One of the questions everyone ultimately faces in the Bitcoin rabbit hole is: what happens in a crisis or emergency on a Bitcoin standard without the Federal Reserve to provide liquidity?
The best consensus seems to be, "We will not have as many crises on a Bitcoin standard, and our savings will go further." While I agree with this thesis, I often wonder if a more actionable solution exists.
The problems with a Fed-backed fiat currency are well documented, and there is evidence that we are seeing the system break. However, as Chesterton's Fence would suggest, do not destroy something until you understand why it was created in the first place.
Could an "Energy Reserve" obsolete the Federal Reserve?
Let me explain.
Instead of relying on the Federal Reserve to provide liquidity during an emergency, could we economically tap into energy resources to sustain our basic day-to-day needs? After all, money is a claim on energy.
We would need a flexible and distributed load to accomplish this, but energy reserves are not economical to build or maintain.
Enter Bitcoin mining.
Bitcoin creates an economic incentive to build and maintain a decentralized and distributed renewable energy surplus—a surplus we can tap into when it is economically advantageous, like in an unexpected crisis or emergency.
But what about Jevon's Paradox?
Yes, over time, we will find other productive uses for this "extra" energy and be better for it. Meanwhile, miners can turn off, scale, and relocate in response to new demand, ensuring an incremental flexible load we can deploy whenever necessary.
As we continue to automate much of our critical infrastructure and day-to-day needs, could a global network of renewable energy reserves make the Federal Reserve obsolete?
Could the Bitcoin network eventually allow us to overcome emergencies by making it economical to build, maintain, and deploy flexible loads when and where necessary rather than relying on liquidity from the Federal Reserve?
This is how the natural world works. Our bodies have various fuel sources that we tap into depending on our needs. A small amount of fat is an essential part of a healthy diet. Some energy sources are distributed in small amounts within cells that can be rapidly deployed for immediate needs. In contrast, others are stored for extended periods and accessed only after the other sources have been depleted. Our bodies have figured out an economical way to maintain an energy reserve for emergencies, and now our societies can, too.
Protein = Battery
Fat = Flexible Load
Carbohydrate = Baseload
Rapidly deploying nonrival energy wherever necessary is a tangible solution to the question that nobody seems to be able to answer:
"What happens in a crisis or emergency on a Bitcoin standard without the Federal Reserve to provide liquidity?"
It is a form of demand response for an economic emergency that does not distort the system. Given the incentive structure of the network, it is likely that this is precisely what will play out over time.