Summary
Saifedean Ammous, in "The Bitcoin Standard," delves into the history of money's evolution, emphasizing its crucial properties: divisibility, transportability, and ability to store value. Throughout time, societies shifted from one form of money to another due to the persistent problem of salability. Gold, once a primary form of money, faced centralization issues, making it susceptible to government intervention and eventual replacement by fiat currency devoid of commodity backing.
Ammous highlights how unsound money fosters a short-term mindset among people, reducing savings, increasing borrowing, and impeding productivity. This, in turn, leads to societal issues and conflicts, stemming from the erosion of purchasing power.
The book critiques the prevalent focus on government-controlled monetary policies, arguing that this approach overlooks the importance of free market price mechanisms. Moreover, the creation of unsound money through these policies fuels unaccountable violence and conflicts, perpetuating societal harm.
Contrasting traditional forms of money, Bitcoin emerges as a potential solution, meeting the criteria of sound money with its divisibility, digital nature for spatial scalability, and stability over time. The author posits that widespread adoption could position Bitcoin as a global unit of account.
Ammous underscores the significance of salability across scales, space, and time in determining a substance's suitability as money. While various items like stones, beads, and seashells were historically used as money, their failure stemmed from a decline in the stock-to-flow ratio, driven by technological advancements. Gold, with its rarity and high stock-to-flow ratio, became a preferred commodity money for millennia. However, its susceptibility to centralization with financial institutions led to its historical downfall as it became prone to over-lending.
"The Bitcoin Standard" thus presents a critical analysis of the evolution of money, the pitfalls of unsound monetary systems, and Bitcoin's potential as a sovereign, immutable, and decentralized form of money, free from government interference.
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