The Bitcoin Standard book summary

It doesn't matter if it's the coins in your pocket or the credit card in your wallet, it's money that makes the world go round.

Without money, we're stuck in a system our ancestors used, barter. Trading chairs for pigs and candles for milk is fine as long as you have something your neighbor needs.
But the problem is that you don't have anything suitable to replace it with.
What's the solution? Find something that everyone can accept and embrace. In today's modern era, that thing is a piece of paper backed by gold. The idea is simple and effective. After all, there are few things that hold their value better than precious metals. The result? Unprecedented growth and prosperity.
But in the early 20th century, when governments abandoned what had become known as the gold standard and just started printing money, things didn't go so well.

The result was a century of stagnation and rising debt. Of course, we don’t need to go back to the gold standard to be financially healthy. In fact, there is a more suitable new option that could completely satisfy our desires, and that is none other than Bitcoin.

Just like gold, Bitcoin is a way to store value over time and can be used anywhere, anytime. If the digital currency can overcome some of its problems, then it may become the new standard for the new age.

How can an economy work without money? The answer is simple.

You're the one who changes the factors. You call it a barter or a direct exchange. You can exchange two pigs for one cow or for a grooming session.
It all depends on what you have and what your neighbor needs, or vice versa. But the problem is, it's not always that simple. Sometimes you don't have what your neighbor wants.
Well, unfortunately, you can't get what you need. That's where money comes in. Since everyone needs money, you can use it for any exchange.
This type of exchange is called indirect exchange. But early money wasn't something you could easily keep in your wallet like it is today. Consider the people of Yap Island in the Federated States of Micronesia. In the 19th century, they used something called a rai stone for their transactions.
These stones came in all shapes and sizes. Some of them have even been seen to weigh more than four tons.
When this stone rolled down the mountain, everyone would see it. The owner of the stone could exchange all or part of his stone for a good or service. Every exchange of goods was announced in public so that everyone would know about it. This form of money existed for many years because it was tradable.
Anyone who owned a stone knew that they could exchange it for something. Another advantage was that the stone was valid throughout the island and was also divisible. If you wanted to buy a basket of fruit, for example, you could sell a small portion of your stone.
If you needed something bigger, like a boat, you would replace a larger part of the stone, or even the whole thing. But if the rai stone worked so well, then why don't the islanders use it anymore today?
Well, it turns out there was a catch. The problem wasn't that the stones couldn't retain their value or marketability. The root of the problem was that it was very difficult to transport and move them from one place to another.
But since the source of these stones was limited, their value remained constant. The change came when a man named David O'Keefe, an Irish-American captain, arrived on the island and began importing large quantities of the stones.
He did this with modern technologies. So, with this, the economy of that island was practically paralyzed and the people of the island decided not to use those stones as money anymore.

The first money, which resembles today's money, was the product of a revolutionary technology in pre-Christian civilizations.

This technology is the metal smelting industry. The metal smelting industry allowed for the creation of coins that were saleable and were both small and light. So they were portable and took up little space. When it came to coinage, there was one metal that was ten steps ahead of the rest.
That metal was called gold. Why gold? Well, gold has its own unique properties. First, it is indestructible and cannot be made with other materials. Also, gold is only found deep in the earth. Furthermore, the more gold you mine, the deeper you have to dig to find more gold.
This means that as mining technologies improve, gold resources will slowly build up and increase. Take all of these characteristics into account to achieve a material that will maintain its value and make it tradable over time.
It didn't take long for this to become public knowledge. King Croesus was ordering gold coins in Greece over 2,500 years ago.
Gold has always existed, but its connection to money in the true sense only flourished in the 18th, 19th, and 20th centuries. This period is recorded in history as the Age of Sound Money.
But before we get into this era, let's give it a little background. These centuries were shaped by rapid advances in communications and transportation. Technologies like the telegraph made it easier than ever to move people and goods from one place to another.
These events, in turn, justified the increasing use of convenient, non-physical forms of payment such as checks, paper receipts, and invoices.
But how do you convince buyers and sellers that these pieces of paper you're telling them to use are valuable? Your answer may be different, but governments have said that for this purpose, it's good to back paper money with precious metals.
They also stored metals in their own safes. In most European countries, gold was chosen as the precious metal.
Britain, with a valuable man named Isaac Newton, who was the Keeper of the Royal Mint at the time, pioneered this move and introduced the gold standard in 1717.
By 1900, about 50 other countries had followed Britain's lead and implemented a similar standard.
Gold quickly found its way in, and as more countries adopted paper money, its value rose higher and higher. Eventually, gold became recognized as the best store of value, and money followed suit.

