Bitcoin Urbanism #2: Follow the Money, Part 1

Money is an pivotal, emergent technology humans use to trade goods and services to get what they want. Sometimes, real estate gets confused as being money. Let's see if that's true.

To kickoff the first series here on Bitcoin Urbanism, we ask two questions: what is real estate and is real estate money? We’ve got to start somewhere, best to start with the fundamentals.

Bitcoiners are an informed bunch but precoiners are not. These articles are written for precoiners who are in need of a shepherd to a new paradigm (aka orange-pilling ).

If you are wondering why you should read about money - or believe you understand money but were not brow-beat courtesy of Bitcoin - the author stresses the need for you, dear reader, to read with this question in your mind: What is money?


Follow the Money is divided into three parts. Each part will cover the defining elements of real estate. These elements are compared to the qualities and functions of money to see if real estate can pass the “moneyness” test (i.e. is real estate money?). Lastly, each element discussed will be analyzed from the perspective of Bitcoin.

What is Money?

Do you really know what the dollar in your pocket is? What about your grandpa’s gold and silver coins? Why were your parents able to buy candy for a nickel as a kid but now America’s favorite candy, Reese’s buttercups, are one-third smaller and cost 20x more?

Thus, we fall into the rabbit hole. The starting point of our (or, in particular, your) quest to understanding money begins with a simple, unasked and unstudied question:

What is money?

Money is, first and foremost, a technology. Money is an emergent phenomena humans discovered which solves the barter problem - more formally known as the double coincidence of wants problem. Barter is the direct exchange of one good for another (five sheep for one horse, one apple for one orange, etc.) between two or more parties. Money is not a social contract and is not a creation of state policymaking.

Example: Albert has apples and Barry has bananas. Albert wants to trade his apples for Barry’s bananas. Barry, however, doesn’t want apples. Therefore, no trade will occur.

Money fixes this.

Money creates indirect exchange. Indirect exchange uses another good - money - in an exchange which can be used later in another exchange for other goods. Many different goods could be money and have been over time, each with different properties to suit the needs, wants, and technology available to the people living in that time and place. Salt, sea shells, cattle, stones, and glass beads. All examples of different monies from around the world prior to the use of precious metals. Nick Szabo wrote an excellent and highly recommended article called Shelling Out which explores this further.

Let’s go back to our prior example. Albert, now bearing the knowledge Barry doesn’t want apples, exchanges his apples with Satoshi who wants apples and has money. Albert, now having received an education from Mises.org and Saifedean.com, makes the trade knowing that money, as the most salable (“sale-able”) good, can be exchanged for all other goods and services (like bananas). Albert, now in possession of money, goes to Barry and exchanges money for the bananas he originally desired. Barry accepts money because, he too, knows the money now in his possession can be exchanged for what he wants - one of Saifedean’s steaks.

One thing is certain, whichever good performing a stint as money changed over time to adapt better at being money. Better monies were not self-evident until after the noew monetary good was discovered. Precious metals were freely chosen 5,000+ years ago by market participants and remained the standard until the early 20th century.

Qualities of Money

Aristotle was the first to describe the five traits of money: durable, divisible, portable, rarity (scarcity), and intrinsically valuable. I like Aristotle but he’s dead. Things have changed a bit since he was around. Here at Bitcoin Urbanism, we respect past knowledge, so we’ll pick up from the past and advance into the future.

This “updated” list from the St. Louis Fed is enough to get started: durability, portability, divisibility, uniformity (fungibility), limited supply (scarcity), and acceptability. (Trigger warning: this newsletter will dunk on Fedbois and all other central planning ilk early, often, and with glee.)

The above qualities work for money through the year 2008 but not afterwards. Bitcoin emerged from the ashes of the Great Financial Crisis to solve a specific problem - central bank money printing. A paradigm shift has since occurred and the changes must be accounted for. More qualities must be added: decentralized and verifiability.

We will discuss these qualities more later. Recommended reading on this topic is The Bullish Case for Bitcoin by Vijay Boyapati.

Functions of Money

To be useful for human action, money must perform three functions: be salable across across scales, space, and time. We turn to The Bitcoin Standard for a succinct description of each function:

A good that is salable across scales can be conveniently divided into smaller units or grouped into larger units, thus allowing the holder to sell it in whichever quantity he desires. Salability across space indicates an ease of transporting the good or carrying it along as a person travels, and this has led to good monetary media generally having high value per unit of weight...A good’s salability across time refers to its ability to hold value into the future, allowing the holder to store wealth in it…For a good to be salable across time it has to be immune to rot, corrosion, and other types of deterioration.

Store of Value

Money must store wealth across time, more specifically into the future. Some goods last longer than others. Using an apple as a store of value is not recommended due to its natural end state - rotting away. Gold is the epitome of atomic stability. It can’t be destroyed. All the gold ever mined still exists today. Being indestructible does not mean its ability to store wealth into the future - measured in purchasing power - remains the same forever though.

