The Bitcoin Standard: The Decentralized Alternative to Central Banking

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The preferred type of coin was gold. It has a few unique qualities. First, it’s almost impossible to make or destroy. It also is fairly hard to retrieve from the ground, so you need to mine to get it, and the more you get, the deeper you have to mine. So even as technology has improved for gold mining, the supply of gold grows both slowly and predictably. Note: The argument for inflation is that it incentivizes investment rather than hoarding which may overcome some loss aversion. By requiring the expenditure of electricity and processing power to produce new bitcoins, PoW is the only method so far discovered for making the production of a digital good reliably expensive, allowing it to be a hard money. Scarcity is the fundamental starting point of all economics, and its most important implication is the notion that everything has an opportunity cost. In the capital market, the opportunity cost of capital is forgone consumption, and the opportunity cost of consumption is forgone capital investment.

This analysis may help explain why Bitcoin has resisted all attempts to change it significantly so far. The coordination problem of organizing a simultaneous shift among people with adversarial interests, many of whom are strongly vested in the notion of immutability for its own sake, is likely intractable barring any pressing reason for people to move away from current implementations.Bitcoin is also the first example of absolute scarcity, the only liquid commodity (digital or physical) with a set fixed quantity that cannot conceivably be increased. In The Bitcoin Standard, Ammous offers a take on why Bitcoin is the best version of what Austrian economists call “sound money” and why he believes that makes it the only cryptocurrency worth paying attention to.

Saifedean was a professor of Economics at the Lebanese American University from 2009 to 2019. He holds a PhD in Sustainable Development from Columbia University, a Masters in Development Management from the London School of Economics, and a Bachelor in Mechanical Engineering from the American University of Beirut.The value of money, supposed to be the unit of account with which all economic activity is measured and planned, went from being the value of the least volatile good on the market to being determined through the sum of three policy tools of the government—monetary, fiscal, and trade policy—and most unpredictably, through the reactions of individuals to these policy tools. Governments deciding to dictate the measure of value makes as much sense as governments attempting to dictate the measure of length based on the heights of individuals and buildings in their territories. One can only imagine the sort of confusion that would happen to all engineering projects were the length of the meter to oscillate daily with the pronouncements of a central measurements office. Only the vanity of the insane can be affected by changing the unit with which they’re measured. Making the meter shorter might make someone whose house’s area is 200 square meters believe it is actually 400 square meters, but it would still be the same house. All that this redefinition of the meter has caused is ruin an engineer’s ability to properly build or maintain a house. Similarly, devaluing a currency may make a country richer nominally, or increase the nominal value of its exports, but it does nothing to make the country more prosperous. For anything to function as a good store of value, it has to beat this trap: it has to appreciate when people demand it as a store of value, but its producers have to be constrained from inflating the supply significantly enough to bring the price down. From there, we’ve gone from all kinds of currency valuable metals and now paper printed by governments. But since we ditched the “gold standard” of money and started relying only on easily manipulated paper money, we’ve seen a century of boom and bust and increasing debt. How can we have money that is secure and free from manipulation? As a dollarised economy, the US dollar will continue to serve as fiat currency alongside Bitcoin, but the move positions Bitcoin—the world’s leading cryptocurrency—as a transactional standard in the country. Bitcoin has a huge advantage over gold in transactions: clearance does not require a specific custodian. No government can control what code you have in your head.

Note: Seems a bit much? I think the underlying point that money has a lot of downstream effects is good though This volatility is mostly due to demand, and because it’s so new, demand is highly variable. But this variability has only undermined its status. People wonder how it can be reliable if it fluctuates. However, the author believes that as the market grows, these fluctuations should even out. Although gold was supposedly demonetized fully in 1971, central banks continued to hold significant gold reserves, and only disposed of them slowly, before returning to buying gold in the last decade. Governments have control over money, meaning they have control over you. Bitcoin offers freedom from control and inflation. There will only ever be 21 million bitcoins (there are smaller denominations)--not like US dollars where the continual printing of more and more tends to devalue your money.Los 4 primeros capítulos son un fantástico repaso de los distintos bienes que han actuado como dinero a lo largo de la historia y un resumen de cómo ha cambiado el consenso económico respecto a cuál es la política monetaria ideal. Los capítulos 5 – 7 son una introducción a la teoría austriaca de economía pero con una postura demasiado “one-sided” en favor de esta y contra el keynesianismo y monetarismo (que teorías acertadas o no, tienen mejores argumentos para defender su política monetaria ideal que las que se exponen en el libro). Además, en esta parte se introduce un fuerte componente ideológico libertario y el autor se va por las ramas opinando sobre temas como el arte contemporáneo o la vida de Keynes, que son claros “off-topics”. Asking citizens in surveys is a meaningless exercise, because people’s choices are meaningless without a price to reflect the real opportunity cost involved in trade‐offs between choices. This explains why the silver bubble has popped before and will pop again if it ever inflates: as soon as significant monetary investment flows into silver, it is not as difficult for producers to increase the supply significantly and bring the price crashing down, taking the savers’ wealth in the process. Really poor. It’s concerning that Wiley would release an opinion piece, and it’s equally worrying that an academic would pen something filled with so many logical oversights at best, and outright specious arguments at worst.

The latest version, just released some three years after the original, is essentially unchanged other than the new foreword by the well-known BTC maximalist and promoter, Saylor. The previous foreword by Nassim Taleb was effectively withdrawn in an angry public disagreement with Ammous, implying he was “crankish” and a “lunatic”: Taleb pulled his endorsement of both the book and BTC as ‘digital-gold.’ So, what’s the fuss about? This is grade F stuff. Keynes is branded an authoritarian despot for arguing for individual liberty and freedom against the everyday suffocating threat of revolution and war. It’s not clear whether the wanton misrepresentation of Keynes’ thinking—and by implication, everything he allegedly represents as the Antichrist of ‘unsound money’—is due to ignorance, or mendacity. Perhaps Ammous has a high time preference when it comes to studying what Keynes actually wrote. Some compensation for fans of Keynes is that Ammous is nearly as dismissive of Milton Friedman and the “Friedman brand of libertarianism.” It’s Rothbardian anarcho-capitalism or bust.It is when we get into the middle section of the book that things really get bad: it’s overly long, with ideas scattered and repeated; the only narrative thread being the twin evils of ‘unsound money’ and John Maynard Keynes. Chapter 4 on ‘Government Money’ is unscholarly in spirit. We’re told the gold standard is responsible for everything good that ever happened in the 19th century and civilisation essentially ended with the demise of the gold standard. The tale is right from the ‘fractional reserve banking is fraud’ sub-branch of Austrian economics. The legitimate—essential to capitalist growth—role of business entrepreneurs going to entrepreneurial bankers to seek fresh credit (new money created as a loan ex nihilo based on good collateral and good prospects) is completely ignored. Any expansion of money beyond gold is implied to be fraudulent and, again, destined to end in disaster. This is a fatal blind spot. Bitcoin is, after all, an electronic cash system, neither intended to, nor capable of replacing banking. Note: Credit gets allocated to least efficient middlde of supply chain rather than more productive fringes