In the first century AD, the Roman emperor Julius Caesar introduced a coin called the aureus.

The aureus was an eight-gram gold coin and became the standard for buying and selling in the Roman Empire. But as the empire grew smaller and smaller, the laws began to destroy the coin.
A foolish practice in which they extracted some of the precious metal contained in coins to strengthen the government's spending power. Free money, right? But in the end, this practice caused inflation and a series of economic crises, and you may not believe it, but this heinous act later became one of the factors in the fall of the Roman Empire.
But the gold standard had a major flaw. Gold had to be kept in small bank vaults. This made it easier to exchange paper money for gold, but it also created a centralized system in which the government controlled the value of money.
In fact, if the government wanted to, it could always print money without increasing its gold supply.
In other words, the ability to buy and sell paper money was entirely up to the government. In 1914, almost every European government wanted to take full advantage of this.
The war had been lost and they desperately needed money to rebuild their country. In addition to drastically increasing taxes, governments followed the Roman path and began printing money.
But this money was not backed by gold, and no gold was entering the bank vaults. Within weeks, the countries involved in World War I had suspended the conversion of paper money into gold. The gold standard had been abandoned altogether.
This had two results. First, this ready source of cash allowed governments to finance their war and slaughter for four years without any problems.
The second result was that printing money without backing caused its value to drop. For example, the Austrian krone lost 68.9% of its value against the Swiss franc.
Now why didn't the Swiss franc depreciate? Because the Swiss decided to stick to the gold standard and remain neutral during the war. In short, both of these factors caused the European economy to take on a new shape in the post-war era.

When World War I ended in 1918, the European powers involved in the war faced a new challenge.

How to restore the value of their money to its original value? The obvious solution was to go back to the gold standard, but that had its own problems.

It was almost impossible to return to the old exchange rate because it overvalued paper money. As a result, everyone in the city wanted to exchange their paper money for gold so they could sell it later for more.

So the government decided to introduce fiat money. Money that was backed not by gold but by the government. The adoption of fiat money ushered in an era of unsound money, which was shaped by greater intervention in the economy.

In this situation, governments struggled to stabilize the value of their money. By 1944, the end of World War II was in sight, and the victors were planning for their own post-war economic order.

The economic system of this era is called the Bretton Woods system, named after a small village in New Hampshire.

In that village, governments signed their own agreements. The basic idea was that all currencies would be backed by the US dollar, and the dollar itself would be backed by gold.
The International Monetary Fund also oversees and organizes these exchanges. You may not believe it, but according to this system, the gold reserves of all countries that were members of this mechanism were required to be transferred to the United States.
In theory, Bretton Woods was similar to the pre-1914 gold standard, and all currencies could be exchanged for gold. But in practice, it didn't work like that.
The United States bent the rules and increased its currency relative to gold, while other countries also increased their currencies relative to the dollar to finance and develop their economies.
Eventually, the curtain fell and gold as a standard was completely removed.
In fact, it was almost impossible to keep a currency that was constantly inflating on the gold circuit. On August 15, 1971, Nixon, the then US president, officially announced that the dollar would no longer be backed by gold and that henceforth the value of currencies would be freely priced in relation to other world currencies.
In the next section, we will see what disastrous consequences this had.

Sound money reached its peak in the 19th century.

Paper money was backed by gold, a precious metal that was used in the free market for its store of value properties, which in turn led to prosperity.
But let’s look at exactly how it did this. The first thing to note about sound money is that it’s a good way to encourage people to save and invest. Saving and investing also drive growth. Why?
So we humans have a positive time preference. What does that mean? We’d rather be satisfied with our lives now than in the future. Sound money makes us think more about the future.
Besides, if we reasonably expect the value of our money to increase over time, it’s natural to want to do something to maximize our future income.
This is exactly the basis of investing: postponing today’s gratification for tomorrow’s better rewards. Investment also leads to the accumulation of capital in the country.
People put their money into the production of goods and services that can be used to manufacture and produce other goods, and the more goods are produced, the greater the chance of long-term economic growth.
The problem with bad money is that it does not lead to accumulation. The reason is simple. When the government takes over the financial resources and simply increases and decreases prices.
Well, this creates a problem because prices give investors information that they use to make decisions, and if these prices are not done correctly, then investor confidence is lost.
If a Malaysian businesswoman decides not to expand her office because of the increase in the price of copper wire, she does not need to know that this price change is due to an earthquake that happened in Chile.
The price tells her everything she wants to know. Well, government intervention makes them realize that prices have nothing to do with market movements. As a result, investors don't get the information they want and distrust builds in the market.