Gold’s supply is only constrained by the amount of time, labor, and capital humans dedicate to digging it up. New gold deposits are discovered over time and the existing stock of supply gets diluted by new flows of supply. The ration of newly supply to existing supply is called the stock-to-flow ratio.

If you own gold and the newly mined supply of gold averages out to 2% over 35 years, the quantity of gold you own relative to the total supply has been diluted by 50%. After 100 years of continuous mining for 2% new supply, slightly over 85% dilution will have occurred. Gold will maintain the same purchasing power only if economic growth is equal to the growth of new gold supply.

In comparison to gold’s dilution, the bitcoin protocol performs a difficult adjustment to the mining algorithm every 2,016 blocks (about two weeks) to target a 10-minute block creation interval. The difficult can be increased or decreased with each adjustment, preventing unscheduled changes to bitcoin’s supply issuance over time. There will only ever be 21 million bitcoin though. 1 BTC today will always equal 1 BTC in the future.

Medium of Exchange

The medium of exchange function is how most people identify with the use of money. This is described in the example of Albert’s apples. One kind of good, apples, is not easily exchanged for another good, bananas. A middle-man-good must be used to facilitate the apples-for-bananas trade. This middle-man-good is a monetary good - or just money. As a medium of exchange, a monetary good is the most liquid and most widely accepted good. The qualities a money has, as benchmarked by Aristotle, needed to be met and or exceed to dominate other options for a monetary good. Money creates a monetary network and monetary networks are winner-take-all games.

Salability across space requires money to be a medium of exchange. Money must be transportable and have a high value-to-weight ratio. Gold is another good example. When minted as a coin, gold could be transported in identifiable weights across regions of space.

It is this author’s opinion that a monetary good must first hold the title of store of value prior to being a medium of exchange. Each exchange takes place across time and space between humans. Money must store wealth long enough for future exchanges to take place. In the case of hyperinflating money, the window of time will be short and can shrink quickly - in some cases, so quickly it no longer functions as money after being printed. A fascinating read on this topic is When Money Dies by Adam Fergusson.

Unit of Account

Money as a unit of account occurs when a specific quantity of money for a specific quantity of goods or services - aka, a price - is set by those participating in a market. Money must be a medium of exchange prior to being a unit of account. As a unit of account money is salable across scales, able to be grouped together for large or divided into small amounts. A money that can be exchanged for penny candy in one transaction and the Empire State Building in another is salable across scales.

Share Bitcoin Urbanism

Money creates the opportunity for peaceful cooperation and trade of goods and services between strangers when that money stores wealth into the future, possesses the qualities which make for the best available medium of exchange, and are priced in a shared unit of account. The competition to be money is won by the monetary good exhibiting superior monetary qualities and superior performs the monetary functions will end up dominating the entire monetary network.

Now do Real Estate

Let’s start on terra firma. It’s good to define the topic being discussed. Real Estate, then, is defined as the combination of geographic land, economic land, and the improvements within a given tract. Land, used by itself, is defined as geographic and economic land without any improvements.

This is a different take on land from the Austrian perspective, which is quite broad. From the Mises Wiki for land:

In production, man needs to combine other factors (capital and labor) with the nonhuman elements provided by nature, called land.

On the same page, the section for Land and Capital goes a bit further:

The concept of land ("economic land") is entirely different from the popular concept of land ("geographic land"). The economic con­cept includes all nature-given sources of value: what is usually known as natural resources, land, water, and air in so far as they are not free goods. On the other hand, a large part of the value of what is generally considered "land" — i.e., that part that has to be maintained with the use of labor — is really a capital good. In agriculture, soil needs to be maintained. But the physical space itself - "land as standing room" - is permanent and non-reproducible.

I do not find this definition satisfactory but it’s a good place to start (notice the land types). Land as described in both definitions contains too many moving parts rolled-up together. This author believes we can break things down for a better understanding.

Separate the Uses

Geographic land is the location in the physical space that you occupy; where your body takes up space. No metaphysics or Zoom calls necessary. Mises refers to this as “land as standing room.” All human action occurs in physical space. Another term used to describe physical space is meatspace - it’s like cyberspace, but in real life.

Geographic land can be further separated into either natural or artificial geographic land. Natural geographic land on Earth is finite and, being finite, must be economized. Artificial geographic land is limited only by the amount time spent to create more. Artificial geographic land requires improvements be made to natural geographic land in order to exist.

Example: if you were to stand outside your house on the dirt and looked up to find your evil twin on the balcony directly above with a bucket of ice cold water, the two of you are occupying two different geographic spaces - even though evil you is directly above. Where normal you stands is on natural geographic land, the evil you is on an improvement which created artificial geographic land.

Natural geographic land may be “identical” if you move one direction an inch but, pedantically, it’s not. Missing by an inch in some aspects of real estate is often no different than missing by a mile. The same rule applies to artificial geographic land.

Think about natural geographic land this way, if you want to experience a certain sight - say an Instagram post of an exotic location, you need to stand in the same place as the camera to capture the same view shown in a picture.

