Free Minds & Free Markets

Can Bitcoin Become the Global Monetary Standard?

With its supply permanently capped at 21 million units, Satoshi Nakamoto's invention may turn out to be the best form of money ever conceived.

The Bitcoin Standard: The Decentralized Alternative to Central Banking, by Saifedean Ammous, Wiley, 286 pages, $29.95

The Truth Machine: The Blockchain and the Future of Everything, by Michael J. Casey and Paul Vigna, St. Martin's Press, 302 pages, $26.99

WileyWileyIf you find it hard to imagine how bitcoins could ever replace dollars as the world's primary medium of exchange, consider the bizarre tale of the donut-shaped "rai" stones on the island of Yap. Weighing up to four metric tons and standing up to 12 feet tall, these rocks couldn't be slipped into a wallet, deposited in a bank, or even moved around without enormous effort.

Yet for centuries they served the Yapese people as an effective form of money, because "the high cost of acquiring new stones" made them hard to debase, writes Saifedean Ammous in The Bitcoin Standard: The Decentralized Alternative to Central Banking. The system lasted until the 1870s, when the Irish-American ship captain David O'Keefe managed to overwhelm the island's economy with a new supply of the giant limestone discs.

It's an artful beginning to a book that makes a case for bitcoin as the best form of money ever conceived, largely because its supply is permanently capped at 21 million units. That hard limit means bitcoin can never be devalued, as were the rai stones of Yap and every other historical currency to varying degrees. Thus, it can facilitate long-term planning and investment by businesses and households.

An economist at the Lebanese American University in Beirut, Ammous earned his Ph.D. in sustainable development from Columbia. Curiously, he worked as a teaching assistant under progressive economist Jeffrey Sachs, who has called bitcoin a waste of time and resources that is destined for collapse. Ammous' résumé also lists as a reference economist Joseph Stiglitz, who has called for the U.S. to "outlaw" bitcoin.

Though written with clarity and wit, The Bitcoin Standard is not the definitive work I had hoped for: a book that thoroughly counters the best arguments of bitcoin's many detractors. It also lapses periodically into odd rants attributing all of society's alleged cultural failings—from "Miley Cyrus's twerks" to "bland, mass-produced junk food"—to government-issued money, as if financing endless wars and fueling the boom-and-bust cycle weren't enough to support his case.

St. Martin's PressSt. Martin's PressYet the book's virtues far outweigh its faults. While the best writings on the topic can be forbidding to readers who lack a technical understanding of how bitcoin functions, Ammous has managed to produce a complex analysis that doesn't require any prerequisite knowledge.

The book begins by placing bitcoin in the context of other forms of currency. Though gold is resistant to inflation because it's so costly to mine, its "fatal flaw" compared to bitcoin is that it has to be stored in a physical location, making it vulnerable to government takeover. World War I–era inflation marked the beginning of the end for the gold standard. It was replaced by government-issued currency, which distorted the natural interest rate and turned money into "a plaything of politics," in the words of Ludwig von Mises.

Then came bitcoin. With no physical properties, this decentralized digital money isn't susceptible to state control, and its users don't need permission to spend their holdings. It's also "the hardest money ever invented," Ammous writes, since bitcoin's fixed supply of 21 million units is coded into the software. Previously it "proved impossible to come up with a form of money of which more cannot be created," which makes bitcoin the "first example of absolute scarcity." When the late economist Julian Simon observed that human time is the only truly limited resource, Ammous has quipped, he was only correct because bitcoin hadn't yet been invented.

With gold, a price increase incentivizes miners to excavate more of it. A bitcoin price increase, by contrast, attracts participants (also known as "miners") to contribute additional computing power to the network, indirectly strengthening its security. Ammous sees this as "perhaps the most ingenious aspect" of bitcoin's design.

Here the author parts company with many mainstream macroeconomists, who hold that inflation of the money supply is necessary to prevent the economy from freezing up.

The Cato Institute's George Selgin, a leading figure in the modern "free banking" school, maintains for different reasons that bitcoin's fixed supply makes it ill-suited to becoming the monetary standard. He thinks a growing labor force under a fixed supply of money would be especially problematic: Average compensation would be driven down over time, and workers would find this unacceptable.

