The Bitcoin Standard
The Decentralized Alternative to Central Banking
Saifedean Ammous
Chapter 1: Money
The relative difficulty of producing new monetary units determines the hardness of money: money whose supply is hard to increase is known as hard money, while easy money is money whose supply is amenable to large increases.
The monetary media that survived the longest are the ones that had very reliable mechanisms for restricting their supply growth—in other words, hard money.
Chapter 2: Primitive Moneys
The details may differ, but the underlying dynamic of a drop in stock-to-flow ratio has been the same for every form of money that has lost its monetary role
These historical facts are still apparent in the English language, as the word pecuniary is derived from pecus, the Latin word for cattle, while the word salary is derived from sal, the Latin word for salt.
A money that is easy to produce is no money at all, and easy money does not make a society richer; on the contrary, it makes it poorer by placing all its hard-earned wealth for sale in exchange for something easy to produce.
Chapter 3: Monetary Metals
Its tragic flaw, however, was that by centralizing the gold in the vaults of banks, and later central banks, it made it possible for banks and governments to increase the supply of money beyond the quantity of gold they held, devaluing the money and transferring part of its value from the money's legitimate holders to the governments and banks.
This all means that the existing stockpile of gold held by people around the world is the product of thousands of years of gold production, and is orders of magnitude larger than new annual production. Over the past seven decades with relatively reliable statistics, this growth rate has always been around 1.5%, never exceeding 2%.
The price of silver eventually crashed and the Hunt brothers lost over $ 1 billion, probably the highest price ever paid for learning the importance of the stock-to-flow ratio, and why not all that glitters is gold.
♻️ Human civilization flourished in times and places where sound money was widely adopted, while unsound money all too frequently coincided with civilizational decline and societal collapse.
With money so unreliable and debased, speculation in commodities became far more attractive than producing them.
Britain was the first to adopt a modern gold standard in 1717, under the direction of physicist Isaac Newton, who was the warden of the Royal Mint, and the gold standard would play a great role in Britain advancing its trade across its empire worldwide.
🔒 History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours.
Chapter 4: Government Money
No pure fiat currency exists in circulation without any form of backing.
The U.S. Fed's inflationary policy ended by the end of 1928, at which point the U.S. economy was ripe for the inevitable collapse that follows from the suspension of inflationism.
Saving reduces spending and because spending is all that matters, government must do all it can to deter its citizens from saving.
The notion that government management of the economy is necessary became the unquestioned starting point of all modern economic education, as can be gleaned from looking at any modern economics textbook, where government plays the same role that God plays in religious scriptures: an omnipresent, omniscient, omnipotent force that merely needs to identify problems to satisfactorily address them.
Today, each ounce of gold for which foreign central banks received $ 35 is worth in excess of $ 1,200.
In effect, the United States had defaulted on its commitment to redeem its dollars in gold.
⚙ The total U.S. M2 measure of the money supply in 1971 was around $ 600 billion, while today it is in excess of $ 12 trillion, growing at an average annual rate of 6.7%.
(The book was written/published in 2017/2018. The M2 supply as of Q2 2024 is $21 trillion.)
Chapter 5: Money and Time Preference
The main factor determining a man's choices in life is his time preference.
On the other hand, many ordinary people with no special talents work diligently and save and invest for a lifetime to achieve financial security and bequeath their children a life better than the one they inherited.
Chapter 6: Capitalism's Information System
There is no free lunch, after all, and if consumers save less, there will have to be less capital available for investors.
Chapter 7: Sound Money and Individual Freedom
Under a sound monetary system, government had to function in a way that is unimaginable to generations reared on the twentieth-century news cycle: they had to be fiscally responsible.
These investments are what Ludwig von Mises terms malinvestments—unprofitable projects and investments that only appear profitable during the period of inflation and artificially low interest rates, and whose unprofitability will be exposed as soon as inflation rates drop and interest rates rise
As soon as the tide of the battle began to turn against one of the armies, it was a logistically and economically losing battle to try to increase taxes to rearm the military and turn the tide—better to try to negotiate a peace with as few losses as possible.
In other words, there is no distinction between illiquidity and insolvency, and there is no systemic risk that could make any bank “too big to fail.”
Chapter 8: Digital Money
Should bitcoin continue to operate as it already has, all the previous technologies humans have employed as money—shells, salt, cattle, precious metals, and government paper—may appear quaint anachronisms in our modern world—abacuses next to our modern computers.
People choose moneys that are fungible and liquid because they want sovereignty over their money.
Bitcoin is the hardest money ever invented: growth in its value cannot possibly increase its supply; it can only make the network more secure and immune to attack.
Chapter 9: What Is Bitcoin Good For?
For the first time, humanity has recourse to a commodity whose supply is strictly limited.
To put it differently, bitcoin is the cheapest way to buy the future, because bitcoin is the only medium guaranteed to not be debased, no matter how much its value rises.
Bitcoin might have a claim to make for being the best technology for saving ever invented.
In a society run on hard money, government impositions that are not economically productive are unlikely to survive for long, as there is little incentive to continue financing them.
Chapter 10: Bitcoin Questions
🌹 Bitcoin is an embodiment of the idea of antifragility, which is understood as gaining from adversity and disorder.
While attempts to kill bitcoin have so far failed, many of them have made it stronger by ending up allowing coders to identify weaknesses and patch them up.
“You can't have permanent war without fiat and I also think there's a case to be made that you can't really have fiat without war.”