Inappropriate monetary policies, like those implemented by European governments during World War I, create all kinds of problems.

Two issues stand out here. One is the recession and the other is the endless accumulation of debt. We'll see why later. Let's start with the recession.
No single person, agency, or department ever has access to all the information necessary to understand the vast and ever-changing web of preferences, choices, costs, and resources that define the economy.
And if you have access to all that information, the chances of you making the wrong decisions are very high.
This is exactly what governments do when they manipulate the money supply. Their interventions distort the market and create a cycle of boom and bust. During the boom, inflated money tricks investors into thinking they can buy more than they can afford.
The resulting boom soon turns into a bubble, and when that happens, the economy goes into recession. Then comes debt. Let's look at the Great Depression of the 1930s to see how bad money can drive economies into debt.
During that period, governments increasingly adopted policies favored by British economist John Maynard Keynes.
According to Keynes and his followers, the Keynesians, a recession occurs when total spending in an economic system is low. The best way to deal with a recession is to increase spending.
How do you do that? Well, you can reduce taxes. But people usually don't spend their extra money.
The only other option is to come up with cash for all those expenses. Because it's hard to raise taxes in the middle of a recession, governments always decide to increase the money supply.
This has a secondary effect on how people spend. Remember the idea of ​​time preference from the previous section? All that cash being pumped into the economic system forces people to focus on the present.
Saving becomes less attractive, and a culture of unwise and opportunistic investment is established.
The overall effect of this is endless. Government intervention will cause a recession, and the Keynesian response will make things even worse. But there is an alternative. We need to return to sound money and the gold standard. Well, the new technology of Bitcoin is here to help.

After decades of reckless spending and debt accumulation, it is time for the government to mend its ways and return to sound monetary policies.

This is where Bitcoin comes in. So how can the first digital currency of today get the economy back on track and make it grow and prosper? Let's go back to the gold standard.
Markets have chosen gold as a store of value for two reasons. One is that it is scarce, and the other is that it is predictable. This means that it has little risk of suddenly increasing its supply and decreasing its value. Bitcoin has similar characteristics.
In fact, its supply is literally fixed. No matter what happens, there will never be more than 21,000,000 bitcoins in the world. There will always be the same number of bitcoins in circulation, and no additional bitcoins will be issued.
The way Bitcoin is created also contributes to stability because the supply of the digital currency is constantly decreasing. Here's how it works. Like gold, Bitcoin must be mined. To obtain new coins, there are computers that spend power solving complex algorithms.
When these problems are solved, miners, the computers that help solve the puzzle, receive Bitcoin as a reward.
Bitcoin's creator, Satoshi Nakamoto, has added an internal security flaw to the Bitcoin system. What does it mean? It means that the number of Bitcoins mined will be halved every four years.
Why? Because the more computers working on Bitcoin, the harder it becomes to solve the problem.
As a result, as gold mining becomes increasingly difficult and a stable and reliable source is created, Bitcoin is following the same path.
The issuance of Bitcoin in smaller quantities will continue until 2140, after which no more coins called Bitcoin will be mined. This makes Bitcoins unique.
They are the only goods that are in absolute scarcity. Now compare them to common commodities like oil and gas. We think they are scarce, but on the other hand we know that if we are willing to spend enough money and invest enough, we can probably find more resources.
Even though our oil consumption is increasing day by day, the total global oil reserves are increasing. But the Bitcoin case is in a completely different phase.
No matter how much time passes or how much capital you spend on it, you cannot mine more coins than what is algorithmically programmed.
The result is that Bitcoin's value cannot be reduced by manipulating its supply. This feature makes Bitcoin a suitable backstop.

