Money, as we currently know it, is not grounded in any physical resource; it is an imaginary balance-sheet phenomenon. What we experience as “money” is largely a set of legally enforceable claims, continuously created and extinguished through institutional processes rather than minted or stored in any literal sense.

At the core of the monetary system, we find central banks (i.e., state banks), which supply what is often referred to as base money. Base money is created not by printing cash (as most people imagine), but through asset operations: when a central bank buys government bonds or other assets, it simply adds money to banks’ reserve accounts; in layman’s terms, it creates base money out of thin air. But that is just the tip of the inverted money pyramid.

The bulk of money creation occurs within commercial banks. When a bank issues a loan, it does not transfer pre-existing funds from savers to borrowers. It simultaneously records a loan as an asset and a deposit as a liability, thereby generating new purchasing power out of … well, thin air.

Sounds insane? Well, this is the fractional reserve banking system.

In fractional reserve banking, banks keep only a small fraction of their customers’ deposits as reserves and lend out the rest. When a bank makes a loan, it creates new money by crediting the borrower’s account, while holding just enough reserves to meet withdrawals and regulatory requirements (usually only a few percent of the total money loaned, according to locally applicable regulations).

Fractional-reserve banking is not a 20th century construct; it actually predates the existence of governmental monetary authorities and originated with bankers’ realization that generally not all depositors demand payment at the same time. In the past, savers looking to keep their coins and valuables in safekeeping depositories deposited gold and silver at goldsmiths, receiving in exchange a note for their deposit (see Bank of Amsterdam). These notes gained acceptance as a medium of exchange for commercial transactions and thus became an early form of paper money. 

As the notes were used directly in trade, the goldsmiths observed that people would not usually redeem all their notes at the same time, and they saw the opportunity to invest their coin reserves in interest-bearing loans and bills. This generated income for the goldsmiths but left them with more notes on issue than reserves with which to pay them. A process was started that altered the role of the goldsmiths from passive guardians of bullion, charging fees for safe storage, to interest-paying and interest-earning banks. Thus, fractional-reserve banking was born.

This mechanism is based on one crucial assumption: that the economy will keep growing. Since most money enters circulation as interest-bearing debt, repayment requires not only the principal but additional value. This is only feasible if future income, productivity, and economic activity expand over time. Growth is not optional; it is structurally required to prevent widespread default and contraction.

As a result, modern money is inseparable from an ideology of expansion. Credit creation presumes rising output, growing markets, and tomorrow’s surplus paying for today’s obligations. Money, in this framework, is less a neutral medium of exchange than a claim on an ever-expanding future.

There’s a nasty catch though, ecological systems are not ever-expanding, nor can they create value out of thin air, no matter how much economists would like them to.

A New Currency Emerges

Should we wish currency to be in line with the physical world, while keeping the ability to use the modern “money” metaphor (i.e., not reverting to a barter economy), enabling efficient trade, credit, and a flexible money supply, we must ground it in some physical medium.

The gold standard that was used in the United States was a monetary system in which the dollar was directly tied to a fixed quantity of gold. For much of the 19th and early 20th centuries, paper money could be exchanged for gold at a set rate, which limited how much money the government and banks could create. This provided price stability but made the economy inflexible during crises, since the money supply could not easily expand. The system was gradually dismantled during the Great Depression and was formally ended in 1971, when the U.S. stopped converting dollars into gold for foreign governments.

The reason gold was chosen as the grounding asset was that it had intrinsic value. Its intrinsic value was derived from its scarcity and the labor it took to excavate it. A measurable, finite quantity. But gold is not unique; it was simply the best agreed-upon tangible medium in a world that mostly produced physical goods. In simple terms, if you are a person living in the US in the 1950s, where steel, oil, and their by-products (cars, home appliances, machinery, and so on) are the items that drive the market, it’s easy to mentally compare those physical entities to yet another physical unit, i.e., gold.

But that is no longer the case.

While the 20th-century economy was mainly driven by natural resources used to manufacture objects, the current economy is almost entirely producing energy-dependent intangibles. Software-based products, particularly those utilizing AI, are extremely energy-intensive. Large Language Models, such as ChatGPT, consume an obscene amount of power, both for maintaining their underlying hardware as well as the massive cooling systems used to keep them operational.

Which calls for a new way of abstracing curency.

“Energy is the true currency,” he said. “You can’t legislate energy. You can’t just pass a law and suddenly have a lot of energy. It’s very difficult to generate energy, or especially to harness energy in a useful way to do useful work.”

