The Entropic Limit of Decentralized Cryptosystems:

 

Why Bitcoin Cannot Function as a Global Financial Architecture

Author: Kinyo Laditan
Affiliation: Independent Researcher, Diner Napkin Research
Date: December 2025

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Abstract

This paper presents a theoretical analysis arguing that Bitcoin, and by extension all decentralized proof-of-work cryptosystems, cannot function as a globally dominant financial system. The argument rests on a refined understanding of encryption as a natural entropic phenomenon rather than a purely engineered advantage. Because the computational and energetic cost of maintaining encryption is tied to increasing entropy, decentralized systems experience an unbounded escalation of security costs. Centralized monetary systems, which incur minimal redundancy costs, will therefore always outcompete decentralized cryptosystems in the large-scale economic domain. The paper concludes that blockchain technology’s viable long-term role is not as a planetary monetary base but as an internal optimization mechanism within highly controlled institutional environments.

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1. Introduction

Bitcoin is often presented as a revolutionary alternative to legacy financial systems: resistant to censorship, globally decentralized, and secured by cryptographic proof-of-work. Yet after more than a decade of experimentation, Bitcoin has not displaced or outperformed centralized monetary systems. This paper identifies the core reason: the cost of decentralized encryption is a natural physical phenomenon governed by entropy, not an indefinitely scalable efficiency advantage.

When encryption is treated as a natural law, its economic implications become clear. The energy burden of maintaining decentralized cryptographic order rises proportionally with system complexity. As this burden cannot be engineered away, decentralized systems necessarily incur exponential security costs.

Bitcoin thus encounters a structural ceiling: it cannot scale to the level of a global financial architecture because its cost basis is entropically upward, while centralized systems benefit from the entropic efficiencies of single-source authority.

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2. Encryption as a Natural Entropic Phenomenon

2.1 Encryption Is Not a Free Benefit

Traditional discourse treats encryption as a purely technological innovation—something humanity “invented.” In reality, encryption is better understood as a constraint imposed by natural law. Attempts to protect information against unauthorized access require:

• energy expenditure,

• organized computational structures, and

• continuous resistance to entropy.

Thus, encryption behaves similarly to thermodynamic order: it must be constantly maintained and never decreases in cost at scale.

2.2 The Cost-Curve of Order Maintenance

As systems grow:

• the number of vectors for interference increases,

• the informational complexity grows, and

• the energy required to maintain secure ordering rises.

This makes encryption a non-decreasing natural cost function:

$$C_{encryption}(n)\propto E(n)\cdot H(n)$$

Where:

• $n$ = network scale

• $E(n)$ = required energy

• $H(n)$ = entropy of the system

Both terms increase monotonically in decentralized environments.

Thus, encryption is equivalent to entropy-resistance.

And entropy always wins economically.

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3. The Economic Structure of Bitcoin

3.1 Bitcoin’s Security Depends on Perpetual Expenditure

Bitcoin relies on:

• proof-of-work (PoW) hashing,

• globally distributed competition,

• increasing difficulty adjustments,

• redundant state consensus across nodes.

PoW ties security to energy consumption:

$$Securit{y}_{Bitcoin}\propto \text{Global Energy Input}$$

Because malicious actors also scale with network size (and economic incentive), Bitcoin’s difficulty must increase continuously.

This creates an entropic trap:
the system must expand its energy consumption simply to maintain the same level of security.

3.2 Redundancy Costs: The Hidden Scaling Problem

In Bitcoin:

• every node must store the full ledger

• every miner performs redundant work

• every transaction must be validated globally

Centralized systems do not replicate these costs.
Their ledger is singular, not duplicated across thousands of machines performing the same computation.

Thus:

$$Cos{t}_{decentralized}\gg Cos{t}_{centralized}$$

In large-scale financial systems, the cheaper architecture always dominates.

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4. Why Centralized Financial Systems Outcompete Bitcoin

4.1 Centralization Minimizes Entropy Costs

A centralized ledger:

• maintains one authoritative state

• requires far less computational redundancy

• benefits from economies of scale

• has stable, predictable maintenance costs

Thus centralized systems sit at the entropy minimum for monetary architectures.

4.2 Competitive Dynamics

Financial systems compete based on:

• scalability

• transaction speed

• energy efficiency

• operational cost

• latency

• governance clarity

On all of these metrics, Bitcoin’s decentralized architecture is structurally disadvantaged compared to:

• Federal Reserve settlement systems

• SWIFT

• VisaNet

• Apple Pay

• Central Bank Digital Currencies (CBDCs)

These centralized systems can execute global-scale transaction throughput with a fraction of Bitcoin’s energy expenditure.

Thus Bitcoin cannot win the competition.

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5. The Misinterpretation of Decentralization

5.1 Decentralization Is Not an Efficiency Model

Decentralization has been marketed as an optimization.
It is not.

It is an encryption model, distributing the cost of maintaining order across many nodes. This naturally increases the entropic cost of the entire system.

5.2 Decentralization as “De-calculation”

In the dimensional matrix context, decentralization corresponds to distributed delay, or “de-calculation.” Meaning:

• the state of the system is uncertain

• more computation is required to achieve consensus

• greater energy is spent resisting entropy

Decentralization scales uncertainty faster than it scales efficiency.

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6. Bitcoin’s Only Sustainable Role: Internal Optimization

Given the natural limits demonstrated, Bitcoin and blockchain technology still have meaningful applications:

6.1 Supply Chains

Ensuring traceable and immutable logs.

6.2 Corporate Governance

Providing secure audit trails.

6.3 Institutional Settlement Networks

Private blockchains can streamline internal reconciliation.

6.4 High-Integrity Data Systems

Forensics, compliance, and security auditing.

These environments are bounded and do not require global consensus replication at massive scale.
Thus their entropy cost is manageable.

Bitcoin’s architecture matters inside institutions, not in competition with them.

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7. Conclusion

This paper argues that Bitcoin cannot operate as a global-scale financial architecture because its decentralized encryption model is bound to a natural entropic cost function. As network scale increases, the cost of maintaining cryptographic security rises without limit. Centralized financial systems, which maintain order through single-authority consensus, incur far lower entropic and computational costs and will always outcompete decentralized cryptosystems in efficiency, speed, and sustainability.

Blockchain’s real long-term value lies in enhancing internal operational management, not in replacing national or global monetary systems. Bitcoin is best understood not as a future world currency, but as a prototype revealing the inherent entropy economics of decentralized consensus.

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8. Future Research Directions

• Modeling encryption as a thermodynamic variable

• Integrating the dimensional matrix theory into information entropy

• Developing an “Entropy Cost Index” for evaluating cryptosystems

• Exploring hybrid central-decentral models with bounded entropy

• Investigating encryption as a natural law analogous to gravity or time