A Critical Review: THE BITCOIN STANDARD: The Decentralized Alternative to Central Banking by Saifedean Ammous.
A Critical Review
Wow! A must read and bitcoin gem for all bitcoin enthusiasts. The best bitcoin book since Mastering Bitcoin: Unlocking Digital Cryptocurrencies by Andreas Antonopoulos. And it comes from a well researched scholarly point of view without the highly technical details of bitcoin that are beyond the grasp of many of us.
Saifedean’s work provides a wealth of information and a much needed foundation for multiple future in-house debates within the bitcoin maximalist community.
What Is a Bitcoin Maximalist?
The term bitcoin maximalist was originally coined by Ethereum altcoin creator Vitalik Buterin in 2014 to develop a derogatory meme to propagate that such thinking is an anathema to cyrpto-currencies. Buterin created the term in attempt to paint bitcoin maximalism as an ethical question and that somehow such bitcoin maximalism stifles competition.
Addressing altcoins Saifedean Ammous thoroughly and thoughtfully outlines why so many of us proudly wear the badge of bitcoin maximalist. It has nothing to do with ethics and everything to do with the technology and why bitcoin alone has the potential to provide lasting global sound money.
“ While it is common to think that these currencies exist in competition with Bitcoin, and that one of them might overtake Bitcoin in the future, in reality they are not in competition with Bitcoin because they can never have the properties that make Bitcoin functional as digital cash and sound money. In order a for digital system to function as digital cash, it has to be outside the control of any third party; its operation needs to conform to the will of its user according to the protocol, with no possibility for any third party to stop these payments. After years of watching altcoins get created, it seems impossible that any coin will recreate the adversarial standoff that exists between Bitcoin stakeholders and prevents any party from controlling the payments in it.” (page 251)
One needs look no further than to the plethora of misleading advertisements headlining “Better than Bitcoin!” promoting the latest altcoin and appealing to FOMO (fear of missing out), that the questionable ethics and lack of monetary innovation rests squarely with the promoters of altcoins and ICO’s (Initial Coin Offerings) and not with bitcoin maximalists.
“No single altcoin has demonstrated anything near Bitcoin’s impressive resilience to change, which is down (sic) to its truly decentralized nature and the strong incentives for everyone to abide by the status quo consensus rules. Bitcoin can only make this claim after growing in the wilds of the internet for nine years without any authority controlling it, and very ably repelling some highly coordinated and well-funded campaigns to alter it. In comparison altcoins have the unmistakable friendly culture of nice people working together on a team project. While this would be great for a new start-up, it is anathema to a project that wants to demonstrate credible commitment to a fixed monetary policy. Should the teams behind any particular altcoin decide to change its monetary policy, it would be a relatively straightforward thing to achieve. Ethereum, for instance, does not yet have a clear vision of what it wants its monetary policy to be in the future, leaving the matter up to community discussion. While this may work wonders for the community spirit Ethereum, it is no way to build a global hard money, which, to be fair Ethereum does not claim to do. Whether it is because they are aware of this point, or to avoid run-ins with political authority, or as a marketing gimmick, most altcoins do not market themselves as competitors to Bitcoin, but as performing tasks different to Bitcoin.
“There is nothing about Bitcoin’s design that suggests it would be good for any of the multitude of use cases that other coins claim they will be able to do, and no coin other than Bitcoin has delivered any differentiating capabilities or features which Bitcoin does not have. Yet they all have a freely trading currency which is somehow essential for their complex system for performing some online applications.” (pages 255–256)
As bitcoin maximalists our first task is to get entrepreneurs into bitcoin and bitcoin alone. And that can be a very difficult since 95%+ of the information on the bitcoin and crypto space are scams and millions are spent to lead the uninformed into these scams.
These altcoin projects and ICO’s spend billions in stolen fiat promoting themselves as “better than bitcoin” or “the new bitcoin” or “the replacement of bitcoin” by virtually printing money and enriching their own pockets while suckering countless marks who have little or know understanding of what constitutes sound money.
Bitcoin has no such budget, no such promotions, and has gained acceptance solely through peer-to-peer education one exchange at a time.
Unlike every altcoin, Bitcoin stands alone in that just like the dollar, the pound, the euro, and the yen there is no budget to promote its acceptance.