Elon Musk, December, 2025

Energy Coins

In a world where energy is the most sought-after unit of currency, he who controls energy-production controls the economy. It is only natural, then, to use energy as the base unit for currency. An energy coin, if you’d like. A modern-day “gold” that replaces the older physical substance. It so happens that we already have such a coin.

When Bitcoin was invented back in 2008 by the still mysterious Satoshi Nakamoto, no one thought it would last, let alone usher in the technology that may drive the energy-based currency. However, Bitcoin’s underlying blockchain is perfectly suited to become the underlying technology at the core of the energy coin metaphor.

A blockchain is like a shared notebook that many computers (aka “nodes”) around the world keep together. Instead of one person or company owning the notebook, everyone has a copy, and new entries can only be added if the group agrees they’re valid. Each new page (a “block”) is linked to the previous one, forming a chain that’s very hard to change without everyone noticing. This makes blockchain useful for keeping records—like money transfers or contracts—in a way that’s transparent, secure, and doesn’t rely on a single trusted middleman.

But not only.

To keep the blockchain running, an incentive was invented, a virtual “coin” that compensates the computers keeping the chain. After all, those computers are not free; someone is paying for the electricity that powers them, the energy that is then spent running the computations that enable the blockchain. Each time any of those computers “mines” (i.e., creates) a new block, its “account” is credited by several such coins (where its account is also kept on the blockchain). Those coins are widely referred to as Bitcoins. Note that currently there are many other such coins, each running on its own blockchain, some running on other versions of similar technologies. However, to keep things simple, we’ll only mention Bitcoin.

On top of that, Bitcoins are in a limited and finite supply by-design. So the activity of “mining” them will come to an end at some point, and the difficulty of finding each new block is increasing algorithmically as new “coins” are produced.

By now, you may have guessed that Bitcoin is indeed an energy coin, that is to say that its intrinsic value, its worth, is driven by the amount of energy used to create it. And energy, as Elon Musk suggests, is both hard to produce and in limited and finite supply within our ecosystem. A perfect base unit for the new currency.

But aren’t we reverting back to the gold standard alongside its money-supply inherent limitation?

Short answer is: yes, we are, and that may not be a bad thing (more on that later).

A Resource-Based Economy

A resource-based economy is an economic system where goods and services are produced and distributed based on the availability of natural and technological resources, rather than through money, prices, or profit. Decisions about what to produce and how to distribute it are guided by data—such as resource levels, environmental limits, and human needs—to meet everyone’s basic requirements efficiently and sustainably. In this model, access replaces ownership, automation replaces much of human labor, and scarcity is managed through planning and technology rather than markets. Basically, an economy that sits well within a closed ecosystem such as ours.

Sounds a bit like Communism, doesn’t it?

Not really. At least if we take out the human factor.

One of the reasons Communism failed as afair resource-allocation system is that humans, pre-programmed by eons of evolution, tend to hoard for a rainy day, rather than rely on an honest resource broker to provide for them. More so for those in power, controlling the resource allocation, as Soviet Communism has gravely shown.

Luckily, we have AI.

From each according to his ability, to each according to his needs

Karl Marx, 1875, Critique of the Gotha Programme

In a world where AI is the honest broker, we may expect the human problem to be resolved by taking the biased biological mind out of the equation.

In a resource-based economy, AI may act as the coordinating intelligence: analyzing real-time data on resources, production capacity, environmental limits, and human needs to dynamically allocate goods and services where they are most useful, reducing waste and scarcity.

Instead of prices signaling demand, algorithms optimize distribution directly—deciding how much energy, food, housing, or transport should be produced and where it should go. Blockchain can then function as the trust layer and exchange system: not money in the traditional sense, but a transparent, tamper-resistant ledger that tracks resource access, usage rights, contributions, and system rules without central control, while its energy consumption keeping all this running is factored into the overall resource optimization. Together, they provide intelligent allocation (AI) and a decentralized coordination and accountability system (Blockchain).

In that sense, Bitcoin is the base money, and the resources allocated by the AI are the publicly usable currency, apart from the fact that money, as we currently know it, has ceased to exist.

Let me make this point crystal clear. If AI is distributing resources, based on its internal energy-based coin (e.g., Bitcoin) over a public ledger that cannot be falsified, everybody gets what they need without any requirement for an exchange medium in the form of (current) money.

But there’s a catch.

Money, in its current form, is not only an exchangeable currency used to purchase resources and services, but also an incentive to work. If people get what they need (or even what they desire beyond the basics), no one would ever need to work. If nobody works, how would we manufacture the required goods for AI to distribute?

