Unforgeable Costliness

There are some problems involved with implementing unforgeable costliness on a computer. If such problems can be overcome, we can achieve bit gold. This would be the first online currency based on highly distributed trust and unforgeable costliness rather than trust in a single entity and traditional accounting controls.

– Nick Szabo, 2008, months before Bitcoin ¹

When trying to determine how much value something has, one thing you may consider is its production cost (Production Cost and Price). This cost may include things other than a straight monetary amount as well. If something takes a lot of effort, time, or even luck, these can be included in the “cost” to produce.

If the production cost of a product can be independently verified, then we can say it has some amount of unforgeable costliness. The unforgeable portion of the cost may be lower than the actual production cost of a particular item. This property is best explained by example:

• If an unknown artist spent lots of time and energy creating a hand-crafted pot, it may have a high sale price, but would not have much unforgeable costliness. It is difficult to verify if the pot was mass-produced by efficient low cost machines or not.
• A historical artifact like the mummy of Tutankhamen that has a well known scientific procedure to verify its authenticity will have a large amount of unforgeable costliness, due to the improbability of its history.
• A tree’s trunk can have its age verified by counting the number of growth rings, proving the amount of time it took to grow such a large tree.
• A gold bar can easily be chemically tested to be real gold, and therefore has an unforgeable cost of at minimum the most efficient gold miner’s cost.
• A [[ bitcoin]] can be mathematically proven to have taken a certain amount of physical [[work ]] to create

Digital Unforgeable Costliness

Until the creation of Bitcoin, unforgeable costliness was purely a property of physical products. Digital data can certainly be costly to produce, but making it unforgeable is nearly impossible. Consider a file containing a movie; the cost to produce the original file by the movie producer was certainly very high. However, this file can be duplicated endlessly to every computer in the world for almost zero cost. There is no particular way to prove which file is the original; anyone and everyone is able to create perfect forgeries.

Solving this problem was fundamental to Bitcoin’s success; one of bitcoin’s most fundamental ideologies is that it should not be possible to create new money for free (ie Bitcoin is a [[ hard money ]], similar to gold). In an abstract sense, a bitcoin is a file which:

1) Requires a certain amount of work (electricity consumption) to create

2) Anyone can mathematically verify the amount of work used to create it

3) Cannot be moved or copied without destroying the original

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