Money whose supply is hard to increase is known as hard money (sound), while easy money is money whose supply is amenable to large increases (unsound).<ul><li>The easy money trap: anything used as a store of value will have its supply increased, and anything whose supply can be easily increased will destroy the wealth of those who used it as a store of value.</li><li>Money that is easy to produce is no money at all, and easy money does not make a society richer; on the contrary, it makes it poorer by placing all its hard‐earned wealth for sale in exchange for something easy to produce.</li></ul>

Hard Money, Easy Money

Time preference for money is an individual's preference for possession of a given amount of money now, rather than the same amount at some future time. The time preference for money is generally expressed by an interest rate. This rate will be positive even in the absence of any risk. The natural implication of this process is to reduce savings and increase borrowing.
Individuals will consume more of their income and borrow more against the future. This will not just have implications on their time preference in financial decisions; it will likely reflect on everything in their lives.

Time Preferences of Money

<ul>
<li>Bitcoin can thus be understood as a technology that converts electricity to truthful records through the expenditure of processing power. </li>
<li>Those who expend this electricity are rewarded with the bitcoin currency, and so they have a strong incentive to maintain its integrity. As a result of attaching a strong economic incentive for honesty, Bitcoin’s ledger has been practically incorruptible for the period of its operation so far.</li>
<li>By relying entirely on verification, Bitcoin dooms fraudulent transactions to failure and obviates the need for trust in anyone for transactions to be completed.</li>
</ul>

Verification > Trust

<ul>
<li>It protects value across time, which gives people a bigger incentive to think of their future, and lowers their time preference (this is what initiates the process of human civilization and allows for humans to cooperate, prosper, and live in peace.)</li>
<li>Sound money allows for trade to be based on a stable unit of measurement, facilitating ever‐larger markets, free from government control and coercion, and with free trade comes peace and prosperity.</li>
<li>A unit of account is essential for all forms of economic calculation and planning, and unsound money makes economic calculation unreliable.</li>
</ul>

The Importance of Sound Money

After the First World War, financial deficits forced European powers to drop the gold standard. They introduced fiat money, which was backed by decree instead of gold. This switch led to an age of unsound money where governments could intervene in the economy to stabilize the value of their currencies. 
Unsound money causes a myriad of problems, like recessions and debt. Interventions of governments distort markets and cause boom and bust cycles. The only solution would be to establish a new gold standard. This is where Bitcoin comes in.

The New Gold Standard

The 20 century’s binge on conspicuous consumption cannot be understood separately from the destruction of sound money and the outbreak of vilifying savings and deifying consumption as the key to economic prosperity.<ul><li>The reduced incentive to save is mirrored with an increased incentive to spend, and with interest rates regularly manipulated downwards and banks able to issue more credit than ever, lending stopped being restricted to investment but has moved on to consumption.</li><li>Credit cards and consumer loans allow individuals to borrow for the sake of consumption without even the pretense of perf<warningtag>orming investment in the future.</warningtag></li></ul>

Consumption Is Key

The fatal flaw of the gold standard was that settlement in physical gold was heavy, expensive, and insecure, which meant it had to rely on centralizing physical gold reserves in a few locations—banks and central banks—leaving them vulnerable to being taken over by governments.
Although gold was supposedly demonetized fully in 1971, central banks continued to hold significant gold reserves, and only disposed of them slowly, before returning to buying gold in the last decade.

The Flaw of The Gold Standard

“This is a historical lesson of immense significance and should be kept in mind by anyone who thinks his refusal of Bitcoin means he doesn't have to deal with it. History shows it is not​ possible to insulate yourself from the consequences of others holding money that is harder than yours.”

Bitcoin can be seen as the new emerging reserve currency for online transactions, where the online equivalent of banks will issue Bitcoin-backed tokens to users while keeping their hoard of Bitcoins in cold storage, with each individual being able to audit in real time the holdings of the intermediary, and with online verification and reputation systems able to verify that no inflation is taking place.This would allow an infinite number of transactions to be carried out online without having to pay the high transaction fees for on-chain transactions.