Elon Musk’s answer to this question is that AI and robot labour would provide the neccessary work force required for the latter, freeing humans from the need to do the actual work. Personally, I am less optimistic that we would have a fully automated robotic manufacturing infrastructure in the coming decades (Elon Musk has been promising level-5, fully autonomous vehicles for many years now, and yet none are driving on the public highways, to date).

On top of that, as AI is trained on human-generated data, it suffers from the biases we, as humans, have introduced into its training set. In simple terms, if we are biased towards unbalanced resource allocation, AI is not going to resolve the issue fairly, but rather follow our mental and cultural biases.

Some claim that we can program AI to be fair and just let it run; sadly, that is not the case. As AI is created by the very people who are not the best role models for optimal resource allocation, we cannot truly trust their product to act fairly. It’s much more likely that those AI “creators” would place guardrails into their creations to keep their advantage over other companies producing similar technologies, and as a result, the wider public.

Seems like we have no choice but to keep the current monetary system.

Not necessarily.

The Best of Both Worlds

Even though we cannot (yet) transition into a resource-based economy, we could utilize some of the ideas suggested above to create its first generation. A pricing system that is grounded in energy rather than the whim of a central bank. Should we adopt the idea of energy-based coins (such as Bitcoin, but not only) as our currency, and derive the value of goods and services from the energy used to create them, we could have a monetary system where such coins are exchangeable for actual products.

In layman’s terms, if one US dollar represents the amount of (current) money that can buy products whose value is one US dollar (yes, cyclic as it may seem, this is the definition of money as we know it), the buying power of one energy-based coin would be equal to the total energy it took to produce the product it can buy.

But wait, what about flexible money supply (remember, we promised to take this up later, so here goes)?

While the current economy has a theoretically infinite money supply (due to the ability of central banks to create money, later generating more of it via loans provided by commercial banks), the suggested system has no such parallel; as a result, one may wonder how we overcome the inherent scarcity of a finite-supply system. The answer is: we wouldn’t.

As mentioned above, the current money supply system assumes infinite economic growth; that assumption forces the market to create an ever-expanding set of products, and consumers to keep on purchasing those products, even if they don’t need them. It’s a fundamental assumption created by the system that we currently take for granted.

To do so, we work harder, buy more, while only benefiting the conglomerates that “drive the economy”. It’s a systemic requirement without which the entire system collapses. That, however, is not a god-given rule, rather man-made. Changing the system such that money supply is no longer infinite would surely have a chilling effect on the growth-economy, entailing a deep cultural change.

In a finite money supply system, individuals as well as companies would prioritize sustainability over growth, and fewer products no one really needs (do you really need to replace your iPhone 16 with version 17?), over products benefiting people as well as the environment. What seems at first to be a fatal flaw of the system is actually one of its biggest advantages.

Some may be concerned about energy production being controlled by a select few who dominate the market, let alone produce energy from highly polluting sources such as coal and oil, which would have a negative effect on the ecosystem. That is a valid concern, as today’s energy market is highly centralized and the incentive to profit from such sources outweighs any environmental concern. However, we could resolve this by assigning different values to different energy sources in the same sense we assign different values to different national currencies today. For example, the value of renewable energy could be set much higher than that of coal-based energy, generating fewer “coins” for the latter over the former. A blockchain-based ledger can easily track and weigh such transactions using smart contracts such as the ones currently implemented on Ethereum.

Opening up the energy market beyond the current super-manufacturers may also help in bringing in more players, which in turn should create healthy copetition ushering in new types of renewable energy sources.

This model could also be extended to support fractional “coins” where you could buy a product that costs a fraction of the energy you have in your “bank”, kind of like using cents on a Dollar (in this case, your Blockchain wallet), or conversely buy parts of assets whose energy value is higher than your current balance. For example, it would allow for the tokenization of larger assets, such as real estate, so you can invest in any part of an asset, get loans, and perform stock trading.

To earn such coins, one would either have to invest energy, e.g., run a Blockchain mining node (i.e., a computer that participates in the Blockchain), where one somehow gets the electricity to do so (for example, from a solar system), sell products and services as we currently do, or in any way contribute to the energy marketplace.

While grounding “money” in physical energy would not immediately create an ideal resource-based economy, it would be a step forward, aligning the financial system with the (limited) resources in the ecosystem we live in.

As states and central banks are gradually made obsolete, a brave new global economy may emerge. One whose basic assumptions and driving forces work in concert with natural resources, rather than an arbitrary bottom line of figures on a spreadsheet.