The Bitcoin Standard
Saifedean Ammous’ book, The Bitcoin Standard, has been reviewed by just about everyone in the crypto-community by now. Rightfully so, because the book has done much to raise awareness and open eyes on the subject of currency in general, and Bitcoin in particular. Ammous is an assistant professor of economics at the Adnan Kassar School of Business at the Lebanese Americal University. He is a member of the Center on Capitalism and Society at Columbia University and a self-avowed Bitcoin maximalist, advocate of Ludwig von Mises and Austrian school economics “sound money” theory.
There are reviews that both praise and criticize The Bitcoin Standard book, but this review is not about the validity of the arguments made in the book. One will find plenty of positions from both skeptics and supporters of Austrian economics and their perspectives regarding Saifedean Ammous’ writings. This review is simply about the impact the book can make on self-awareness, and how it might help move the world toward wider adoption of cryptocurrency.
The currency market is the largest, most liquid financial market in the world and it is important to have at least a basic understanding of money to begin to grasp the importance of Bitcoin. Currency is the official means of payment in a country or region, such as the U.S. dollar, Japanese yen, or British pound. The first seven chapters of The Bitcoin Standard is focused not on Bitcoin, but on currency – the history and use of various currencies throughout time. Ammous has made, in my opinion, a rather dry subject more interesting. His coverage of the history of currency from primitive money to monetary metals to government money, and explanation of “time preference” and “sound money”, as well as its importance to individual freedom – is enlightening. While some of us are aware of the history and concepts outlined in these chapters, it makes for an excellent review due to the easy, concise manner in which it is presented.
One of the more interesting topics in the book is the review of the gold standard. Under the gold standard, a government or central bank of the time had to maintain enough gold reserves to match money supply in that country or region and ensure full convertibility of the currency against gold at all times. In times of war or crisis, maintaining sufficient gold reserve levels was difficult and thus, it made for much shorter periods of dispute among nations. The abandonment of the gold standard permitted governments the ability to print money and extend wars vs. running out of funds and having to solve disputes. While that is a simple explanation of a complex topic – it is one that resonates with those of us who are bitcoin enthusiasts.
There are vast resources on this topic of comparing bitcoin to gold – because it is similar to a gold standard in a couple of ways. Number one, both Bitcoin and gold are stateless and can provide an international base money, not under the control of any national central bank or government. Secondly, both are reliably limited in quantity or supply. Unlike fiat money that can be created “out of thin air.” There are obviously differences, one is tangible and the other digital, but many feel this is not important in a world where digital transactions already far outweigh personal transactions. The fact is, both Bitcoin and gold can be paid person-to-person without the involvement of a third-party. Bitcoin payments are simply easier to conduct today than physically handing someone who may reside on the other side of the world a gold coin or bar.
Chapter 8 of The Bitcoin Standard explains what Bitcoin is and how it works from Ammous’ economic perspective. It is a helpful chapter for those unfamiliar with the technology. While not everyone will agree with everything in the book, it is effective in offering an explanation that can give people a context for the relative importance of Bitcoin in the future global economy. It is exciting and fascinating that an eight-year-old technology with no obvious profit mechanism is being discussed alongside dollars or gold. While the role Bitcoin plays in the world today is tiny, what might the future hold?
Bitcoin is the world’s first decentralized currency, but many people do not understand it and are skeptical at best, frightened at worst. If Bitcoin is one of the largest leaps in technology since the inception of the Internet, then it is prudent for everyone to educate themselves on the subject. This is where the comparison of Bitcoin to the Internet is most valid – but only as a good historical analog. A better analogy might actually be the telegraph because it was the first telecommunications technology, whereas the Internet was the pinnacle of modern telecommunications. Bitcoin and blockchains represent a new category of innovation much like the telegraph in 1844 – not the endpoint of a long-term evolution in centralizing technology like the Internet. Visualizing Bitcoin in this light might help adoption of a longer view for the cryptocurrency.
Roy Charles Amara, an American researcher, scientist, futurist, and president of the Institute for the Future is best known for coining Amara’s law on the effect of technology.
We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.
Just as the telegraph changed society indirecty, with every new communications technology having greater impact – so might Bitcoin be “just the beginning” of something big. The power to disrupt industries and financial institutions through a paradigm shift where transparency and trust are the default value makes Bitcoin something worth learning about. German philosopher Arthur Schopenhauer said that all truth passes through three stages: 1) first it is ridiculed; 2) it is violently opposed; and 3) it is finally accepted as being self-evident.
The Bitcoin Standard explores the possibility of mass adoption of Bitcoin having financial and technological impact. It is well worth reading, regardless of your personal views, and Saifedean Ammous should be applauded for the effort.