There are strong counterarguments to this concern. Why couldn't workers adjust to a world in which their paychecks shrink, so long as their money grows in value even faster? The Bitcoin Standard would be a better book with a detailed rebuttal to free market economists like Selgin. Instead, it dismisses these objections as arising from mainstream confusion and fears.

In the last section, Ammous tackles the topic of "blockchain technology," the distributed ledger that is a core component of bitcoin. To understand the blockchain's purpose, consider the analogy of a banking ledger that's used to tabulate account holders' credits and debits. We entrust banks to keep their own ledgers. The bitcoin blockchain, in contrast, is maintained by the community at large—anyone can download a constantly updated duplicate copy. The file is constructed in a manner that prevents any existing information from being deleted or altered while allowing new data to be added. This system of decentralized recordkeeping enables the bitcoin network to operate without third-party oversight. But since it involves so much duplication and is built to contend with the security vulnerabilities that come with decentralization, it's also wildly inefficient.

It's a common refrain in the cryptocurrency community that this technology will have a bigger impact than bitcoin itself. Ammous calls this "cargo cult science," arguing that bitcoin will always be the only "successful implementation" of the blockchain. Because blockchains are so much more resource-intensive than traditional databases, use cases "need to be compelling enough to justify the extra costs."

In arguing that only bitcoin meets that high bar, Ammous overlooks some worthy projects in their early stages. One promising application is verifying that land title records in countries with insecure property rights are properly maintained and updated. Blockchains may also come to serve as a decentralized white pages—a shared virtual ledger for anchoring our digital identities. The most technically sound project in this space is Blockstack, which is attempting to use the blockchain as the foundation for a new, more open internet where users needn't rely on Facebook, Google, or other centralized platforms to manage their contacts, reputations, and data.

But if Ammous' bar for blockchain success is too high, Michael J. Casey and Paul Vigna have set theirs too low. The Truth Machine: The Blockchain and the Future of Everything sees this new form of database impacting just about every type of business. Casey, a senior advisor at the MIT Media Lab, and Vigna, a Wall Street Journal reporter, open their book by describing a pilot program for tracking food payments in the Jordanian Azraq refugee camp by scanning a refugee's iris and publishing the transactions to a blockchain. But the World Food Program, which runs the camp, has no incentive to falsify its records, so why not use a far less costly and cumbersome centralized database? Or a Google doc?

The authors' silliest claim is that a blockchain could prevent a repeat of the 2015 food-poisoning crisis at Chipotle Mexican Grill by "reasonably verify[ing] that its supplier butchers are appropriately handling the meat." They assert that "the very existence of an all-knowing ledger of activity could compel better behavior." How the existence of a blockchain would lead a well-intentioned butcher to remember to change his plastic gloves or wash his hands after a trip to the bathroom is unclear.

Casey and Vigna also imagine that blockchain technology could have stopped the collapse of Lehman Brothers by making its activities more transparent, because the 2008 financial crisis was essentially a "failure of trust" that entailed "a vast manipulation of ledgers." The authors explain that Lehman tricked regulators by keeping two sets of books, but they don't elaborate on why a decentralized public ledger would prevent chicanery of this sort. They also don't acknowledge that Lehman Brothers' financial records comprise too much data to live on a public blockchain.

As Ammous understands, bitcoin's most radical implications aren't about building a better database. They're about restoring the era of sound money, whether authorities like it or not. The best way to stop the next financial crisis is a new global standard of free market money that governments and banks can't control.

Photo Credit: St. Martin's Press

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  • Deconstructed Potato||

    I still don't fully understand bitcoin "mining", or anything about bitcoin, and cryptocurrency in general, really.

  • Scarecrow Repair & Chippering||

    Here, let me flounder with you.

    Someone (Bruce Schneier?) described a public notary scheme using a computer log. Notaries document that specific people signed specific documents at a specific time with ledgers of fingerprints, signatures, and document descriptions, making it hard to forge records.

