Book review: The Bitcoin Standard

The Bitcoin Standard

The Bitcoin Standard
The Decentralized Alternative to Central Banking

Saifedean Ammous

Bitcoin is autonomous decentralized software offering an unstoppable and globally-accessible hard money alternative to modern central banks. The Bitcoin Standard analyzes the historical context to the rise of Bitcoin, the economic properties that have allowed it to grow quickly, and its likely economic, political, and social implications.

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Why I read this book?

When my journey into crypto started I literally knew nothing about cryptocurrencies other than reading news stories and blog posts banging on about this magic internet money. How this new money could be used by criminals, or how some people have made a lot of money by investing in this strange concept.

Being a technologist at heart, my interest started to grow stronger and I started trying to learn more about this exciting potentially world changing technology. The thing I didn’t quite understand, is just how can this new internet money change society for the better ?

Once I started to do a little more research into Cryptocurrencies and Bitcoin in general, I soon began to realise that I didn’t really understand money, as well as I thought I did. It was only after reading Debt : The first 5000 years that I started to understand our current economic principles a lot better. The concepts presented in the book are foundational, where money comes from, how debt is used for good and ill, how humans really interact positive and negative. I also learned how to put money in its proper perspective as just another tool or a medium of exchange for value. 

Debt

The first 5000 years


David Graeber

Before there was money, there was debt. For more than 5,000 years, since the beginnings of the first agrarian empires, humans have used elaborate credit systems to buy and sell goods—that is, long before the invention of coins or cash. It is in this era that we also first encounter a society divided into debtors and creditors—which lives on in full force to this day.

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I was looking for a book that could help explain Bitcoin to me and just why it was such a ground breaking technology and not just something that one could supposedly make money from trading.

It was this book, more than any other, that provided the holistic economic framework that I needed to interpret the macroeconomic forces reshaping our world

Michael Saylor

It was watching an interview with Michael Saylor, the CEO of MicroStrategy, and a very vocal proponent of Bitcoin and investor, when he recommended reading the Bitcoin Standard

Why I like this book

This book is not a technical text book about the all the technical aspects of bitcoin. If you want that you should really just take a look at the source code for bitcoin on Github.

The first three chapters outline a particular theory and history of money, which does seem to correlate with Greabers work. However, Ammous retells the standard barter-myth Austrian school approach. There is a particular focus on Antal Fekete’s concept of the stock-to-flow ratio in determining how a monetary commodity emerges. It is a narrow and partial history of money, excluding the ubiquitous role of credit and governance which are detailed in more comprehensive treatments of monetary history.

THE next four intermix between a history of the gold standard and post-gold standard era, politics, and a kind of cultural anthropology of the impact of ‘sound money’ and time preference on society.

Ammous seems to focus on shining the light more on Maynard Keynes and ‘Keynesian Economics’ . He also appears to do some character assassination of Keynes personally, to try paint him as some minor aristocrat idle paedophile. In some respects, I my opinion maybe this was a little too far but I do agree somewhat with the critique of Keynesian Economics.

Keynes argued that inadequate overall demand could lead to prolonged periods of high unemployment. An economy’s output of goods and services is the sum of four components:

  • consumption
  • investment
  • government purchases
  • exports

Any increase in demand has to come from one of these four components. But during a recession, strong forces often dampen demand as spending goes down. During economic downturns uncertainty often erodes consumer confidence, causing them to reduce their spending, especially on discretionary purchases like a house or a car. This reduction in spending by consumers can result in less investment spending by businesses, as firms respond to weakened demand for their products. This puts the task of increasing output on the shoulders of the government. According to Keynesian economics, state intervention is necessary to moderate the booms and busts in economic activity, otherwise known as the business cycle.

The problem with government-provide money is that its hardness depends entirely on the ability of those in charge to not inflate its supply.

Saifedean Ammous

Keynes book, The General Theory of Employment, Interest and Money  and its’ precursor A treatise on money are regarded as more important to economic thought. Keynes created a dynamic approach that converted economics into a study of the flow of incomes and expenditures. It is also important to note that Keynes, also correctly predicted that the crushing conditions the Versailles peace treaty placed on Germany to end World War I would lead to another European war.

Eventually the book does get round to why, Keynesian Economics starts to differ from what Bitcoiners, believe, mostly because the principles of Bitcoin are predominantly based on the thoughts and principles of the Austrian School of Economics, whose adherents believed that recessions and booms are a part of the natural order and that government intervention only worsens the recovery process. There are doubts that governments have the ability to regulate the business cycle with fiscal and monetary policies.

Although, I do think the personal attack on Keynes was unwarranted, I think the book does make a reasonable effort of highlighting the differences between Austrian School of Economics and Keynesian Economics. If nothing else, it will make you aware of the differences, providing the impetus to research it further. It did for me and I am continuing to do so.

Why I recommend this book

I feel this book is a great start to help you understand Bitcoin and gaining a broader understanding cryptocurrencies in general. It also provides an excellent introduction to the principles and philosophies of the Austrian School of Economics and how they differ from the Keynesian Economic theories.

This book also explains the properties of Bitcoin (BTC) and its possible role in the future, which may be equivalent to gold but with a built-in settlement layer.

I have and continue to be an active investor in my future wealth and will also continue to invest in Shares, Bonds, Gold and other precious metals and property. However I am currently expanding my portfolio and have steadily been increasing my exposure to Bitcoin and other interesting Cryptocurrencies and projects. I am not going to go all in on crypto for the same reasons I haven’t gone all in on any other investment area.

In order to make educated investment decisions, one needs to at least educate oneself in the selected area. This book has provided me with a lot of food for thought and helped me to evaluate my decisions for investment and also not to invest in the crypto markets.

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