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Elon Musk is actually far from the first to come up with the possibility that we might all be living in a simulation. There are a lot of problems with this idea, many of which you brought up. A couple other key ones are:
–It ignores the possibility that there might be insurmountable limits to technology (eg. the speed of light limit, which we’re already starting to have problems with in computers). Technology might keep increasing asymptotically to some limit, and never get good enough to do these simulations.
–A simulation is always going to be more complex than what it’s simulating, so there’s no way a simulation of our universe could exist within our universe, unless it made some gross simplifications.
–It violates Occam Razor to a ridiculous extent. The simplest explanation for the existence of our universe is that our universe is real and exists. To say that no, a more complicated universe exists which simulates ours is coming up with a much more complicated explanation that isn’t merited by the evidence.
–It’s unfalsifiable. There’s nothing that can’t be explained by it, so it has no predictive power, making it fundamentally useless.
Sure, it’s technically possible, but it’s also technically possible that this internet comment was brought to you by a monkey pounding randomly at a keyboard. Just because it’s possible doesn’t mean it’s worth considering and is anyone going to give me a banana? I was promised a banana.