    Hashing is a computer function which summarizes a digital file (PDF, text file, mp3, jpg, web page, anything) in "hashes", which are unique numbers of several hundred digits. You cannot recreate the original document from the hash. Neither can you create a document whose hash matches any other hash. The hardest part of hashes is explaining why random numbers can never match, but the number of possible hashes is far more than the number of atoms in the universe, and you'll just have to take crypto theory and the real world as evidence that such "collisions" do not happen.

    So instead of a human notary public with a human-written ledger, imagine a computer ledger that anyone can add entries to. You upload your hash and get back a ledger serial number and time; the ledger records those three numbers.

    Each ledger entry has a secondary use: it locks in the previous entry. To forge an entry from, say, a year ago, you'd have to co-opt some entry from that time, which not only requires bribing or coercing someone, but also duplicating their document's hash for your document. You can't insert a new entry because they are all serialized.

  • Scarecrow Repair & Chippering||

    The blockchain, as I understand it, is basically just such a ledger, except it's not maintained in any central computer. Instead, every time you add a ledger entry, you get back the entire ledger. Anyone can look at the entire ledger.

    It's impossible to forge. When used with bitcoin, you can trace every bitcoin from its first mining to the present. You see only ids (email addresses? bitcoin ids? I do not know, but they are just arbitrary and unique and untraceable), but it proves who has how much bitcoin.

    I do not know the mechanics of guaranteeing that only one person can add a blockchain entry without stepping on someone else trying to add one. But that this does work is proven by people using it every day.

    One of a blockchain's problems is that everyone has a copy of the entire ledger. When Jim Epstein says "why not use a far less costly and cumbersome centralized database?" and "Lehman Brothers' financial records comprise too much data to live on a public blockchain", he is referring to this limited practical size of the Bitcoin ledger and how long it takes to distribute fresh copies.

    And there you have my limited knowledge of blockchains and Bitcoin. I am sure others will correct me where wrong and add more detail.

  • ||

    There are cryptocurrencies who's blockchain technology enhancements require a lot fewer resources to maintain the ledger and transactions can be completely anonymous. The transactions can be seen in the ledger, but there's no way to determine who the participants in transactions were.

  • ElinorMercado||

    My last pay check was $9500 working 12 hours a week online.
    My sisters friend has been averaging 15k for months now and she works about 2o hours a week.
    I can't believe how easy it was once I tried it out. This is what I do .....>>

  • Erezeneb||

    The problem is that while the supply of bitcoins is fixed, the supply of cryptocurrency is not.

    Plenty of altcoins out there, many with useful monetary values.

    The other main problem with bitcoin is the speed/cost of getting your transaction recorded. If you can't buy a coffee - or at least do the weekly shopping - and get the purchase confirmed immediately for a small percentage of the cost, it will never see widespread adoption.

  • Mike Laursen||

    The other unintended consequence is that all the computation has a significant cost in terms of time and energy consumption.

    I'm not clear, though, how much energy is consumed during the mining of new coins vs. confirming transactions.

  • JFree||

    It's the same amount of energy for any new block - increasing dramatically over time. Right now, its consuming as much electricity as the entire country of Chile or Austria or Switzerland or Czechia. Projected to rise to the level of Norway, Sweden, Malaysia, Vietnam by the end of 2018. And Mexico, Taiwan, Australia, Spain by the end of 2019. UK, Italy by 2020 or 2021. Bitcoin currently uses about 70x more electricity than Visa - so it really doesn't matter how many transactions it may theoretically produce if it fixes all its problems.

    The bitcoin algorithm is unsustainable crap. It is actually a real threat, in the not-so-far-away term, to drive up the price of electricity to the point where people at the margin die. And once that happens - it will be very easy to see how both government and/or vigilantes will 'get involved' to make sure individual bitcoin users pay that cost - in-kind.

  • JFree||

    Bitcoin is, roughly, the Chinese lantern of cryptocurrency/blockchain - that is being hyped as a futuristic space station because - look it flies.

    Personally I am skeptical of any non-govtl cryptocurrency succeeding because a)there is simply no way for a non-govtl entity to deliver the currency/market benefits of a govt-issued currency without coercion and b)even if there is, all it will take is one honest govt to issue its cryptocurrency and the private alternatives will simply vanish.

