, and its UoA may not actually be used to price anything yet, but it is certainly a novel and laudable attempt at constituting a kind of super-national legal reality with a “money” to go along with it. I wouldn’t discount that yet. I supposed you could consider this with the “second approach” to filling in the hole in Bitcoin’s heart proposed in the post (i.e. build a useless but interesting speculative thing and hope the real infrastructure of money forms around it), but I like to consider instead that it’s a hole in society’s heart that Bitcoin is filling ;)

UoA: Price of Goods

The post suggests that we don’t price British pounds in terms of tea, the way we price tea in terms of pounds. But we do, any time we talk about price indices or inflation. We don’t use tea for payments, true, which is what makes pounds special, but that doesn’t mean pounds themselves aren’t priced. There are multiple kinds of prices for money. Perry Mehrling for instance highlights four: (1) foreign exchange price, (2) interest rate, (3) par price (i.e. the 1:1 price that different MoEs for the same UoA all trade for), and (4) the price of goods. And modern society and central banking seems to be obsessed with this last “price of goods” price, in so far as it is obsessed with inflation. The story of UoA as primarily a tax credit does not tell us much about inflation other than to say there is some real resource constraint out there, without providing much clarity on how the money issuance process is supposed to respect that constraint. We could call this the “hole in MMT’s heart” - apparently it’s addressed by the decentralized local basic care jobs program, which is compelling, but I’ve yet to see the actual details. I bring this up in my critique of MMT. This suggests to me that the UoA should itself be more directly grounded in some more “real” process of productive organization. Using gold historically was a crude proxy for this. The whim of bureaucrats brainwashed by a century of bad economics is a really bad proxy for it. Bitcoin’s Proof of Work, while still crude, is an interesting new approach.

UoA: Real Resources

The post suggests that the only functional component of money worth paying attention to is the UoA. I agree it is the most unique, but that doesn’t mean it’s the only one worth paying attention to. The medium of exchange function matters quite a bit, because it is only together that a UoA and an MoE can actually enable payments, which is the real function of money. Money is where the payments are. The Unit of Account is something like a public good, but the Medium of Exchange gives it a limited material reality (even if it’s just bits), making money not just a Public Good, but a Common Pool Resource. And provisioning the money system itself (which amounts essentially to materializing the UoA as one or more MoEs) requires actual real resources. For instance, historically, the Mint cost something to operate, and those costs were paid by whoever wanted to mint their bullion into coin. But that all changed in the 17th century when England started to subsidize the production of money, first via subsidies to the mint, and then by outright paying Bank of England shareholders to create money. And we’ve had over 300 years of unfettered capitalism and unsustainable growth since. In effect, the modern banking system is completely opaque about the cost of provisioning itself, as it’s tied up in the entire military-industrial-financial complex. Bitcoin is the first credible attempt to propose an alternative MoE grounded in real resources, and it is almost painfully in-your-face about the costs it incurs to provision itself. But at least it’s being honest. That’s not to say it’s the be-all-end-all of provisioning a money system. But again, it’s an approach to “money” with a much deeper respect for thermodynamic reality than anything in the banking system of the last 300 years.


There may be no supermarket in the world that accepts Bitcoin, but that doesn’t mean it can’t be a meaningful player in international exchange. Perhaps not a perfect analogy, but gold continued to dominate foreign exchange markets long after it stopped being used in super markets. Bitcoin’s utility derives from its payments service. It is in many respects superior to the existing international money transfer system (of course, it is also in many respects worse, but there are two sides here). But perhaps more importantly, the Bitcoin technology has given rise to new ways to think about Units of Account and the exchange relationships between them. I’m talking here of the magic of “bonding curves” and “Automated Market Makers” which do not seem to have simple direct comparables in the existing financial system but which may have huge implications for currency markets and even for the geographical structure of currencies themselves. Even Bernard Lietaer (champion of local currency systems) seemed to have seen the “bonding curve” mechanism invented by Bancor as a kind of holy grail for making alternative monetary systems work. This point isn’t really about Bitcoin itself (Bancor was built on Ethereum), but about the kinds of discoveries only made possible by the “block space” resource Bitcoin and other blockchains provide. This gives us some clues to the question from point (1) about why the process that creates a public blockchain like Bitcoin is so special.

Definition of Money

The post stresses quite a bit that money is the UoA. As above, it may be the most distinctive feature, but UoA alone is not money, it requires a MoE. Chile makes this distinction apparent with its separation of the UoA (Unidad de Fomento) and its MoE (peso). Which is to say, you don’t have to be a UoA yourself to participate in the key function of money - a payment system that enables the mobilization of labour (the Chilean peso is not a UoA but very much a part of Chilean money). And thus even if Bitcoin fails to secure for itself a stable UoA that can price goods besides its own block space, it can still come to play a critical role in the provisioning of the payment system. I love the structural definition of money provided in the original post. But we should emphasize its only a definition of the current form of modern capitalist money, and there is no reason to assume this is the only form the monetary system could take. In fact our sustainability as a species seems to depend on it taking a new form. Surely Bitcoin is not the final form. But it seems like it may play a critical role in helping us discover what that form should be. In the meantime, Bitcoin is engaged in a mythological process that is not all together unlike the mythologies that hold together religions and republics. This is a lot of what I was trying to say in my recent post on Bitcoin. I think Ben Hunt’s “In Praise of Bitcoin” also did a nice job of capturing the value of Bitcoin’s artistic expression, and the threat to Bitcoin that is the invasion of Wall St and the speculative mindset.

Anyways, I’ll leave it at that for now. Thanks for reading :)

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