Review of The Bitcoin Standard, by Saifedean Ammous

There's been a lot of hype and noise about Bitcoin and other cryptocurrencies. Ammous steered clear of all of this to write a good book about why Bitcoin is unique and what its benefits and pitfalls are.

The author is clearly in favor of Bitcoin, but his book isn’t a slick marketing screed. In his own words:

"Should you come out of reading this book thinking that the bitcoin currency is something worth owning, your first investment should not be in buying bitcoins, but in time spent understanding how to buy, store, and own bitcoins securely." Wise words, given that there have been Bitcoin thefts. Furthermore, time spent understanding is a good investment before buying anything.

Ammous's explanation of what money is and why it is necessary is well written. Hard money has the following characteristics: It should be hard to produce, it should be easily divided into smaller units or combined into larger units, and it has to last (no rotting, radiation, or corrosion). Historically, gold and silver have been hard currency.

Modern paper and electronic currencies, issued by national governments, are convenient in the sense that they can be physically held, easily used electronically or as cash, and won't easily deteriorate. This is all good. However, they lack the key characteristic of hard money: Difficulty of production.  These national currencies can be easily produced, via the old fashioned printing press or by quantitative easing, which is bureaucrat-babble for electronic creation of money. This is much easier than mining gold, silver, or platinum, and then turning these into nice shiny coins or bars.  Governments compel people to use their national currencies to pay taxes and fees, and – until the advent of Bitcoin – people were forced to accept these currencies, even though they are generally mismanaged through mild (U.S.) or insane (Venezuela, Zimbabwe) inflation. 

Ammous paints a damning picture of the destructive effects of fiat currency. He mentions the usual suspects: War, inflation, impoverishment.  Ammous is Lebanese; Lebanon went through severe inflation during the 1980s and 1990s.  It’s no surprise that he takes inflation more seriously than most leaders, and most citizens, in First World nations.  He also blames soft money for consumerism, rotten modern art and the breakdown of traditional families. Undoubtedly there are other causes for the breakdown of families and for the ridiculousness of modern art, but I think that Ammous is right to blame soft money and the resulting problems for the breakdown of modern families.  It's easier to keep a family together when there is a solid economy based on hard money, because the breadwinners will be more likely to find jobs.  Sadly, most political leaders prefer financial hocus-pocus such as “quantitative easing” rather than de-regulation and hard money.

I like Ammous's rapier wit. Unlike traditional academics, he knows how to put some verve in his writing. Some examples:

"Imagining that central banks can prevent, combat, or manage recessions is as fanciful and misguided as placing pyromaniacs and arsonists in charge of the fire brigade."


"The debates of academia are almost entirely irrelevant to the real world, and its journals' articles are almost never read by anyone except the people who write them for job promotion purposes...”

That paragraph neatly sums up why I am not an academic.

So why Bitcoin? No government, so no pressure to inflate Bitcoin to death.  Bitcoin uses a peer to peer setup, so there is no central server that governments can shut down, and no corporate mismanagement to worry about. (Anyone remember Lehman Brothers?) Decentralization also means that users may still have access to Bitcoin in the event of war, accidents, or natural disasters impeding Internet access. Trust is provided by the mathematical proof of work, generally known as mining. (At least your computer is doing the work – no need to get sweaty and filthy inside a real mine!) 

So those are the good points of Bitcoin. The bad points are that you can't hold it in your hand, unlike paper currency or precious metals. There have been thefts of Bitcoin from improperly secured accounts. And Bitcoin, by its decentralized nature, will never be able to process as many transactions as centralized payment providers such as Visa or MasterCard. Nevertheless, Bitcoin provides digital hard money -- that is, hard money, like gold or silver or platinum, but in a form that can easily be sent to others.  The author endorses buying, despite the price volatility, because of its characteristics.

My take? Don't bet the farm on this. Don't use Bitcoin as a get-rich-quick scheme. Just buy a few Bitcoins, or a fraction, as one of many hedges against inflation of your country's currency.

I learned a lot from The Bitcoin Standard. I heartily recommend it.

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