The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

A good that has a low ratio of stock‐to‐flow is one whose existing supply can be increased drastically if people start using it as a store of value.

one‐time collapse in the value of a monetary medium is tragic, but at least it is over quickly and its holders can begin trading, saving, and calculating with a new one. But a slow drain of its monetary value over time will slowly transfer the wealth of its holders to those who can produce the medium at a low cost.

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.

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.

Different currencies were simply different weights of physical gold, and the exchange rate between one nation's currency and the other was the simple conversion between different weight units, as straightforward as converting inches to centimeters.

As governments controlled money, they controlled most economic, political, cultural, and educational activity.

French economist Jacques Reuff coined the phrase “deficit without tears” to describe the new economic reality that the United States inhabited, where it could purchase whatever it wanted from the world and finance it through debt monetized by inflating the currency that the entire world used.

In the presence of fiat money to finance government, political differences between parties disappear as politics no longer contains trade‐offs and every candidate can champion every cause.

Correspondingly, in 1971, 1 ounce of gold was worth $35, and today it is worth more than $1,200.

don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can't stop.25 Speaking

Mischel followed up with the children decades later and found significant correlation between having a low time preference as measured with the marshmallow test and good academic achievement, high SAT score, low body mass index, and lack of addiction to drugs.

While microeconomics has focused on transactions between individuals, and macroeconomics on the role of government in the economy, the reality is that the most important economic decisions to any individual's well‐being are the ones they conduct in their trade‐offs with their future self.

The sobering reality to keep in mind is that a man's lot in life will be largely determined by these trades between him and his future self.

And no matter how much fortune favors the man with a high time preference, he will find a way to continue sabotaging and shortchanging his future self.

“Every election is an advanced auction on stolen goods.”

Creating new pieces of paper and digital entries to paper over the deficiency in savings does not magically increase society's physical capital stock; it only devalues the existing money supply and distorts prices.

Lower interest rates or increased money supply would drop the value of money, as would government spending financed by central bank lending to the government.

It is no coincidence that the countries that have seen their currencies devalue the most in the postwar period were also the ones that suffered economic stagnation and decline.

Commonly referred to today as the Austrian school, in honor of the last great generation of economists from Austria in its golden age pre‐World War I, this school draws on the work of Classical Scottish, French, Spanish, Arab, and Ancient Greek economists in explicating its understanding of economics.

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.

the quantity of money itself is irrelevant, that any supply of money is sufficient to run an economy of any size, because the currency units are infinitely divisible, and because it is only the purchasing power of money in terms of real goods and services that matters, and not its numerical quantity. As Ludwig von Mises put it:8

he wants to keep a cash holding of a definite amount of purchasing power.

According to the Austrian view, if the money supply is fixed, then economic growth will cause prices of real goods and services to drop, allowing people to purchase increasing quantities of goods and services with their money in the future.

Socially, economically, and politically, the role of government was recast as the wish‐granting genie, and the population merely had to vote for what it wanted to have it fulfilled.

There is therefore no societal benefit from any activity which increases the supply of money.

There can be no profit in a free market without the real risk of loss, and everyone is forced to have skin in the game: failure is always a real possibility, and can be costly.

Since the repeal of the Glass‐Steagall Act in 1999, the separation between deposit and investment banking has been removed, and so the deposit banks who had FDIC deposit guarantee can now also engage in investment financing, having the FDIC guarantee protect them from investment losses.

Further, payment through intermediaries leaves the parties vulnerable to surveillance and bans by political authorities.

Every transaction has to be recorded by every member of the network so that they all share one common ledger of balances and transactions.

A massive increase in the price of gold will, in the long run, lead to larger quantities being produced, but no matter how high the price of bitcoins rises, the supply stays the same and the safety of the network only increases.

Bitcoin is built on 100% verification and 0% trust.

Bitcoin's supply is made up of a maximum of 21,000,000 coins, each of which is divisible into 100,000,000 satoshis, making it highly salable across scales.

Collusion costs a lot, but it would itself lead to its loot becoming worthless. In other words, Bitcoin relies on economic incentives, making fraud far costlier than its rewards.

But as long as there are people who want to use it, it's very hard to kill, or corrupt, or stop, or interrupt.6

The decreasing rate of growth, however, means that the first 20 million coins will be mined by around the year 2025, leaving 1 million coins to be mined over one more century.

Its digital nature that makes it easy to safely send worldwide makes it salable in space in a way never seen with other forms of money, while its divisibility into 100,000,000 satoshis makes it salable in scale.

In Bitcoin, the only form of ownership that exists is through the ownership of the private keys.

Is that the secret words?

The most well‐known example of a peer‐to‐peer network is BitTorrent, a protocol for sharing files online.

The only way to own bitcoins is to have control of the private keys. Should someone manage to gain access to your private keys, they have your bitcoins.

Securing the private keys is not a simple task, and not being able to secure them is very risky.

Each human has a limited time on earth, and that is the only scarcity we deal with as individuals.

Oil reserves, on the other hand, have increased by 148%, around triple the increase in production and consumption.

More importantly, perhaps, as economist Michael Kremer2 argues, the fundamental driver of human progress is not raw materials, but technological solutions to problems.

Raw materials are always the product of human labor and ingenuity and thus humans are the ultimate resource, because human time, effort, and ingenuity can always be used to produce more output.

Because each bitcoin is divisible into 100 million satoshis, there is plenty of room for the growth of Bitcoin through the use of ever‐smaller units of it as the value appreciates.

The Sovereign Individual, James Davidson and William Rees‐Mogg argue that the modern

Read this book

The digital revolution will destroy the power of the modern state over its citizens, reduce the significance of the nation‐state as an organizing unit, and give individuals unprecedented power and sovereignty over their own lives.

No such threat exists in the cyber‐world, where virtually all human knowledge exists, readily available for individuals to access without any possibility for effective government control or censorship.

These businesses will credit or debit bitcoins to their customers on their own internal records and then only make transactions on the Bitcoin network when customers deposit or withdraw funds.

It is likely that Bitcoin's advantage lies not in competing with these payments for small amounts and over short distances; Bitcoin's advantage, rather, is that by bringing the finality of cash settlement to the digital world, it has created the fastest method for final settlement of large payments across long distances and national borders.