The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

stockpiles by 3% rather than 1.5%. If the new increased pace of production is maintained, the stockpiles grow faster, making new increases less significant. It remains practically impossible for goldminers to mine quantities of gold large enough to depress the price significantly.

Only silver comes close to gold in this regard, with an annual supply growth rate historically around 5–10%, rising to around 20% in the modern day. This is higher than that of gold for two reasons: First, silver does corrode and can be consumed in industrial processes, which means the existing stockpiles are not as large rel...

Second, silver is less rare than gold in the crust of the earth a...

Because of having the second highest stock-to-flow ratio, and its lower value per unit of weight than gold, silver served for millennia as the m...

complementing gold, whose high value meant dividing it into very small ...

With silver no longer required for smaller transactions, it soon lost its monetary role and became an industrial metal, losing value compared to gold.

It is this consistently low rate of supply of gold that is the fundamental reason it has maintained its monetary role throughout human history, a role it continues to hold today as central banks continue to hold significant supplies of gold to protect their paper currencies.

Official central bank reserves are at around 33,000 tons, or a sixth of total above-ground gold.

The high stock-to-flow ratio of gold makes it the commodity with the lowest price elasticity of supply, which is defined as the percentage increase in quantity su...

Given that the existing supply of gold held by people everywhere is the product of thousands of years of production, an X% increase in price may cause an increase in new mining production, but that inc...

As the production of metals began to proliferate, ancient civilizations in China, India, and Egypt began to use copper, and later silver, as money, as these two were relatively hard to manufacture at the time and allowed for good salability across time and space. Gold was highly prized in these civilizations, but its rarity meant its salability for transactions was limited. It was in Lydia, in modern day Turkey, where gold was first

minted into regular coins for trade, under King Croesus. This invigorated global trade as gold's global appeal saw the coin spread far and wide. Since then, the turns of human history have been closely intertwined with the soundness of money.

Human civilization flourished in times and places where sound money was widely adopted, while unsound money all too frequently coincided with civi...

For as long as Rome could conquer new lands with significant wealth, its soldiers and emperors could enjoy spending their loot, and emperors even decided to buy themselves popularity by mandating artificially low prices of grains and other staples, sometimes even granting them for free. Instead of working for a living in the countryside, many peasants would leave their

farms to move to Rome, where they could live better lives for free. With time, the Old World no longer had prosperous lands to be conquered, the ever-increasing lavish lifestyle and growing military required some new source of financing, and the number of unproductive citizens living off the emperor's largesse and price controls increased.

Nero, who ruled from 54–68 AD, had found the formula to solve this, which was highly similar to Keynes's solution to Britain's and the U.S.'s problems after World War I: devaluing the currency would at once reduce the real wages of workers, reduce the burden of the government in subsidizing st...

The aureus coin was reduced from 8 to 7.2 grams, while the denarius's silver content was reduced from 3.9 to 3.41g. This provided some temporary relief, but had set in motion the hi...

anger, price controls, coin debasement, and price rises, following one another with the predictable r...

As inflationism intensified in the third and fourth centuries, with it came the misguided attempts of the emperors to hide their inflation by placing price controls on basic goods.

As market forces sought to adjust prices upward in response to the debasement of the currency, price ceilings prevented these price adjustments, making it unprofitable for producers to engage in

produ...

Economic production would come to a standstill until a new edict allowed for the libera...

With this fall in the value of its money, the long process of terminal decline of the empire resulted in a cycle that might appear familiar to modern readers: coin clipping reduced the aureus's real value, increasing the money supply, allowing the emperor to continue imprudent overspending, but eventually resulting in inflation and economic c...

Price and wage controls and legal tender laws were passed, but it was like trying to hold back the tides. Rioting, corruption, lawlessness and a mindless mania for speculation and gambling engulfed the empire like a plague. With money so unreliable and debased, speculation in commodities became far more attractive than producing them.

Citizens of Rome and the major cities obtained their basic necessities by trade with the far-flung corners of the empire, and this helps explain the growth in prosperity, and the devastating collapse the empire suffered when this division of labor fell apart.

As taxes increased and inflation made price controls unworkable, the urbanites of the cities started fleeing to empty plots of land where they could at least have a chance of living in self-sufficiency, where their lack of income spared them having to pay taxes.

The intricate civilizational edifice of the Roman Empire and the large division of labor across Europe and the Mediterranean began to crumble, and its descendants became self-sufficient peasants scattered in isolation...

While Rome continued its economic, social, and cultural deterioration, finally collapsing in 476 AD, Byzantium survived for

1,123 years while the solidus became the longest-serving sound currency in human history.

The legacy of Constantine in maintaining the integrity of the solidus made it the world's most recognizable and widely accepted currency, and it came to be known as the bezant. While Rome burned under bankrupt emperors who could no longer afford to pay their soldiers as their currencies collapsed, Constantinople thr...

As with Rome, the fall of Constantinople happened only after its rulers had started devaluing the currency,

Along with monetary decline came the fiscal, military, cultural, and spiritual decline of the

Empire,

Gold was concentrated in the hands of the feudal lords, and the main forms of money available for the

peasantry of Europe at the time were copper and bronze coins, whose supply was easy to inflate as industrial production of these metals continued to become easier with the advance of metallurgy, making them terrible stores of value, as well as silver coins that were usually debased, cheated, and nonstandardized across the continent, giving them poor salability across space and limiting the scope of trade across the continent.

Taxation and inflation had destroyed the wealth and savings of the people of Europe. New generations of Europeans came to the world with no accumulated wealth passed on from their elders, and the absence of a widely accepted sound monetary standard severely restricted the scope for trade, closing societies off from one another and enhancing parochialism as once-prosperous and civilized tradin...

by the end of the fourteenth century more than 150 European cities and states had minted coins of the same specifications as the florin, allowing their citizens the dignity and

freedom to accumulate wealth and trade with a sound money that was highly salable across time and space,

and divided into small coins, allowing for ea...

which later spread across the European continent. Whether in Rome, Constantinople, Florence, or Venice, history shows that a sound monetary standard is a necessary prerequisite for human flourishing, without which society stands on the precipice of barbarism and destruction.

telegraph,

trains,

With these two innovations, it became increasingly feasible for banks to communicate with each other, sending payments efficiently across space when needed and debiting accounts instead of having to send physical payments. This led to the increased use of bills, checks, and pa...

Britain was the first to adopt a modern gold standard in 1717,

The end of the Napoleonic wars heralded the beginning of the golden age of Europe, as, one by one, the major European nations began adopting the gold standard. The

more nations officially adopted the gold standard, the more marketable gold became and the larger the incentive became for other nations to join.

The demonetization of silver had a significantly negative effect on the nations that were using it as a monetary standard at the time. India witnessed a continuous devaluation of its rupee compared to gold-based European countries, which led the

British colonial government to increase taxes to finance its operation, leading to growing unrest and resentment of British colonialism.

By the time India shifted the backing of its rupee to the gold-backed pound sterling in 1898, the silver backing its rupee had lost 56% of its value in the twenty-seven years since the end of the Franco-Prussian War. For China, which stayed on the silver standard until 1935, its silver (in various names and forms) lost 78% of its value over the period. It is the author's opinion that the history of China and India, and their failure to catch up to the West during the twentieth century, is inextricably linked ...

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...