TB: The Bitcoin Standard (Ammous)
Core Thesis
A problem that has existed throughout all of human history: how to move economic value across time and space. The history of money is a succession of goods achieving monetary status by having the best stock-to-flow ratio available — the hardest to produce relative to existing supply. Every transition from one monetary standard to another has been driven by political actors discovering that softer money transfers wealth from savers to issuers. Bitcoin is an attempt to solve the monetary problem with mathematics rather than trust.
Key Takeaways
What makes something money
- A good that assumes the role of a widely accepted medium of exchange is called money. It is primarily used for the sake of being exchanged for other goods.
- Salability: the ease with which a good can be sold whenever its holder desires.
- Stock-to-flow ratio: historically, different media served as money when they had the best stock-to-flow ratio available. When they lost that property, they lost their monetary role.
- Gold is chemically stable and virtually impossible to destroy or synthesize — the hardest monetary metal.
The political corruption of money
- There is no need for government to impose hard money on society; societies discover it themselves. Governments instead discover how to debase it.
- Rome: emperors tried to manage the economy through debasement and only succeeded in making matters worse.
- The gold standard's fatal flaw was that physical gold settlement was cumbersome, so it had to be centralized — leaving it vulnerable to government takeover.
- No pure fiat currency exists without any form of backing; they were all originally redeemable in gold or silver.
- WWI ended the era of monetary media chosen by free markets and began the era of government money.
Bitcoin as sound money
- Bitcoin's seigniorage flows directly into funding the network's security — a public good funded by its own use.
- The inflation rate of Bitcoin tends toward zero over time — a hard cap on supply built into the protocol.
- Cryptography is one of the few fields where adversarial conflict heavily favors defenders.
History is not kind to soft money
- History shows it is not possible to insulate yourself from the consequences of others holding money harder than yours.
- The failure of China and India to catch up to the West may be linked to the destruction of wealth brought about by the demonetization of silver.
Mental Models
- Incentives Matter — the incentive to debase currency is built into any monetary system where the issuer controls supply; hard money removes this incentive by construction
- Complex Systems: Features from Path, Not Design — the gold standard didn't collapse because it was bad economics; it collapsed because it required institutional trust that governments systematically betrayed