The Bitcoin Standard

Book Title: The Bitcoin Standard

ISBN: 1119473861

How strongly I recommend it: 4/5 Stars

In a world where everyone seems to have an opinion on crypto, Ammous goes back to basics, before spouting the usual arguments for why crypto will change your life. Though sometimes it can feel quite academic, I liked how Ammous explains why we need money in the first place, the purpose it serves and the role money has played throughout history.

The message that resonated most with me whilst reading this book was that money really does influence decision making at a micro level, which has broad based implications. It’s not just about answering what a $15,000 Rolex means to you, it’s a question of how societies should progress or whether they should invade each other. It’s quite profound to look at world history through this monetarist lens.

My main critique of this book is that Ammous does an excellent join critiquing the modern monetary system but then we get to this hard stop towards the end of the book where Bitcoin is the supposed saviour. Though he does a good job at explaining how crypto works, it feels a bit lacking; it would be nice to understand a bit more how Bitcoin can be applied at a mass scale. I got hints of this in sections where Ammous makes clear where Bitcoin has some shortcomings, but these sections felt missing and rushed.

Amazon Page Link: Click Here

How I discovered it? Instagram Link (credit to Raoul Pal for the suggestion)

Who should read it? Crypto bros, history buffs and Bitcoin beginners.


SUMMARY

Bitcoin is here to stay. The question we need to ask ourselves is, does it matter?

Ammous’ answer is a resounding yes. This is not only because Bitcoin is a better form of money, but because what we call money today is inherently flawed and will inevitably be replaced by something that does it’s job more effectively.


KEY TAKE-AWAYS

  • The problem of money is to move economic value across time and space

Money is solving this fundamental problem.

  • Sound money has high proportion of stock to flow

High stock of money relies on there being enough existing supply to go around. A low Flow of money means there should be very little additional money that can be created over time. The best form of money has a high stock and a low flow. This is what is called ‘sound money’.

E.g. Gold supply increases by 1.5%/year cannot be artificially synthesized. Silver is 5-10%.

  • The soundness of money itself determines time preference

You normally think some people are more patient than others. However, the soundness of money that people are exposed to, will determine their time preference choices. i.e., if I lived in Country X with 100% inflation, I’m probably not worrying too much about what I will buy in 10 years time.

Less sound money will create a shorter time preference which then has broader implications. Economic decisions will be based on consuming today, potentially something that could have capital value in the future.

Cultural decisions will be based on how you can have your cake now e.g. don’t perfect your craft, makes songs that sell today, or art that can be replicated quickly. Get rich quick schemes etc.

  • Unsound money has limited time frame – it will eventually die out

You think you’re immune to other forms of money but you are not. Eventually, money will be be transferred from those who have it to those who can produce it.

In other words, it is inevitable that at some point, we will have to deal with Bitcoin as sound money.

  • Gold standard flawed

The biggest flaw with the Gold standard is that the supply of Gold can be centralized by Central Banks. This then allows them to overrule e.g. 1914, when most countries just went off the Gold Standard entirely.

  • Centralization leads to corruption

Govt will succumb to temptation to monopolise resources and spend at will

  • Fixed supply of money/ Zero inflation is good

Forces investment in something which can see real return always. Inflation hides negative real return as people too busy looking at nominal

  • Bitcoins mathematical problem solving is ESSENTIAL

Whilst the Hash problem solving for nodes in the Bitcoin network is unrelated to the transactions, it is essential to making Bitcoin work. This is because the processing power required to add transactions to the Bitcoin network makes it harder to commit fraud on the Bitcoin network (and insures that is easier to verify transactions than to add them to the network). i.e. if you tried to add a fraudulent transaction, you would 1) spend a lot of time and power adding the transaction 2) you could easily be proved to be fraudulent by other nodes. If you didn’t have this hurdle, you would just try your luck anyway.

  • Bitcoin is NOT effective medium of exchange

Main appeal is sovereign money, zero centralization and permissionless transactions. Not going to be able to offer cheaper transactions than centralized payment processors


FAVORITE QUOTES/STORIES

History has shown that governments will inevitably succumb to the temptation of inflation the money supply… this is no different from copper producers mining more copper in response to monetary demand for copper; it rewards the producers of the monetary good, but punishes those who choose to put their savings in copper

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

Proof of work is essential to the operation of bitcoin…. Because it is far cheaper to verify the validity of transactions than it is to solve the POW.

Bitcoins max block size means max 4 transactions per second. Visa can process 3200 per second. Not enough computing power to get block size big enough to compete with.

The future of bitcoin transactions is off-chain – customer deposits are handled on the main bitcoin exchange but then it goes into a local database (e.g. casinos, gaming websites etc).

Blockchain technology is … immensely inefficient. Only possible use of this techolonogy are in ventures where removing third party intermediation is of such paramount value to end users that it justifies the increased cost and lot efficiency

Smart contracts too complicated to understand for the majority and therefore there is asymmetric information between the coders and the executers – leading to major hacks

:)

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