Bitcoin As a Reserve Currency

<ul>
<li>Different currencies were simply different weights of physical gold, and the exchange rate between one nation’s currency and the other was the simple conversion between different weight units, as straightforward as converting inches to centimeters.</li>
<li>In the same way metric and imperial units are just a way to measure the underlying length, national currencies were just a way to measure economic value as represented in the universal store of value, gold.</li>
<li>Each country’s money supply was determined by the natural working of the market system.</li>
</ul>

The Gold Standard

<ul><li>What makes good currency is that it is salable or easily sold. With the technology of smelting metals, early pre-Christian civilizations could make highly salable coins that were also extremely portable.</li><li>The preferred type of coin was gold.</li><li>When transportation and communications boomed from the 18th to the 20th centuries, nonphysical forms of payment like paper bills and checks became justified. The way they convinced people to trust these pieces of paper was by backing them with gold.</li><li>Britain led the way with this standard to back bills with gold, known as the “gold standard.”</li></ul>

What Makes Good Currency

... because it is scarce, secure, and unique.
<ul>
<li>Bitcoin has a fixed supply— there will never be more than 21 million in existence. </li>
<li>They also have a stable supply because, like gold, bitcoins are mined.</li>
<li>Bitcoins are the only good defined by absolute scarcity, which makes them immune to manipulation. </li>
<li>It’s also incredibly secure. The public ledger, known as the blockchain, keeps a record of all recent transactions. Everyone can see it, and it is backed by every computer on the network, making it near-impossible to manipulate.</li>
<li>The best part is you don’t even need a central authority to oversee it.</li>
</ul>

Bitcoin Could Replace Money As We Know It

We know it is incredibly promising, but of course, there are challenges.
<ol>
<li>One of these is price volatility. This volatility is mostly due to demand, and because it’s so new, demand is highly variable. People wonder how it can be reliable if it fluctuates.</li>
<li>Bitcoin needs to grow. But eventually, Bitcoin would need to rely on centralized institutions to continue growing. Unfortunately, there doesn’t seem to be a viable way around this: the more transactions that happen, the more copies of the ledger need updating. All of this requires higher transaction fees and more processing power.</li>
</ol>

Bitcoin: The Challenges

<ul><li>Money has come in all shapes and sizes throughout history, but there’s only ever been one truly sound system: money backed by gold.</li><li>The “gold standard” underwrote an age of prosperity and stability. That all changed in the early 20th century when European governments abandoned gold and fiscal prudence to fund their war efforts.</li><li>The world hasn’t been the same since, and we’ve endured decades of rising debt and boom-and-bust cycles.</li><li>Bitcoin, like gold, it’s a highly effective unit of exchange. But the digital currency will have to overcome some teething problems.</li></ul>

Money Backed By Gold

How did it work? It was pretty simple: people just swapped things. It worked fine, except if you didn’t have something your neighbor needed. Once people figured out you could exchange universally valued objects for goods, everything changed.From there, we’ve gone from all kinds of currency to valuable metals, and now paper printed by governments. But since we ditched the “gold standard” of money and started relying only on easily manipulated paper money, we’ve seen a century of boom and bust and increasing debt.

The World Before Money

A good’s salability across time refers to its ability to hold value into the future, allowing the holder to store wealth in it. For a good to be salable across time it has to be immune to deterioration.Similarly, with money, it was inevitable that one, or a few, goods would emerge as the main medium of exchange because the property of being exchanged easily matters the most. A medium of exchange is not acquired for its own properties, but for its salability.Monetary status is a spontaneously emergent product of human action, not a rational product of human design.

Salability

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A deep dive into the role money has played across history and how Bitcoin fits in.

