The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

Free‐market monetary competition is ruthlessly effective at producing sound money, as it only allows those who choose the right money to maintain considerable wealth over time. There is no need for government to impose the hardest money on society; society will have uncovered it long before it concocted its government, and any governmental imposition, if it were to have any effect, would only serve to hinder the process of monetary competition.

The demonetization of silver in effect left the Chinese and Indians in a situation similar to west Africans holding aggri beads as Europeans arrived: domestic hard money was easy money for foreigners, and was being driven out by foreign hard money, which allowed foreigners to control and own increasing quantities of the capital and resources of China and India during the period. This is a historical lesson of immense significance, and should be kept in mind by anyone who thinks his refusal of Bitcoin means he doesn't have to deal with it. History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours.

The military industry that prospered during World War II grew into what President Eisenhower called the Military–Industrial Complex—an enormous conglomerate of industries that was powerful enough to demand ever more funding from the government, and drive U.S. foreign policy toward an endless series of expensive conflicts with no rational end goal or clear objective. The doctrine of violent militant Keynesianism claimed this spending would be good for the economy, which made the millions of lives it destroyed easier to stomach for the American electorate.

[T]he sound money principle has two aspects. It is affirmative in approving the market's choice of a commonly used medium of exchange. It is negative in obstructing the government's propensity to meddle with the currency system.24 Sound money, then, according to Mises, is what the market freely chooses to be money, and what remains under the control of its owner, safe from coercive meddling and intervention.

The Austrian theory of money posits that money emerges in a market as the most marketable commodity and most salable asset, the one asset whose holders can sell with the most ease, in favorable conditions.7 An asset that holds its value is preferable to an asset that loses value, and savers who want to choose a medium of exchange will gravitate toward assets that hold value over time as monetary assets. Network effects mean that eventually only one, or a few, assets can emerge as media of exchange. For Mises, the absence of control by government is a necessary condition for the soundness of money, seeing as government will have the temptation to debase its money whenever it begins to accrue wealth as savers invest in it.

Bitcoin's volatility derives from the fact that its supply is utterly inflexible and not responsive to demand changes, because it is programmed to grow at a predetermined rate. For any regular commodity, the variation in demand will affect the production decisions of producers of the commodity: an increase in demand causes them to increase their production, moderating the rise in the price and allowing them to increase their profitability, while a decrease in demand would cause producers to decrease their supply and allow them to minimize losses.

Bitcoin has a blockchain not because it allows for faster and cheaper transactions, but because it removes the need to trust in third‐party intermediation: transactions are cleared because nodes compete to verify them, yet no node needs to be trusted. It is unworkable for third‐party intermediaries to imagine they could improve their performance by employing a technology that sacrifices efficiency and speed precisely to remove third‐party intermediaries. For any currency controlled by a central party, it will always be more efficient to record transactions centrally. What can be clearly seen is that blockchain payment applications will have to be with the blockchain's own decentralized currency, and not with centrally controlled currencies.