Book SummaryThe Bitcoin Standard, by Saifedean Ammous

1-Page Summary1-Page Book Summary of The Bitcoin Standard

In The Bitcoin Standard, Saifedean Ammous suggests that bitcoin has the potential to become a new international monetary standard, similar to the gold standard of the 1800s. To make this argument, he explains the theory of money, the problems that currency issued by a government or central bank (fiat money) creates, and how bitcoin solves these problems by providing a form of money that’s beyond the control of any single government.

Ammous is a professor of economics at the Lebanese American University. He’s known for his support of the Austrian School of economic thought, which was popular before the rise of...

The Bitcoin Standard Summary What the Bitcoin Standard Would Look Like

The bitcoin network is a decentralized electronic payment processing system, which processes payments using its own digital currency: bitcoins. Ammous envisions a future in which bitcoin may become the world’s international reserve currency, much as gold was in the 19th century. Under the gold standard, most countries pegged the value of their currencies to gold. A US dollar bill or a British pound note could be redeemed for a fixed quantity of gold, if desired. But Ammous says that in practice, few people carried gold money.

Instead, he says they used paper bills, bank notes, or checks for most transactions, while the actual gold remained in bank vaults. Of course, these bills, notes, and checks ultimately ended up in banks, resulting in banks owing each other money as their respective depositors did business with each other. Periodically, banks would ship gold bullion to each other to reconcile their debts, but a given bank might process thousands of deposits and withdrawals in bills and checks every time they sent or received a shipment of gold.

Similarly, Ammous explains that under a bitcoin standard, **people would carry out most transactions using national or digital...

The Bitcoin Standard Summary Problems With Fiat Money

Ammous believes a Bitcoin Standard would be good for the global economy because it offers a solution to the problems of fiat currency—money that derives its value solely from government decree, like US dollars, British Pounds, or most other national currencies in use today. We’ll discuss the social and economic problems that Ammous says fiat money causes and how bitcoin could solve those problems.

Economic Problems That Fiat Money Exacerbates

Ammous points out that fiat money facilitates inflation, which gives people incentive to spend their money instead of save it. If the government expands the money supply, the value of money decreases in proportion to the increase in supply—a process we refer to as inflation. Inflation discourages saving because savings lose value over time. Ammous argues that savings are a good predictor of long-term economic performance because savings allow a society to build durable infrastructure. So, over the long term, a lack of savings leads to fragile infrastructure and poor economic performance.

He also asserts that fiat money and the central banking systems that promulgate it artificially lower interest rates, enticing people and...

The Bitcoin Standard Summary Why Bitcoin Makes Good Money

Now that we’ve discussed how bitcoin avoids the problems fiat money poses, let’s examine how bitcoin is generally a good form of money and has the potential to become the new monetary standard.

Ammous explains that there are two properties that determine how suitable something is for use as money: ‘salability’ and ‘hardness.’ Then there’s the issue of trust in the payer: The form of money can influence the likelihood of a transaction failing due to nonpayment. We’ll discuss each of these factors in turn to show why Ammous thinks bitcoin makes good money.

Bitcoin Has Good Salability

As Ammous uses the term, ‘salability’ is the ability of something to transmit value. He says there are three dimensions to salability: scale, space, and time.

Scale-Salability

The scale-salability of something is its ability to transmit value between purchases of different size. For example, maybe you sell something of great value, like a house, and then you want to use a little bit of the money from the sale to purchase something of small value, like a loaf of bread. The scale-salability of something that is used as money depends mostly on how easily divisible it is into units of...

The Bitcoin Standard Summary What the Bitcoin Standard _Doesn’t_ Look Like

We’ve discussed the properties of bitcoin that arguably make it an ideal form of money and allow it to solve some of the problems with common fiat currencies. And we’ve laid out Ammous’s vision for a global bitcoin standard in which banks use bitcoin as an international reserve currency, much like they once used gold. But if bitcoin is a superior form of money, why would only banks use it for settling their debts? Why wouldn’t we all just switch to using bitcoins directly? Ammous explains that there are two reasons bitcoin will never be a global currency for day-to-day transactions.

First, as digital transactions go, bitcoin is slow. It takes about 10 minutes for a bitcoin transaction to clear. If you’re running a grocery store and have people in line to check out, you can’t wait 10 minutes for each payment to go through.

Second, bitcoin can’t handle a high enough volume of sales. The bitcoin network can only handle about half a million bitcoin transactions per day. That’s enough to cover large balance settlements between banks throughout the world, but not enough to cover all...

Shortform Exercise: Reflect on The Bitcoin Standard

In this exercise, you’ll reflect on the viability of Ammous’s vision for a global monetary standard based on bitcoin and how this standard could affect you.

Do you currently own any bitcoins? Why or why not?