The Physics of Finance: Why Engineers See Through the Economic Fog
Technical know-how in systems and efficiency is now shaping how economics evolves—technology isn’t just a tool; it’s redefining what’s possible.
Systems Theory, Economics
You’d think tech and finance would go hand in hand, but in practice, they often feel like different planets. Engineers and scientists are grounded in physical laws—constraints, costs, limits—while traditional economics tends to float in a world of theories and models. That gap isn’t just some academic quirk; as technology transforms money and markets, it’s starting to matter more than ever.
Engineering Principles and Understanding the Disconnect
There’s no such thing as a free lunch—every action has a cost, and every system has its limits. You can’t create something from nothing, and every build must respect the laws of thermodynamics, handle resource constraints, and operate within clear boundaries. Try to cheat those limits, and things break. This is true whether you’re writing code or designing a chip: physics always gets the last word. Code can’t ignore memory limits any more than hardware can ignore power consumption.
Thermodynamics in Finance
When it comes to finance, the same physical principles apply. Systems must obey the laws of thermodynamics, especially energy conservation and entropy. In practical terms, value creation always demands an energy input—be it labor, capital, or computational power—and inefficiencies (entropy) are inevitable. Take Bitcoin mining, for example: it directly links the creation of money to real-world energy expenditure, making the cost of value impossible to ignore.
In engineering, you can’t ignore energy loss or waste—entropy is simply part of the equation. Economists, too, must face the fact that value isn’t just numbers on a screen; it comes with a real, physical cost.
¬Inspired by Nicholas Georgescu-Roegen, pioneer of entropy in economics
Resource Allocation
Resource constraints are a core consideration for engineers. They’re always juggling limited resources—CPU, memory, bandwidth. Just as software systems must optimize memory and processing power, financial systems should account for finite natural resources and environmental impacts. Why should money be any different? If financial systems took resource limits seriously, maybe we’d see more talk about sustainability and less about infinite growth.
From server rooms to raw materials: Every system—digital or physical—must operate within real-world limits. Photo: compoundY
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The Economic Bubble
Traditional economics has operated largely detached from these physical constraints. For decades, economic models have been built on assumptions of unlimited growth, frictionless transactions, and perfect information—concepts that any engineer would immediately flag as physically impossible. This disconnect has led to a credibility gap between those who build real-world systems and those who theorize about economic ones.
Historical Context: Bridging Physics and Economics
Evolution of Economic Theory
Historically, economics has often ignored physical constraints in favor of abstract models. However, there have been attempts to bridge the gap. Sure, there have been efforts to bring physics into economics—think “econophysics” or Mandelbrot’s wild fractals shaking up how we see markets. But for the most part, economics has preferred its neat, tidy models over messy reality.
Previous Intersections
It’s not the first time physics and economics have crossed paths. Back in the Industrial Revolution, thermodynamics started creeping into economic thinking. Now, with tech moving at warp speed, those old conversations are coming back—only this time, the stakes are way higher.
You know what's really interesting? Probably for the first time since we ditched the gold standard, economists can’t ignore physics anymore. That’s a pretty big shift.
The Bitcoin Catalyst
Here's where it gets fascinating. Bitcoin changed the game and forced an intersection between these worlds. Suddenly, money isn’t just abstract—it’s tied to real-world energy, hard math, and network limits. It’s not just about crypto; it’s about rethinking how we build financial systems from the ground up. For the first time, we have a financial system that forces economists to grapple with:
Bitcoin: A financial system built on code, with a fixed supply and tangible energy cost. Photo: compoundY
Concrete energy costs
Mathematical immutability
System capacity limits
Network infrastructure requirements
Computational constraints
This is a fundamental shift in how we must think about economic models in a digitally native world.
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The New Economics
Going forward, economics needs to get real about things like energy use, network bottlenecks, and the environmental price tag of moving money around. These aren’t just technical details—they’re the new reality.
Economic theory must evolve to incorporate:
Energy efficiency metrics in financial systems
Infrastructure costs of money movement
Physical limitations of global networks
Environmental impacts of monetary policies
Technical scalability constraints
Technical Innovation at the Economic Frontier
This convergence presents an unprecedented opportunity in economic system design. For anyone who understands how systems really work, this is a huge opportunity. Tech isn’t just a tool anymore—it’s shaping what’s possible in economics. The folks who know how to build efficient, reliable systems are suddenly in the driver’s seat.
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Challenges and Criticisms
Complexity vs. Simplicity
Of course, making economic models more realistic means they get more complicated. That’s a headache for policymakers who need clear answers, not just beautiful equations. There’s a real challenge in keeping things usable and grounded.
Human Behavior
Economic systems are deeply influenced by human behavior, which often defies rational predictions. Incorporating physical constraints into economic models must account for psychological factors like risk aversion, herd mentality, and irrational exuberance—elements that no equation can fully capture.
The Path Forward
The future demands a new breed of economic thinking that bridges the gap between physical reality and financial theory. This transformation requires builders and innovators who understand both natural laws and economic principles—creating systems that respect natural constraints while delivering economic value.
Interdisciplinary Education
Maybe it’s time for new kinds of degrees. The future demands professionals who can bridge the gap between physical sciences and economics. Universities could develop interdisciplinary programs combining engineering principles with economic theory, producing graduates equipped to design systems that respect both natural laws and financial realities.
Emerging Technologies
And it doesn’t stop at Bitcoin. Quantum computing, AI—these are about to shake up finance even more. Quantum computing could redefine optimization problems in finance, while AI might model complex systems with unprecedented accuracy—pushing economists even closer to engineering-level precision.
Read More: Is Double Taxation Inevitable for Crypto Holders in the UK?
Quantum computing and artificial intelligence: Unlocking new levels of speed and complexity in financial decision-making, and reshaping how markets operate. Photo: compoundY
The Bottom Line
The collision of traditional economics with technological reality isn't just exposing limitations in economic thinking—it's creating an opportunity for a more grounded, realistic approach to financial systems.
The future of economics won't just belong to those who understand markets and human behavior - it'll belong to those who can bridge the gap between physical sciences and economic theory.
We're watching the birth of a new kind of economics, one that has to respect the laws of both nature and mathematics. If you’re an engineer, this is your moment to help rewrite the rules.
About the Author
Razvan Chiorean is a published author of compoundY and a cutting-edge researcher in quantum computing, AI-ML, and blockchain technology. Through his #AIResearch handle, Razvan continues to conduct research, blog, and educate, bridging cultures and inspiring technological progress while consistently sharing his findings and insights. He collaborates with leading tech companies, contributes to open-source projects, and is dedicated to fostering ethical standards and inclusivity in technology, ensuring a future where advancements benefit everyone.
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