Humans use new and improved technologies to traverse oceans, cross terrain, and settle on new natural geographic lands. Artificial geographic land is limited only to the time humans dedicate to creating it. Technology allows humans to create more artificial geographic land to gain material benefits in the pursuit of value creation - i.e. deep sea oil rigs, research bases in Antarctica, the International Space Station, or your favorite 2020 basement speakeasy.

So, is it money?

In each part of this series, we’ll compare the element analyzed to the qualities of money. After comparing each element to the monetary qualities a conclusion will be drawn (in Part 3) to see if real estate satisfies all, some, or any of the functions of money.

The ratings range from zero to ten. Zero means the real estate element is not attributable or classifiable to the quality. Ten being the real estate element is the purest form of that quality. Each quality will be discussed briefly in context of the real estate element.

  • Durable: the physical space of geographic land only changes if humans expend time and energy to change it; without human intervention, geographic land’s durability is subject only to natural forces; a location in physical space cannot be destroyed but the natural or artificial geographic land can be

  • Divisible: geographic land is moderately divisible insofar as improvements allow for others to occupy a similar space - say on another floor above or below; geographic land can be legally divided for multiple purposes, i.e. easements, but the natural and artificial physical spaces cannot be divided up

  • Portable: geographic land is not portable; no more could you transport St. John’s to the desert southwest than could be done in the reverse; taking sand home from the beach is taking a resource as a memoir, not transportation of a physical space where the sand was

  • Fungible: we discussed this earlier that standing in close proximity with other people in the same physical space may be interchangeable for the purpose of experiencing the same view; moving an inch to the left is a different and separate physical location

  • Acceptability: geographic land, at a time, could be won during conquest or war, it was also used a a collectible, for inheritances, and as a dowry; in niche circumstances geographic land may be part of a barter transaction; generally, geographic space is a higher order good and accepted in exchange for a monetary good

  • Scarce: flipping the fungible coin over, every location is indeed unique and scarce; natural geographic land is the result of cosmic forces, not human action. Talk about an energy- and time-intensive process! Once humans apply labor, capital, and time, it is no longer natural land. Scarcity is also a derivative of the maximum amount of geographic land a human can occupy over time and is overcome, to certain degree, by travel.

  • Decentralized: geographic land is in fact contiguous, some of it just happens to be under water; Earth is actually the only geographic-land-based-human-node (for now)!

  • Established History: bitcoin has existed for 12 years, gold for approx. 5,000 years…but the earth’s geographic land clocks in around ~4.5 billion years - so, yeah, no contest.

  • Verifiable: geographic land is partly verifiable if you a) know your geography well enough to be plopped anywhere on earth or b) if another human informs you; places like the Amazon forest can be pointed to on a map but our knowledge of an exact location within the forest in physical space is limited

The results are in for geographic land as money and the numbers litter the spectrum. The remaining two elements of real estate to be analyzed - economic land and improvements - may pullout the “W.”

Remember, the goal is to see how the elements of real estate stack up against the qualities of money and if the elements can fulfill the functions of money.

Bitcoin & Geographic Cyberspace

There will only ever by 21 million bitcoin. No additional bitcoin will be created beyond 21 million. In fact, all 21 million bitcoin already exist. The protocol sends bitcoin to a new address once a certain condition is met. As such, bitcoin is absolutely scarce.

We know the Earth’s surface area, its natural geographic land, is limited to 196 million square miles in total, with ~56 million above water where humans live (for now). Its not absolute scarcity, but it’s close enough to do an analogy.

Each bitcoin, divisible into 100,000,000 satoshis (or abbreviated, sats), is a piece of geographic land in cyberspace. The protocol works in such a way that each satoshi can verifiably be proven to exist only in one place - one bitcoin address on the bitcoin blockchain - in cyberspace. Any and all node operators have the ability to verify this. You can download the bitcoin software right now, sync your full node to the network, and look up any transaction or address your heart so desires.

We have done this in advance and discovered Bitcoin Urbanism owns a single satoshi on a single address.

This one satoshi occupies a location in cyberspace equivalent to natural geographic land. In the most pedantic way possible, the satoshi in question cannot exist at two different addresses. There can only be one - address for our satoshi. No bitcoin is moved until, at a minimum, one block confirmation has occurred on the network. It’s better if you wait for more - the more the merrier!

As bitcoin’s core code continues to be updated, BU’s satoshi can also exist on an address equivalent to artificial geographic land. The address is a result of human action (a person wrote the bitcoin code). This concept can be stretched further when considering the future potential for new additions to the code. Code for smart contracts - or programmable, self executing code-based agreements - could be run with parameters and specific triggers to execute without human intervention. Not quite artificial intelligence, but definitely an artificial geographic location in cyberspace.

Put simply, bitcoin is cyber-geographic-land. The cyberspace land rush is already in progress. Best to get out there and stake your claim.

The Citadels are coming!


Stay tuned for the first edition of Satoshi’s Sidewalk.

Feedback & criticism welcome in comments or my DMs.