by Saifedean Ammous
Why Bitcoin Could Be the Future of Sound Money
The history of money is a fascinating one, filled with the rise and fall of various forms of currency. In his book “The Bitcoin Standard,” economist Saifedean Ammous makes a compelling case that Bitcoin could be the solution to the shortcomings of our current monetary system.
The Evolution of Money
Throughout history, different commodities have served as money – from seashells and beads to precious metals like gold and silver. These commodities were valuable because they had intrinsic properties that made them useful as a medium of exchange, store of value, and unit of account.
For example, gold’s scarcity, divisibility, and portability made it an ideal monetary asset. Civilizations from ancient Egypt to the Byzantines used gold-backed currencies to facilitate trade and commerce. However, governments eventually abandoned the gold standard in favor of fiat money – currency not backed by any physical commodity.
The Shortcomings of Fiat Money
The shift to fiat money, which is issued and controlled by central banks, has led to a number of economic problems. Without the constraints of a gold standard, governments can print money at will, leading to inflation, boom-bust cycles, and a loss of purchasing power over time.
Just look at the US dollar – since the Federal Reserve was created in 1913, the dollar has lost over 96% of its value. This erodes people’s savings and makes it harder to plan for the future. Excessive debt, low time preference, and other societal ills can also stem from an unstable monetary system.
The Promise of Bitcoin
Enter Bitcoin – a new form of digital, decentralized currency that shares some key properties with gold. Like the precious metal, Bitcoin has a fixed supply and a predictable issuance rate, which gives it the potential to be a more stable store of value than fiat money.
For example, there will only ever be 21 million Bitcoins in existence, and the rate at which new Bitcoins are created is cut in half every 4 years. This scarcity and predictability are attractive features that could make Bitcoin a viable alternative to government-issued currencies.
Of course, Bitcoin is not without its challenges. The cryptocurrency’s price has been highly volatile, and as it grows, there may be a need for more centralized institutions that could undermine its decentralized nature. But the author argues that Bitcoin has the potential to provide a framework for a new era of sound money policy.
Implications for Investors
If Ammous is right, and Bitcoin does emerge as a superior monetary system, it could have significant implications for investors. A shift away from fiat currencies and towards a more stable, scarce digital asset like Bitcoin could lead to a reallocation of capital and new investment opportunities.
For example, investors may start to view Bitcoin as a hedge against inflation and a long-term store of value, similar to how gold is used today. This could drive increased demand and higher prices for the cryptocurrency. Additionally, businesses and financial institutions built on the Bitcoin network could become attractive investment targets.
Of course, investing in Bitcoin and other cryptocurrencies carries significant risks, and the long-term viability of the technology is still uncertain. But understanding the arguments made in “The Bitcoin Standard” can help investors stay ahead of these potentially transformative changes in the world of money and finance.