Key Messages
Money Makes The World Go Round: Exploring The Role Of Currency In A Digital Age
The Bitcoin Standard offers a forward-thinking look at the future of finance.
In these chapters, readers will learn why an ancient rock currency had to be replaced by new technologies, how governments have undermined value since Caesar in order to fund their wars, and finally – why Bitcoin is so well suited to take on the role as the new standard.
The idea that we don’t need to return to gold or any other physical asset such as paper currency backed by gold in order to have sound finances is revolutionary and disruptive and could lead society into a new age of growth if it gets implemented correctly.
With its high level of security, low transaction costs and fast transactions compared other online banking solutions, it’s easy to see how Bitcoin could become a leader in the digital payment era.
With careful thought put into regulations and implementation, it is possible that the world can move forward confidently with the introduction of this revolutionary digital asset.
The future looks bright with Bitcoin emerging as a possible solution for those who seek digital financial opportunities.
How Money Transformed Simple Bartering Into A Dynamic Economic System
Money first gained prominence as a medium of exchange thousands of years ago.
Ancient civilizations traded goods and services with one another but often struggled to find an equitable type of exchange that worked for both sides.
The need for money began to rise, and consequently many different forms of money were created by different societies.
One such example is from the Yap Islanders in the Federated States of Micronesia who used “Rai stones” in trading for centuries.
These Rai stones were enormous rocks which could weigh up to four tons and weren’t easy to move around.
Yet even though they were hard to come by, their scarcity made them highly sought-after, giving them significant value as a form of currency.
The Yap Islands operated on an efficient system: every transaction was witnessed by all members of the community and ownership transferred hands accordingly.
This meant anyone could trade these stones with other people with trust since everyone knew who owned which stone.
As a result, Rai stones became valuable because they were salable – they had intrinsic value that everybody recognised and accepted its worth in any number of exchanges or trades.
But today the Rai stones are no longer used due to the large influx of new supply when Captain David O’Keefe shipwrecked on their island – proving how important it is for economic stability that money can retain its salability over time in order for it to effectively function in society as a medium of exchange!
The Love Affair Between Money And Gold: How Sound Money Shaped The Modern World
Throughout history, the use of gold as a means of exchange revolutionized the ancient world.
The metal had unique qualities which made it extremely valuable, including being difficult to damage and destroy, and not able to be synthesised by other materials.
This made it particularly appealing for use in coins, beginning with King Croesus 2,500 years ago.
As communication and transportation improved in the 18th, 19th and 20th centuries, nations began searching for a way to issue paper money backed by a store of value that people would trust.
Gold quickly rose as the metal of choice due to its reputation as a safe asset.
As more countries adopted what was known as the “gold standard,” gold became increasingly marketable and desirable – becoming the basis for sound money.
Transactions now revolved around pieces of paper that were literally backed by gold values stored in vaults.
This system was championed by Britain’s Isaac Newton – Warden of The Royal Mint at the time – who officially introduced it in 1717 when over 50 countries eventually adopted it by 1900.
The Abandonment Of The Gold Standard Created A Source Of Ready Cash But Greatly Undermined The Value Of Existing Currencies During World War I
During the First World War, governments of Europe found themselves in need for money to fund their military efforts.
Rather than raise taxes or obtain loans, these governments resorted to the same strategy employed by Julius Caesar centuries before: currency devaluation.
Through this process, European governments essentially printed more money without backing it by gold reserves.
This had a twofold effect: ready cash allowed governments to keep up their warring pursuits, while also undermining the value of existing currencies on an unprecedented level – 68.9% for the Austro-Hungarian krone versus safe-haven Swiss franc.
As a result, postwar Europe was severely affected by inflation and economic chaos brought about by their decision to abandon the gold standard during wartime.
The Rise And Fall Of The Gold Standard, From Fiat Money To Nixon’S Dollar Float
The First World War came with the difficult decision for European powers to revalue their currencies.
The obvious solution for returning to the gold standard seemed impossible due to it overvaluing paper currency and would require too much of the government’s resources, so they instead decided on introducing fiat money – money backed by government decree which destabilized the value of these currencies and made them prone to inflation..
This is why after the Second World War in 1944, all participating nations planned the economic order of Bretton Woods.
This system tied all world currencies to the US dollar at a fixed exchange rate and in turn tied that to gold at a similar rate – however this became unsustainable due to various nations inflating their respective currencies and eventually this whole process was abandoned completely when President Nixon cut off ties between the dollar and gold on August 15th 1971.
How Sound Money Encourages Investors To Make Smart Decisions For Sustainable, Long-Term Growth
When it comes to economic growth, sound money plays a critical role.
Sound money, such as gold, provides an effective store of value and thus encourages people to save and invest, the perfect recipe for sustainable long-term growth.
