The Bitcoiner’s case for government R&D

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Should the US government spend money on scientific research?

It’s a fair question to ask: Critics worry that government-funded R&D may crowd out private-sector investment and that we’ll never truly know to what extent because the government, unrestrained by profit-and-loss statements, is not accountable for its results.

So let’s look at some results.

A 2015 study of NIH grants found that virtually every new drug the FDA approved between 2010 and 2016 benefited either directly or indirectly from NIH support — and that every $10 million of NIH funding resulted in a net increase of two to three private-sector patents.

You might not care about drug patents, sure. 

Maybe you think Jeff Bezos or Sam Altman will single-handedly solve longevity for all of us, or that AI will do drug discovery now.

Those are reasonable opinions to have.

But what if I told you the government earns a high and quantifiable return on those grants?

A congressional committee report once estimated that the government earns an annual rate of return of 25% to 40% on the money it spends on NIH grants, because they reduce the economic cost of illness in the US.

It’s not just about being healthier, though. It’s about being wealthier, too.

A recent study published by the Dallas Fed found that non-defense government R&D spending has accounted for at least one-fifth of business-sector productivity growth since 1945.

Productivity is the most important driver of long-term economic growth, so that’s a significant return on investment.

Another Fed study found that the R&D increases authorized under the CHIPS Act, if fully appropriated, would raise US productivity by as much as 0.4%.

That seems underappreciated because even the proponents of the CHIPS Act pitched it mostly for the investments it would make in physical infrastructure. 

But the innovation policy expert Heidi Williams cites studies estimating that the return on government R&D spending (in terms of economic growth) is 20x greater than the return on infrastructure spending.

Pretty much everyone is in favor of infrastructure spending, so why wouldn’t they be in favor of research spending too?

In Williams’ own study, she finds that R&D is probably the most impactful policy the government has to raise both innovation and productivity in the US economy. 

Still, you might be a de-growther, and unmoved by the prospect of the US government growing its deficit problem. 

Or uninterested in people living longer, wealthier lives.

But what if I told you that government research grants helped develop something really important? Like Bitcoin.

Cryptocurrency didn’t spring fully formed from Satoshi’s white paper; instead, it built on decades of academic work in cryptography and distributed systems, much of which was funded by the US government.

Foundational things like public-key cryptography, cryptographic hash trees and tamper-proof time-stamping were developed at university research labs with funding from government agencies like the National Science Foundation and DARPA.

If that sounds like ancient history to you and therefore irrelevant, I get it — now that we have crypto, what else could we possibly need from the government? 

But consider that a government agency — the National Institute of Standards and Technology (NIST) — is leading a multi-agency effort to encourage the development of the quantum-resistant algorithms that will soon be necessary to protect Bitcoin from a quantum-enabled hacker.

It’s not an immediate risk: Dr. Michele Mosca, CEO of the quantum software security firm evolution q, assured me in a call that quantum computers are currently too small and error-prone to break Bitcoin’s cryptographic defenses.

But a survey Dr. Mosca conducted among fellow cryptographers found they estimate a 10% chance that quantum computers will be powerful enough to threaten Bitcoin within five years, rising to a 27% chance within 10 years and an 85% chance within 30.

Fortunately, the NIST is on the job — evaluating, vetting and standardizing the quantum-proof algorithms that will hopefully make Bitcoin quantum-resistant.

(Not to mention the global financial system, everyone’s emails and all of our login passwords.)

Unfortunately, the NIST is facing a $325 million cut to its annual budget.   

The cuts, part of the president’s proposals for discretionary spending, haven’t been passed by Congress just yet, so perhaps the White House will be dissuaded — possibly by its many Bitcoiner friends.

Or maybe the NIST’s quantum efforts will be spared (the White House says the cuts are punishment for the NIST pursuing “a radical climate agenda”).

But I’m not sure why we’re risking it because government research appears to pay for itself. 

Especially for a government that’s long bitcoin.

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