    I see a great potential for blockchain technologies to disintermediate a lot of things - once those creating them get out of the mindset that they themselves will be able to capture intermediary profits - while not delivering anything beyond the blockchain - and still pass on value to those who want to get rid of intermediary control.

  • perlchpr||

    all it will take is one honest govt

    Y'know, I'm not sure I even need to actually say anything here...

  • JFree||

    Yes I know. I used the word quite deliberately - see Diogenes.

    Nevertheless it's also true.

  • Kyfho Myoba||

    > a)there is simply no way for a non-govtl entity to deliver the currency/market benefits of a govt-issued currency without coercion and b)even if there is, all it will take is one honest govt to issue its cryptocurrency and the private alternatives will simply vanish.

    What utter nonsense. Govt issued currencies of any kind REQUIRE force and fraud to be accepted. ALL cryptos in existence are accepted VOLUNTARILY. Where the hell are you going to find an "honest government"? The private, voluntary crypto market is already successful. Does anyone think that the hard core HODLers are going to trust some "honest government" ? Do you even understand the trustless nature of the blockchain?

    Go away. Everyone is stupider for having read you.

  • JFree||

    Govt issued currencies of any kind REQUIRE force and fraud to be accepted. ALL cryptos in existence are accepted VOLUNTARILY.

    Guess what else requires coercion/compliance? A court system that requires the loser in a dispute to comply. A weights/measures system that defines, say, '1 ounce' via a mechanism that becomes 'fraud' if one doesn't comply. A physical defense of the geographic bounds of a successful marketplace (or more narrowly, protection of one's own claimed property) that attracts looters/thieves in direct proportion to its success.

    All things that govts in fact are expected to provide. NONE of which are 'natural'. And in fact that ACTUAL free markets depend on.

    Does anyone think that the hard core HODLers are going to trust some "honest government" ?

    No. I'm certain that hardcore HODLers will hang on until a)they lose their private key password or b)they can't exchange their bitcoin with anyone who isn't totally trusted by them (which renders the trustless ledger irrelevant) or c)pigs fly and the next day human nature itself changes so that ancap becomes possible. A and B are the most likely.

  • CE||

    You don't need fraud charges and jail time for merchants who cheat their customers at the scales, just reputational damage a la Yelp, more widely adopted. Nor do you need hoodlums funded by confiscated loot to "defend" your property when you can hire security guards.

  • CE||

    Not to mention private arbitration and digital shunning of companies that fail to comply with decisions from respected private courts.

  • JFree||

    just reputational damage a la Yelp, more widely adopted.

    That doesn't work in many cases - at least not more cheaply than such a system itself can be gamed and itself lose its capability as a reputation system before it loses its reputation as a reputation system. eg - a true transactional con - where they don't care about a delayed 'reputation' because the con is intended to hit fast and then disappear. egeg - more than a few of the initial coin offerings on the Ethereum platform. If the currency itself can't resolve its own transactional trust issues, then it hasn't actually disintermediated anything.

    Nor do you need hoodlums funded by confiscated loot to "defend" your property when you can hire security guards.

    And if you can hire security guards to defend your loot, how much more profitable will it be to turn them into looters of someone else's property?

  • Marty Feldman's Eyes||

    We should be more imaginative; from Terry Pratchett's Making Money:

    The Golem standard:

    In Making Money, 4000 golems are found by the Golem trust, headed by Adora Belle Dearheart. When brought to the city, a lot of discussion arises as to what should be done with them. These Golems' version of chems are actually baked into their bodies, not written on paper, so they cannot be freed. They do, however, possess much skill; they were able to create a city and sustain a civilization under the orders of their original creators. Thanks to a sequence of Umnian commands (translated by a deceased wizard), Moist von Lipwig gains the ability to control them. However, the economist Hubert Turvy notes that the golems would effectively render the entire population redundant, resulting in a crash of consumption that would beggar the city. After much discussion it is decided that, because of their worth, they are to be buried. Their worth would back the new paper currency of Ankh Morpork. It becomes known as the Golem standard.

  • Marty Feldman's Eyes||

    Though for some reason I remember it as backed by the value of the force of an army of gollums, besides the economic considerations. Perhaps I misremember. Great book though.

  • AlmightyJB||

    It will be outlawed or regulated out of existence before that happens.

