Thoughts on The Bitcoin Standard

The Bitcoin Standard by Saifedean Ammous has been widely recommended in Bitcoin circles – especially from Bitcoin maximalists.

I came to this book after reading Cryptoassets by Chris Burniske and Jack Tatar and Blockchain Revolution by Don Tapscott and Alex Tapscott around 2018. I didn’t like both of those books because they were too simplistic and didn’t really allow for a better understanding of this fascinating new technology. I don’t find it particularly easy to find high-quality long-form content around Bitcoin so I was excited when I heard about this book.

It took me a long time to read this book because I put it down several times. I think this is partly due to the fact that the book has Bitcoin in its title but really discusses in most of the book the types of money that existed and exist today. I wasn’t prepared that the author only discusses digital money itself in the last quarter of the book. This is not meant as a critique because the book attempts to explain why Bitcoin is relevant and it can only achieve this by educating the reader first. Nevertheless, readers should be aware of this before starting the book.

TL;DR

The Bitcoin Standard is in my opinion not worth the read if you are interested in Bitcoin and monetary policy. The big problem with this book is that its author has very strong opinions and believes that he discusses as if they were facts. It is littered with historical inaccuracies and rants against Keynes, modern art, bureaucracy, and more.

If you have already read the book definitely take the time to read Frances Coppola’s or Tyler Whirty’s critical review.

What is the book about?

The book starts with an explanation of what qualities a good should have to be considered as money. Important concepts like the good’s salability across time, what is necessary for something to maintain its value, and the hardness of money are explained. Saifedean develops here in this first chapter a framework with which we are then going to judge the qualities of the different historical types of money that he chooses to discuss.

3 chapters follow in which the author walks us through the history and use of different goods as money. Primitive moneys like seashells, aggry beads, Rai stones, monetary metals like gold and silver, and government money are discussed. He discusses how some of these currencies collapsed and why certain societies like 13th century Florence flourished through choosing sound money. The historic part ends with the birth and evolution of the fiat money system.

History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours.

Based on the historic overview the author then discusses in detail the following three factors and how they are influenced by the type of money a society chooses:

1. People’s time preference for spending money
2. The informational value of a good’s price
3. The personal freedom achievable by an individual

He concludes that each of those factors is strongly negatively affected by our modern unsound government-backed fiat currencies. The best way to get out of this situation in the author’s opinion: Bitcoin. What follows in the last part of the book is the introduction of the Bitcoin network’s monetary aspects, a discussion on what Bitcoin could be used for, and answers to common questions around Bitcoin.

The Good Parts

What I enjoyed about this book is that the author takes the time to create a common understanding of what money is. I sadly needed to learn after finishing the book that large parts of the historical discussion are inaccurate and that important types of money like credit money were ignored. Nevertheless, I learned a bit more about money in general. Especially the chapter on primitive types of money fascinated me. I had no clue that something as big as Rai stones could be used as money.

The chapter on Bitcoin itself is quite basic but I enjoyed its discussions of Bitcoin as a reserve currency and its energy expenditure. I find his analysis when discussing Bitcoin’s abilities quite down to earth in comparison to a lot of the articles we usually find in the Crypto space. In general, I find him in this last part of the book the least polemic and for someone with little knowledge about Bitcoin, these chapters could serve as an introduction.

The Bad Parts

Even though I highly enjoyed the topic the author chose to discuss one needs to understand that this is a highly opinionated piece of work. I find it a shame that the author often presents his own highly debatable opinions as if they were evidence-based as you can see in the following example:

In a society of sound money, there are no liquidity concerns over the failure of a bank, as all banks hold all their deposits on hand, and have investments of matched maturity. In other words, there is no distinction between illiquidity and insolvency, and there is no systemic risk that could make any bank “too big to fail.” A bank that fails is the problem of its shareholders and lenders, and nobody else.

There is no explanation why a bank couldn’t become “too big to fail” in a “sound money” society. Also, it seems to me that even in a sound money system big banks that lend money to each other could easily create systemic risk.

I had the hope that this would be a book with academic standards, but instead, it is often unnecessarily polemic, like when he discusses modern art:

A stroll through a modern art gallery shows artistic works whose production requires no more effort or talent than can be mustered by a bored 6‐year‐old. Modern artists have replaced craft and long hours of practice with pretentiousness, shock value, indignation, and existential angst as ways to cow audiences into appreciating their art, and often added some pretense to political ideals, usually of the puerile Marxist variety, to pretend‐play profundity. To the extent that anything good can be said about modern “art,” it is that it is clever, in the manner of a prank or practical joke. There is nothing beautiful or admirable about the output or the process of most modern art, because it was produced in a matter of hours by lazy talentless hacks who never bothered to practice their craft. Only cheap pretentiousness, obscenity, and shock value attract attention to the naked emperor of modern art, and only long pretentious diatribes shaming others for not understanding the work give it value.

Or for example when he tries to discredit Keynes’ theory by criticizing not the theory itself but the person behind it:

This also helps explain one of the key Keynesian misunderstandings of economics, which considers that delaying current consumption by saving will put workers out of work and cause economic production to stall. Keynes viewed the level of spending at any point in time as being the most important determinant of the state of the economy because, having studied no economics, he had no understanding of capital theory and how employment does not only have to be in final goods, but can also be in the production of capital goods which will only produce final goods in the future. And having lived off of his family’s considerable fortune without having to work real jobs, Keynes had no appreciation of saving or capital accumulation and their essential role in economic growth.

Also, Saifedean happily reinterprets my own country’s troubled history. Germany’s motivation to start World War II was in Saifedean’s opinion being caused by its effort to spend money on arms to strengthen its economy and fight unemployment:

All spending is spending, in the naive economics of Keynesians, and so it matters not if that spending comes from individuals feeding their families or governments murdering foreigners: it all counts in aggregate demand and it all reduces unemployment! As an increasing number of people went hungry during the depression, all major governments spent generously on arming themselves, and the result was a return to the senseless destruction of three decades earlier.

If he has no problem formulating a shockingly wrong conclusion about something that I can judge based on my own knowledge, how valuable can his other conclusions on subjects I don’t know anything about be? Because my knowledge about economics is quite limited it is argumentations like the quoted ones that present gigantic red flags to me. This is not an impartial explanation of Bitcoin’s role in the long history of money but a constructed and biased history that tries to present Bitcoin as inevitable. It is a shame because I think one could make the case for Bitcoin’s relevance without needing to use insults and inaccurate information.

The danger of this book is that it presents itself as a scholarly piece of work and its targeted audience might not realize the presented information’s extend of distortion. If you do read this book apply one of Bitcoin’s teachings to its content: don’t trust, verify.