For the most part these crypto-currency wanabees, fakes, wolves in sheep clothing and hypocrites are a curse to sound money. They are not our friends. They are not free market advocates. They are not sound money advocates. At best they are foolish pretenders and at worst lawless anarchists, both are enemies within, and it is time for those who understand sound money to expose these ignorant blind guides and evil Pied Pipers for who and what they are. With the former, bitcoin maximalists can and should be forbearing as there is hope to persuade through education and by example. But with the latter bitcoin maximalists must expose the snakes for what they are.
Make no mistake, those who defend altcoins under the anarcho-capitalism banner of the non-aggression principle fail in their own ethics. And as bitcoin maximalists, if we do not take up this mantel to expose them, others will.
At the very moment I write this review Keynesian economist Nouriel Roubini, also known as Dr. Doom for predicting the 2008 housing crash, publicly attacked ethereum founder Joseph Lubin by pointing out ethereum is more centralized than central banks. Ethereum not only writes and modifies its own law (code), but acts as the policeman and prosecutor of the law it writes and modifies.
Roubini went on to publicly chastise Lubin for his hypocritical claims of self-regulation while allowing the plethora of scams to continue and flourish on the Ethereum network. If Bitcoin Maximalists do not aggressively expose the hijacking of free market sound money by centralized altcoin pretenders for the scams and criminal enterprises they are, the established central bankers will do it and in doing so attempt to squeeze Bitcoin Maximalists into the same box!
Just as the dollar, the euro, the yen, and the Swiss franc sponsor no conferences, Bitcoin sponsors no conferences! I doubt these promoters will make the mistake of inviting central bank friendly economists or bitcoin maximalists to debate again.
Dr. Doom just fired a shot across the bow. Bitcoin maximalists must not just distance themselves from altcoins, but make clear why bitcoin stands alone and is the blockchain.
THE BITCOIN STANDARD is a virtual handbook for bitcoin maximalists that provides the intellectual arguments to accomplish this difficult but necessary task. Read it. Study it. And read it again.
The Contents
Saefidean begins by outlining the properties of money and how each of these properties developed in the marketplace. A medium of exchange through stock-in-flow, a store of value through salability , and unit of account through universal acceptance and scalability. (Interestingly, these are the exact same properties outlined by Dr. Doom in his attack on Ethereum showing it is more centralized that any fiat currency and its corresponding central bank!)
Next in a special chapter entitled Primitive Moneys Saefidean outlines the special history of Yap Island, today a part of the Federated States of Micronesia, where an ancient system based on Rai stones most resembled the operation of Bitcoin. It is a wonderful illustration that opened my eyes a notch on how the high stock-in-flow ratio of bitcoin works combined with a universal ledger all eyes can see.
Saefidean goes on to outline the history of metals as money and answers the question Why Gold? followed by a chapter outlining the history of government money beginning with formation of the Federal Reserve Central bank in 1913 and the outbreak of world war in 1914. This is followed with a chapter on money and time preference.
“Sound money is chosen freely on the market for its salability, because it holds its value across time, because it can transfer value effectively across space, and because it can be divided and grouped into large and small scales. It is money whose supply cannot be manipulated by coercive authority that imposes its use on others. . . .Sound money is a prime factor in determining individual time preference, an enormously important and widely neglected aspect of individual decision making. Time preference refers to the ratio at which individuals value the present compared to the future.” (page 74)
“. . . It is no coincidence that Florentine and Venetian artists were the leaders of the Renaissance, as these were the two cities which led Europe in the adoption of sound money. The Baroque, Neoclassical, Romantic, Realistic and post-Impressionistic schools were all financed by wealthy patrons holding sound money, with a very low time preference and the patience to wait for years, or even decades, for the completion of masterpieces meant to survive for centuries. The astonishing domes of Europe’s churches, built and decorated over decades of inspired meticulous work by incomparable architects and artists like Filippo Brunelleschi and Michelangelo, were all financed with sound money by patrons with very low time preference. The only way to impress these patrons was to build artwork that would last long enough to immortalize their names as the owners of great collections and patrons of great artists. This is why Florence’s Medicis are perhaps better remembered for their patronage of the arts than for their innovations in banking and finance, though the latter may be far more consequential.”
