The Bitcoin Standard: The Decentralized Alternative to Central Banking, by Saifedean Ammous, Wiley, 286 pages, $29.95
The Truth Machine: The Blockchain and the Future of Everything, by Michael J. Casey and Paul Vigna, St. Martin’s Press, 302 pages, $26.99
WileyIf you find it hard to imagine how Bitcoins could ever replace dollars as the world’s primary medium of exchange, consider the bizarre tale of the donut-shaped “rai” stones on the island of Yap. Weighing up to four metric tons and standing up to 12 feet tall, these rocks couldn’t be slipped into a wallet, deposited in a bank, or even moved around without enormous effort.
Yet for centuries they served the Yapese people as an effective form of money, because “the high cost of acquiring new stones” made them hard to debase, writes Saifedean Ammous in The Bitcoin Standard: The Decentralized Alternative to Central Banking. The system lasted until the 1870s, when the Irish-American ship captain David O’Keefe managed to overwhelm the island’s economy with a new supply of the giant limestone discs.
It’s an artful beginning to a book that makes a case for Bitcoin as the best form of money ever conceived, largely because its supply is permanently capped at 21 million units. That hard limit means Bitcoin can never be devalued, as were the rai stones of Yap and every other historical currency to varying degrees. Thus, it can facilitate long-term planning and investment by businesses and households.
An economist at the Lebanese American University in Beirut, Ammous earned his Ph.D. in sustainable development from Columbia. Curiously, he worked as a teaching assistant under progressive economist Jeffrey Sachs, who has called Bitcoin a waste of time and resources that is destined for collapse. Ammous’ résumé also lists as a reference economist Joseph Stiglitz, who has called for the U.S. to “outlaw” Bitcoin.
Though written with clarity and wit, The Bitcoin Standard is not the definitive work I had hoped for: a book that thoroughly counters the best arguments of Bitcoin‘s many detractors. It also lapses periodically into odd rants attributing all of society’s alleged cultural failings—from “Miley Cyrus’s twerks” to “bland, mass-produced junk food”—to government-issued money, as if financing endless wars and fueling the boom-and-bust cycle weren’t enough to support his case.
St. Martin’s PressYet the book’s virtues far outweigh its faults. While the best writings on the topic can be forbidding to readers who lack a technical understanding of how Bitcoin functions, Ammous has managed to produce a complex analysis that doesn’t require any prerequisite knowledge.
The book begins by placing Bitcoin in the context of other forms of currency. Though gold is resistant to inflation because it’s so costly to mine, its “fatal flaw” compared to Bitcoin is that it has to be stored in a physical location, making it vulnerable to government takeover. World War I–era inflation marked the beginning of the end for the gold standard. It was replaced by government-issued currency, which distorted the natural interest rate and turned money into “a plaything of politics,” in the words of Ludwig von Mises.
Then came Bitcoin. With no physical properties, this decentralized digital money isn’t susceptible to state control, and its users don’t need permission to spend their holdings. It’s also “the hardest money ever invented,” Ammous writes, since Bitcoin‘s fixed supply of 21 million units is coded into the software. Previously it “proved impossible to come up with a form of money of which more cannot be created,” which makes Bitcoin the “first example of absolute scarcity.” When the late economist Julian Simon observed that human time is the only truly limited resource, Ammous has quipped, he was only correct because Bitcoin hadn’t yet been invented.
With gold, a price increase incentivizes miners to excavate more of it. A Bitcoin price increase, by contrast, attracts participants (also known as “miners”) to contribute additional computing power to the network, indirectly strengthening its security. Ammous sees this as “perhaps the most ingenious aspect” of Bitcoin‘s design.
Here the author parts company with many mainstream macroeconomists, who hold that inflation of the money supply is necessary to prevent the economy from freezing up.
The Cato Institute’s George Selgin, a leading figure in the modern “free banking” school, maintains for different reasons that Bitcoin‘s fixed supply makes it ill-suited to becoming the monetary standard. He thinks a growing labor force under a fixed supply of money would be especially problematic: Average compensation would be driven down over time, and workers would find this unacceptable.
There are strong counterarguments to this concern. Why couldn’t workers adjust to a world in which their paychecks shrink, so long as their money grows in value even faster? The Bitcoin Standard…