We humans are unable to experience the true nature of the universe unfiltered. Our senses and brains can only process a fraction of the world so we have to use concepts and tools to learn about the true nature of reality. Technological progress not only widen our knowledge about the universe, it also made us aware of unsettling possibilities. In the future it might become possible to simulate entire universes. But if this is an option, how can we know that it's not already happened? What if we are not creators but creations? Is it possible that we are not real and we don't even know it?
If our current understanding of physics is correct then it's impossible to simulate the whole universe with its trillions and trillions of things. But we don't actually need to anyway. We only need enough universe to fool the inhabitants of our simulation into thinking that they're real. Who needs billions if galaxies? We only need the space our subjects are allowed to explore
What about small things like cells or bacteria, we don't really need them. When you use a microscope what you see could be instantly created. Same with atoms, the chair that you are sitting right does not need to be simulated with quadrillions of atoms. We just need the outermost layer of it. It might be empty inside until you decide to break it open. Your body might feel that it's filled with bubbly things but it might be empty until you open it.
The minimum requirement for our simulation is the only the consciousness of our virtual humans. Our subjects just need to think that the simulation is real. So, are we being simulated? Maybe. But there are a few things that need to be met. Three-day assumptions and if they're true then, my dear reader, you are living in a simulation.
It's possible to simulate consciousness
But nobody knows what consciousness is. For the sake of argument, let's assume you could generate consciousness by simulating a brain. Brains are pretty complex. If every interaction between synapses counts as one operation then your brain runs about 10^17 or one hundred million billion operations per second. If we are going to simulate all of humanity in all of history then it's going to take 3^40 or three million trillion trillion trillion operations per second. That's more operations than the stars in the observable universe. A computer like this is just impossible except maybe it isn't.
Technological progress will not stop anytime soon
If we assume that technological progress continue in the similar fashion as it has so far then there might be galaxy-spanning civilizations with unlimited computer power at some point. Beings of a technology level so advance that we could barely distinguish them from gods. A computer that could handle a million trillion trillion trillion operations is serious business but there are actually concepts for computers which could handle this. The Matrioshka brain is the theoretical megastructure made up of billions of parts orbiting a star feeding on its radiation. A computer of this scale would have enough power to simulate many thousands if not millions of humanities at the same time. Other technologies like high end future quantum computers might lower the size drastically. So it might be possible to do this with the structure the size of a small city or even smaller. But only if there's still someone around to build the computer.
Advanced Civilizations don't destroy themselves
If there is a point which all civilizations destroy themselves, this whole discussion ends here. Looking into space you'd expect the universe filled with millions of alien civilizations but we see nobody. The reason for this might be Great Filters. Great filters are barriers life has to overcome like nuclear war, asteroids, climate change or black hole generator. If life is inherently destructive, then there are no simulations
All of this is based on a lot of assumptions that we cannot really test right now so many scientist disagree with this whole thought experiment. Don't burn your house down to test if there will be glitches. If you are simulated not that much changes for you. You might be on a small planet speeding through nothingness or a simulation inside a computer. Your existence does not become more or less scary and bizzare. All we can hope to do is try to live good lives and have a good time and hope that if we are actually simulation in a supercomputer, nobody trips over the power cable
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