  • Kyfho Myoba||

    How, smart guy?

  • Cyto||

    Yeah, Bitcoin can never become the standard itself. It has built-in inefficiencies that are there intentionally that make the cost of a transaction far too high going forward.

    But the idea of a cryptocurrency like Bitcoin has a really good chance of replacing fiat currency. And it isn't just because of Libertarians in the West. You have entire continents like Africa and major chunks of Asia that have no way of moving money around. Either the infrastructure does not exist, or the government has their thumb on top of it. We are literally talking about a couple of billion people. As the internet reaches these people, the attractiveness of an already established electronic means of exchanging value could drive it to become a global standard

  • Cyto||

    And then you have countries like Venezuela, where the government can destroy a currency. Right now, Bitcoin is in heavy use in Venezuela. So How likely do you think Venezuelans are to use Bitcoin going forward? How many other countries around the world are likely to have the same lesson talk to them by their government?

  • JFree||

    It is NOT in heavy use in Venezuela. It is being used BY some Venezuelans to acquire foreign currency because of the foreign sanctions against Venezuela. And bitcoin can only be used for that purpose because Venezuela is an energy producer that still massively subsidizes electricity.

    IOW - in a very real sense, bitcoin is the INSTRUMENT of those sanctions - since it forces a diversion of electricity in sanctioned countries. Which if you like conspiracy theories, makes one wonder if bitcoin is not the direct implementation of the NSA's explicit idea for it published in 1997.

  • ||

    Bitcoin could be used for account balancing while other cryptocurrencies are used for day-to-day transactions.

  • Weigel's Cock Ring||

    I'd love to know what offer the U.S. and/or U.K. made to Ecuador that they decided they couldn't refuse to get them to turn Assange.

    Hopefully he had enough wisdom and foresight to make a backup contingency plan of some kind for the information he has in case of an eventuality like this. The most evil and vicious men in the west are desperate to silence him by any means necessary.

  • Mike Laursen||

    I don't think it was the US. or U.K. Assage pissed off the Spanish government, and, apparently, Ecuador early cares about their relationship with Spain.

  • Kyfho Myoba||

    I believe that it had something to do with Columbia and FARC, IOW, the US narco state is all up in it.

  • Rich||

    a case for bitcoin as the best form of money ever conceived

    Meh. Under President Ocasio-Cortez we won't *need* money.

  • CE||

    Government provided debit cards, that can be frozen whenever they decide to?

  • Bronze Khopesh||

    As long as governments keep producing currency and through their monopoly of force force people to accept it and pay taxes in it bitcoin will never totally replace fiat.

    Though having many options for day-to-day spending or to hold value in is great. I'd love to be able to decide to use bitcoin or M-Pesa or some real gold or silver or WOW gold or airline miles, etc for my transaction depending on what advantage I see to that at the time.

  • Weigel's Cock Ring||

    Also, thanks to Tom Fitton and Judicial Watch, the Carter Page FISA warrant application has been released.

    And although much of it is redacted, it is the complete farcical sham most of us suspected it was.

  • OpenBordersLiberal-tarian||

    Have I mentioned that libertarians should give serious thought to backing Gillibrand if she runs in 2020?

    If we keep speaking out, we can stop Kavanaugh from being confirmed. I talked about his extreme views on women's health and net neutrality with @SymoneDSanders. Listen and help us keep the pressure on the Senate to stop this terrible choice

    Kavanaugh is such a dangerous right-wing extremist, libertarians should vigorously oppose him even if he had been nominated by a hypothetical President Rubio, or anyone not (as far as we know) taking orders from Putin. But having an illegitimate government, installed by Russian hacking, reshaping the Supreme Court? It just adds insult to injury.


  • Giant Realistic Flying Tiger||

    Dammit why you gotta be using a cisnormative and misogynistic hashtag? I suggest you find another hashtag besides "StandWithPP."

  • DiegoF||

    Ooh, excellent point. I was going to point out that it is ableist, but you have exposed a greater shame.

  • Mark22||

    Can Bitcoin Become the Global Monetary Standard?

    Bitcoin itself? No. It has some serious technical problems.

    Something like Bitcoin, probably.


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