Each year, like many of us, I set resolutions. Some are financial in nature (here’s my 2022 resolutions) and other are personal. This year I set a resolution to read more; and I set a goal of reading 6 books this year. That’s a book every 2 months and so far I’m read 2 books (we’re just over 4 months into the year)! I’ve been trying to read a mix of business, self-help and also fun books, and the most recent one I read was The Bitcoin Standard. I’ve done a lot of posting on bitcoin as of late and so it shouldn’t be a surprise that I read the book! Rather than just giving you a boring synopsis on the book (you can read it for yourself) I wanted to give my YMF take on it!

Learning what money really is

The book spends a lot of time breaking down what money is and what it isn’t. It goes into details on sound money vs. unsound money and talks about how good money has 3 key qualities. If you think about it, what really is money? We have dollars here in the US, pesos in Mexico, pounds in the UK, euros in Europe, but there’s also gold which is kind of like money, and historically there’s been shells, large stones, or other metals. For money to work and for it to stand the test of time, it needs to have the 3 qualities:

Salability. This refers to how saleable money is, meaning you can sell or trade with it. For money to be meaningful, it needs to hold value over time, space and scales. For time, you ideally want you money to be worth about the same today as it is tomorrow. Right now we’re dealing with inflation here in the US, clocking at around 8%. Thankfully this is over the course of a year but imagine if your money today was only worth 92% tomorrow. You also want money to hold time over space, i.e. in different locales. Although different countries have their own currencies, there is an established exchange rate allowing your dollar/peso/pound/euro to work in a different country assuming you exchange it. Finally you want your money to work across scales, meaning you can make change with it. The book talks about a historical culture that used large round stones as money and how it wasn’t ideal because it wasn’t easy to break those stones up into smaller pieces.

Accepted. For something to function as money, it needs to be accepted. Think back to history class when you learned about how ancient civilizations had to barter to trade, that wasn’t super ideal or efficient. For something to work as money, the more accepted it is the better.

Stock-the-flow ratio. This talks about how much of the money supply is being added to the overall system. It talked about how gold has a good stock-the-flow ratio because all the new gold being mined each year really isn’t moving the needle in terms of overall volume, and thus not flooding the market and drawing down the price. Picture yourself back in elementary school at a birthday party. Let’s say you went to Chuck-E-Cheese or Fun World or some arcade spot where you earn tickets that you redeem for prizes. You’re working hard, playing it smart, taking good risks then all of a sudden the manager says that because it’s Billy’s birthday that everybody gets 1,000 free tickets. You’ll probably freak out for a minute then realize that everyone else got 1,000 free tickets so the tickets became a bit less scarce and therefore less valuable. You’re all just going to rush the prize counter each having the same amount of tickets +1,000. You want whatever is serving as money to not be easily able to have a magic amount suddenly flood the market.

Better understanding verify instead of trust

A few years back I learned the phrase, ‘trust but verify’. I was at my brother-in-law’s house and I was the last one in from cooking on the grill. If was the first time I had used the grill and he asked if I had turned it off correctly. I replied ‘yes’ to which he replied, ‘mmm I’m going to trust but verify’ and headed out to confirm for himself. That saying stuck with me and I’ve come to learn what’s great about bitcoin is that it doesn’t require any trust at all. As soon as you introduce a bad actor (i.e. not trustful) into any system, that system falls apart of you have a need for a third party mediator. With bitcoin there is no mediator so there must be full trust. Humans are flawed and we’re never going to be fully trustworthy, so instead of trusting, bitcoin verifies. When you send a bitcoin from your wallet to the next, every participant in the ecosystem verifies that you have the bitcoin you say you do, and when you send it, the global ledger (that everyone has a copy of) gets updated so now everyone knows you no longer have it.

That’s the beauty of bitcoin – it works because there’s full verification every transaction and no one is able to be deceitful or cheat the system.

Understanding what really is magic money

Bitcoin is often called magic internet money, but in the book, the author makes the case that it’s actually fiat money that is magic money. Fiat money for those that might not know is a type of currency that every government uses today. Pre WWII, most currencies were backed by the gold standard. That meant the legally you could trade in your dollar/peso/pound (euros didn’t exist back then) for a fixed amount of gold. It was just like saying ‘we use gold for our currency but it’s easier to carry around and use this paper’. Post WWII all nations abandoned the gold standard (kind of became the cool thing to do) and now all currencies are fiat currencies, meaning they have no intrinsic value and are only valuable because governments say they are.

Additionally, governments control the supply of money, meaning they can add to the supply at will. If you’ve heard of ‘the government printing press’ or ‘printing money’, this alludes to the fact that governments can just print and distribute more money at will.