Sound money helps us look towards the future by accounting for our natural preference for instant gratification.
Knowing that our currency isn’t going to decrease in value due to manipulation of interest rates or other reasons encourages us think more about long-term income rather than short-term gain.
The end result is capital accumulation – people put their money towards investment in order to create capital goods or commodities that can be used in the future.
The more capital available, the greater chance there is for stable, sustained growth within an economy.
It’s clear from this how important sound money is for a functioning economy: without it, prices no longer reflect market movements, making it difficult for investors to make good decisions and distorted capital accumulation.
The Consequences Of Unsound Money: How Government Intervention Creates Recessions And Endless Debt
Government policies that interfere with the market can lead to many issues, chief among them recessions and debt accumulation.
This occurs due to central planning interventions by governments which distort the money supply and markets, resulting in a ‘boom-bust’ cycle.
Too-inflated money causes investors to think they can buy more capital than they truly can afford, leading to a bubble.
When it pops, the economy faces recession.
Upsettingly, governments often turn to Keynesian economists who believe that recessions are caused by lower total spending and should therefore be solved by increasing spending.
But this only exacerbates things – taxes can’t easily be raised in the midst of recession so additional money must be printed–causing people to focus on current investments rather than save for future ones and delve deep into debt.
It’s clear that sound money is needed if we ever want consistent economic stability, which could potentially come from Bitcoin technology creating a new gold standard.
How Bitcoin Can Help Put Struggling Economies Back On Their Feet
Bitcoin is a rare and valuable currency due to its absolute scarcity.
There will only ever be a maximum total supply of 21 million individual bitcoins, and once this number is in circulation, no more coins will be issued.
This limit has been programmed into the system by Bitcoin’s original creator, Satoshi Nakamoto, to ensure that it would retain its value over time.
Additionally, the amount of coins released into circulation gets halved every four years, which limits the total number of coins that can ever enter circulation even further and helps make sure that their value doesn’t fundamentally drop significantly.
This level of guaranteed scarcity makes Bitcoin unique amongst commodities, such as oil or gas.
We may view those resources as scarce but we know that with enough investment in exploration and production we could uncover additional sources, which can cause their prices to drop significantly depending on the situation.
But with Bitcoins, no matter how much time or resources are put towards adding new coins to the system they simply cannot exceed the programed supply – guaranteeing its value as a store of wealth for generations to come.
The Bitcoin Network: Self-Sustaining, Secure And Ingeniously Fraud-Proof
Bitcoin is one of a kind when it comes to security.
This is due in large part to the Bitcoin ledger, which draws upon a revolutionary technology known as the public blockchain.
This ledger records all transactions and mining activity through blocks that are added, creating the Bitcoin blockchain.
All of this data is accessible to network users and any ownership of bitcoins won’t be accepted until it’s registered on the blockchain and verified by a majority of users.
This means that the Bitcoin network can support itself without relying on a central authority to supervise transactions.
Furthermore, verifying new blocks deploys virtually no energy at all, making it more difficult for would-be fraudsters who have to expend significant amounts of power into generating fake blocks with the increased difficulty adjustment from Nakamoto.
In other words, anyone attempting to breach Bitcoin’s security would face an uphill battle and it would still likely fail because trust in the network could be lost quickly, leading to a drop in demand and value.
It’s truly remarkable how much thought has gone into ensuring that bitcoin remains safe and secure!
Bitcoin’s Challenges: Managing Volatility And Centralization
Though it is both scarce and secure, Bitcoin faces strong challenges if it is to emerge as a new standard.
Firstly, its price volatility makes it difficult for users to value the currency.
With such extreme swings in value, it’s hard for people to trust its reliability as an effective store of value.
To combat this, the market needs time to mature and rise by relying less on large, centralized institutions.
Likewise, with increasing popularity comes the issue of transaction limits and costs.
The current limit is set at just 500,000 per day which could be increased but would still create a daily cap.
Furthermore, more transactions mean more nodes which leads to increased processing energy being expended as well as higher fees – making the feasibility of off-blockchain trades strong candidates.
Bitcoin has potential to become a contemporary sound-money policy but whether or not it can dodge the fate of the gold standard remains uncertain.
Time will tell!
Wrap Up
The Bitcoin Standard, by Saifedean Ammous, provides a comprehensive look at how Bitcoin is going to revolutionize money in the same way that gold did in the past.
By comparing and contrasting the two systems of gold-backed money and digital currencies, Ammous shows why Bitcoin is more reliable than either form of currency before it.
He also highlights some potential issues with Bitcoin while still emphasizing its potential as an effective monetary system.
In the end, the book’s key message is clear: we need sound money, and that sound money comes in the form of Bitcoin.