A comprehensive and authoritative exploration of Bitcoin and its place in monetary history When a pseudonymous programmer introduced “a new electronic cash system that’s fully peer-to-peer, with no trusted third party” to a small online mailing list in 2008, very few people paid attention. Ten years later, and against all odds, this upstart autonomous decentralized software offers an unstoppable and globally accessible hard money alternative to modern central banks. The Bitcoin Standard analyzes the historical context to the rise of Bitcoin, the economic properties that have allowed it to grow quickly, and its likely economic, political, and social implications. While Bitcoin is an invention of the digital age, the problem it purports to solve is as old as human society itself: transferring value across time and space. Author Saifedean Ammous takes the reader on an engaging journey through the history of technologies performing the functions of money, from primitive systems of trading limestones and seashells, to metals, coins, the gold standard, and modern government debt. Exploring what gave these technologies their monetary role, and how most lost it, provides the reader with a good idea of what makes for sound money, and sets the stage for an economic discussion of its consequences for individual and societal future-orientation, capital accumulation, trade, peace, culture, and art. Compellingly, Ammous shows that it is no coincidence that the loftiest achievements of humanity have come in societies enjoying the benefits of sound monetary regimes, nor is it coincidental that monetary collapse has usually accompanied civilizational collapse. With this background in place, the book moves on to explain the operation of Bitcoin in a functional and intuitive way. Bitcoin is a decentralized, distributed piece of software that converts electricity and processing power into indisputably accurate records, thus allowing its users to utilize the Internet to perform the traditional functions of money without having to rely on, or trust, any authorities or infrastructure in the physical world. Bitcoin is thus best understood as the first successfully implemented form of digital cash and digital hard money. With an automated and perfectly predictable monetary policy, and the ability to perform final settlement of large sums across the world in a matter of minutes, Bitcoin’s real competitive edge might just be as a store of value and network for the final settlement of large payments―a digital form of gold with a built-in settlement infrastructure. Ammous’ firm grasp of the technological possibilities as well as the historical realities of monetary evolution provides for a fascinating exploration of the ramifications of voluntary free market money. As it challenges the most sacred of government monopolies, Bitcoin shifts the pendulum of sovereignty away from governments in favor of individuals, offering us the tantalizing possibility of a world where money is fully extricated from politics and unrestrained by borders. The final chapter of the book explores some of the most common questions surrounding Bitcoin: Is Bitcoin mining a waste of energy? Is Bitcoin for criminals? Who controls Bitcoin, and can they change it if they please? How can Bitcoin be killed? And what to make of all the thousands of Bitcoin knockoffs, and the many supposed applications of Bitcoin’s ‘block chain technology’? The Bitcoin Standard is the essential resource for a clear understanding of the rise of the Internet’s decentralized, apolitical, free-market alternative to national central banks.

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A comprehensive and authoritative exploration of Bitcoin and its place in monetary history When a pseudonymous programmer introduced “a new electronic cash system that’s fully peer-to-peer, with no trusted third party” to a small online mailing list in 2008, very few people paid attention. Ten years later, and against all odds, this upstart autonomous decentralized software offers an unstoppable and globally accessible hard money alternative to modern central banks. The Bitcoin Standard analyzes the historical context to the rise of Bitcoin, the economic properties that have allowed it to grow quickly, and its likely economic, political, and social implications. While Bitcoin is an invention of the digital age, the problem it purports to solve is as old as human society itself: transferring value across time and space. Author Saifedean Ammous takes the reader on an engaging journey through the history of technologies performing the functions of money, from primitive systems of trading limestones and seashells, to metals, coins, the gold standard, and modern government debt. Exploring what gave these technologies their monetary role, and how most lost it, provides the reader with a good idea of what makes for sound money, and sets the stage for an economic discussion of its consequences for individual and societal future-orientation, capital accumulation, trade, peace, culture, and art. Compellingly, Ammous shows that it is no coincidence that the loftiest achievements of humanity have come in societies enjoying the benefits of sound monetary regimes, nor is it coincidental that monetary collapse has usually accompanied civilizational collapse. With this background in place, the book moves on to explain the operation of Bitcoin in a functional and intuitive way. Bitcoin is a decentralized, distributed piece of software that converts electricity and processing power into indisputably accurate records, thus allowing its users to utilize the Internet to perform the traditional functions of money without having to rely on, or trust, any authorities or infrastructure in the physical world. Bitcoin is thus best understood as the first successfully implemented form of digital cash and digital hard money. With an automated and perfectly predictable monetary policy, and the ability to perform final settlement of large sums across the world in a matter of minutes, Bitcoin’s real competitive edge might just be as a store of value and network for the final settlement of large payments―a digital form of gold with a built-in settlement infrastructure. Ammous’ firm grasp of the technological possibilities as well as the historical realities of monetary evolution provides for a fascinating exploration of the ramifications of voluntary free market money. As it challenges the most sacred of government monopolies, Bitcoin shifts the pendulum of sovereignty away from governments in favor of individuals, offering us the tantalizing possibility of a world where money is fully extricated from politics and unrestrained by borders. The final chapter of the book explores some of the most common questions surrounding Bitcoin: Is Bitcoin mining a waste of energy? Is Bitcoin for criminals? Who controls Bitcoin, and can they change it if they please? How can Bitcoin be killed? And what to make of all the thousands of Bitcoin knockoffs, and the many supposed applications of Bitcoin’s ‘block chain technology’? The Bitcoin Standard is the essential resource for a clear understanding of the rise of the Internet’s decentralized, apolitical, free-market alternative to national central banks.

SAIFEDEAN AMMOUS