If you’ve noticed, the US government (and many other nations for that matter) typically runs a pretty large budget deficit (meaning spending more than taking in in the form of taxes) and have run up a lot of debt. The US debt is currently at $30 trillion (according to the US National Debt Clock) or $91,304 per citizen. Who do we owe this to? We owe it to other governments, but also to the Federal Reserve. Not to get too far down a rabbit hole but the Federal Reserve is a US government entity that essentially buys our own debt. Weird right? We’re basically borrowing from ourselves!

After reading the book, the soundness of bitcoin made a lot more sense to me compared to fiat currencies, which governments can (and do) print more at any (and all) times.

Understanding what bitcoin won’t be

There are some bitcoin maximalists (as they’re called) that believe bitcoin will solve all of the world’s problems and that it’s the only form of money needed. As one friend put it, he considers himself fiat poor (aka has so much bitcoin and no real cash). I appreciated how the author chatted through what bitcoin won’t be. He explained that inefficiencies (some of which were done by design for increased security/trust) in the network limit bitcoin to processing 4 transactions per second whereas something like Visa will process 1,700 transactions per second. The bitcoin ledger gets updated every 10 minutes with a block that is 1mb in size. 1mb isn’t very big and 10 minutes isn’t very fast.

So, depending on how busy the network is, your transaction might take 10+ minutes to confirm, making it difficult to be as simple as a credit card swipe to quickly pay for groceries, coffee or whatever else we’re buying. This presents quite an issue for something that a lot of people think of as digital cash. There are attempts to bring more volume and speed to bitcoin, i.e. the Lightning Network which could certainly help. As of right now though, bitcoin is not a reliable replacement for our day in day out cash transactions.

Rolling my eyes at the fact that fiat money destroyed the world

The author spent a number of pages bashing the Keynesian branch of economics and it’s founder, John Milton Keynes. In a nutshell, Keynesian economics focuses more on government spending as the ultimate goal and believes that government spending is what keeps economies growing and moving. This type of government spending comes from their usage of fiat money, i.e. money that is not backed by a gold standard (or other standard) and one that is backed by the government itself. The author took it a step further and said that fiat money and Keynesian economics has led to an overall demise in society, art, culture and of course finance.

The author gave an example of how hard money (i.e. gold standard money or bitcoin) gave us the great Renaissance painters and soft money (i.e. fiat money) gave us crappy modern music that is fake, autotuned and full of nonsense lyrics and annoying sounds. The author also blamed soft money on the demise of the family unit and work life balance and all sorts of other modern day complaints that we have.

I rolled my eyes here a bit and although I somewhat see the point I’m not going to say that fiat money destroyed the arts, or that bitcoin would solve major societal problems that we have. People are people and we’ve always had issues we dealt with and I believe we always will. It seems to me to be a stretch to say ‘bitcoin fixes this’ for everything.

Solidifying myself as a bitcoin maximalist

The author made a number of compelling arguments, and although I considered myself a believer in bitcoin, I certainly became more of a bitcoin maximalist after reading it. Altcoins I learned are not limited in supply, don’t have the same decentralization and are either trying to be too much or too little – creating a solution to a problem that doesn’t really exist. I learned more about inflation and how it slowly (or quickly) robs us of our wealth. I was informed about how government budgets (often full of deficits) are really shady and how modern monetary theory is basically just printing cash out of no where and how sooner or later it’ll catch up to us. I developed a greater appreciation for hard assets and thought a lot more about how I probably should have more of them in my life.

Transparently I don’t own a ton of bitcoin (maybe $1,000) but am buying more each month, aka dollar cost averaging. I’m a believer and although I’m not buying so much that I’d call myself ‘fiat poor’, I do believe in bitcoin as a great inflation hedge, a great store of wealth, and something that is not going away in the future!

Summary

All in all I enjoyed the book and would recommend it! I yes learned a lot about bitcoin but also a lot about how currency, money and modern economies work! I feel much more educated and informed to make better financial decisions in my own life!

Shameless Referral Links

If you are interested in reading The Bitcoin Standard, I’d encourage you to do so and the previous is a link to my Amazon affiliate code. If you are looking to get into Crypto (i.e. buying bitcoin), I’d recommend starting with Coinbase. There are lots of crypto exchanges out there but I tend to trust Coinbase and it has an easy to use interface for beginners (also free crypto as you learn more about the space). Fees are a bit higher but there’s also Coinbase Pro which you’ll use the same login for and it’s much cheaper. Great way to get into crypto and then save on fees IMO. Here’s my referral link to Coinbase, and if you signup via that we’ll both get $10 in free bitcoin whereas if you signup through the site on your own it’s just $5.