“Similarly, the musical works of Bach, Mozart, Beethoven, and the composers of the Renaissance, Classical, and Romantic eras put to shame today’s animalistic noises recorded in batches of a few minutes, churned out by the ton by studios profiting from selling to man the titillation of his basest instincts. Whereas the music of the golden era spoke to man’s soul and awakened him to think of higher callings than the mundane grind of daily life, today’s musical noises speak to man’s most base animalistic instincts, distracting him from the realities of life by inviting him to indulge in immediate sensory pleasures with no concern for long-term consequences or anything more profound. It was hard money that financed Bach’s Brandenburg Concerto while easy money financed Miley Cyrus’s twerks.” (pages 98- 99)
Ammous concludes that money provides capitalism’s information system and has no problem using an ad homniem attack to identify both Keynsian and altcoin promoters as fools. Ad homniem attack is logically valid so long as it is true.
“Hard money, by taking the question of supply out of the hands of governments and their economist-propagandists, would force everyone to be productive to society instead of seeking to get rich through the fool’s errand of monetary manipulation.” (page 133)
The In-House Debate of Sound Commercial Banking
While The Bitcoin Standard lays a solid foundation, this is a critical review and the book is not without shortcomings.
While Ammous is strongly influenced by F. A. Hayek who advocated not just free market money but also free market banking, he also is heavily influenced by Murray Rothbard who advocated a 100% gold dollar imposed by legal fiat. Rothbard viewed all fractional reserve banking as inflationary and hence evil, and could not fathom the creation of non-inflationary new purchasing media created by bankers during the Gilded Age.
“In a society with sound money, banking is a very important and productive job, where bankers perform two highly pivotal functions for economic prosperity: the safekeeping of assets as deposits, and the matching of maturity and risk tolerance between investors and investment opportunities. Bankers make their money by taking a cut from the profits if they succeed in their job, but make no profit if they fail” (pages 160–161)
What Ammous describes is the traditional safe deposit box and the savings and loan functions of banking. And he declares all money creation as inflationary which is Hoyle for the Rothbard school of anarcho-capitalists.
“As money is acquired not for its own properties, but to be exchanged for other goods and services, its purchasing power is important, not its absolute quantity. There is therefore no societal benefit from any activity which increases the supply of money.” (page 155)
Ammous drives home the point with “the bezzle” described by economist John Kenneth Galbraith who outlined how. . . “ as the credit expansion in the 1920’s soared, corporations were awash with money, and it was very easy for people to embezzle that money in various ways.” (page 156)
Ammous is rightly critical of The Monetary History of the United States by Milton Friedman and Anna Schwartz for glaring historical omissions and the failure to identify the causes of financial crisis and recessions.
Unfortunately, Saifedean is no less guilty of such a glaring omission in his coverage of the La Belle Epoque, the period in Western history between the end of the Franco-Prussian War in 1871 to the outbreak of World War I in 1914. Also, known as the Gilded Age in the United States.
Ammous omitted the fact than during this golden age, U.S. banks developed and performed a third function of creating non-inflationary purchasing media in what E. C. Harwood terms The Lost Art of Commercial Banking.
Ammous misses completely that this incredible period of growth was due to the innovation of a third function of banking: the creation of non-inflationary purchasing media representing the plethora new goods being offered in the market. This purchasing media was used to pay suppliers and employees as the goods were being produced and shipped to market. And as these new goods were sold in the market, the newly created banknotes were retired.
This growth never happened under a 100% gold standard and could not happen.
During this classical gold standard, little gold circulated as money. Yes, money was represented by gold, but it also represented all the new goods being produced and offered in the marketplace. What circulated was banknotes based on a gold standard. These notes were backed by a fractional amount of gold as well as hard assets produced but not yet delivered and sold in the marketplace. Gold acted as the governor (or governance system) when a bank made bad lending decisions. Bad loans resulted in the loss of gold reserves. There was no central bank, but bank clearing houses were formed to hasten the retirement of newly created banknotes as the goods they represented were sold. It is this classical gold standard that was co-opted with the creation of the Federal Reserve. And it is the model that must be revisited if there is to be a Bitcoin Standard.
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Thank you. UOG