Sound money is not just about the scarcity of the unit in which its value is stored.

This money should be safe. After all, if you're not convinced that Bitcoin is safe, you'll probably be looking for an alternative.
Fortunately, cryptocurrencies are completely secure because they use a modern technology called blockchain. What is blockchain? It’s a long discussion. So when mining computers solve an algorithmic puzzle, they essentially create a block. This block is essentially a record of all recent transactions and mining activity.
Each block is added to a chain of blocks that precede it, ultimately creating the Bitcoin blockchain. This process contains the latest details about every blockchain transaction that has ever taken place. But the highlight is that this information is available to all network users.
Ownership of a Bitcoin is only valid when it is recorded on the blockchain, and it is only possible if the majority of the network's users approve it. This means that the Bitcoin network is its own authority and ensures its own security.
There doesn't need to be a central authority that oversees transactions. Furthermore, regarding Bitcoin's security, it is very, very difficult to cheat.
This means that someone interested in Bitcoin fraud would have to spend a lot of time and energy creating a fake block, which, thanks to Mr. Nakamoto, is becoming more difficult day by day as Bitcoin becomes more popular among people.
On the other hand, validating new blocks requires virtually no energy. Most users can reject a suspicious block without a significant drain on their processing power.
This is an effective way to achieve security because it minimizes the chances of fraud and scams. Even if a user wants to spend a lot of time and energy and even hack all the other networks and blocks, they will still not get more than a few points.
A Bitcoin breach would quickly destroy trust, leading to a decline in demand and, consequently, value. In short, our thief wouldn't get anywhere.

We know that Bitcoin is both scarce and secure.

But will these be enough to make it widespread and popular? The answer depends on how well Bitcoin can overcome a few key challenges.
Consider the price fluctuations. What do you think the price was in 2010 when Bitcoin first started to change hands? Ten dollars? Five dollars? One dollar? No, $0.000994.
But it's interesting to know that this number reached $4,200 in 2017. To be more precise, this price change is equivalent to 4,225,200,000 percent, and this is just the price fluctuation in the long term.
In 2017 alone, the value of Bitcoin rose from $750 to $20,000.
You must be thinking to yourself now, "Dad, why didn't I buy Bitcoin back then?" Well, these fluctuations are a product of demand. You didn't know that suddenly everyone is craving Bitcoin.
Since the supply of Bitcoin is fixed, there is no way but for the price to increase. Because Bitcoin is a new phenomenon, demand for it is naturally variable.
Of course, the result has been the weakening of the currency's status as an effective energy reserve. Will the situation be resolved? Well, according to the author, as the market grows, volatility should decrease.
This brings us to the second challenge that Bitcoin faces. If the cryptocurrency is to become a new standard, it needs to grow.
But growth, even for Bitcoin, ultimately comes down to reliance on large, centralized institutions. It becomes problematic when a currency doesn’t rely on government-approved third parties, such as banks, to provide a system of exchange. Unfortunately, there doesn’t seem to be any way to break this cycle.
The current limit for Bitcoin transactions is 500,000 per day. This number could increase, but whatever the new number, it is not right that there should be a daily cap. Then there is the issue of costs.
This increases the number of copies of the Bitcoin system that need to be updated, increasing transaction fees and processing power.
Put these facts together to see that trading with Bitcoin and all the currencies supported by Bitcoin is possible.
This could create a new standard, but it would require central institutions to control and manage the mechanism. Bitcoin could provide a good framework for creating a sound and contemporary monetary policy.
But one question still remains: Can Bitcoin avoid a similar fate to gold? Only time will tell.

Money has come in all shapes and sizes throughout history.

But only one sound and sound system has been able to emerge over time, and that money has been backed by gold. The gold standard guaranteed an era of prosperity and stability.
But in the 20th century, everything changed. In fact, war changed everything, and European governments abandoned fiscal prudence and completely abandoned the gold standard.
But times never stand still. Since then, we have endured decades of rising debt and boom and bust cycles.
But now is the time to change. This is where Bitcoin, like gold in the middle, has come to play an effective role and take over the market.
But for Bitcoin to be able to bring us sound money again, it needs to overcome some challenges and problems. What you heard was a summary of the book The Bitcoin Standard by Saifuddin Amos. We hope you enjoyed reading this article.