Time Preferences of Money

... because it is scarce, secure, and unique.

• Bitcoin has a fixed supply— there will never be more than 21 million in existence.
• They also have a stable supply because, like gold, bitcoins are mined.
• Bitcoins are the only good defined by absolute s...

• 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.
• In the same way ...

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.

• The reduced incentive to save is mirrored with an increased i...

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 interme...

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.

• Money has come in all shapes and sizes throughout history, but there’s only ever been one truly sound system: money backed by gold.
• The “gold standard” underwrote an age of prosperity and stability. That all changed in the early 20th century when European governments...

We know it is incredibly promising, but of course, there are challenges.

1. 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.

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 ...

• 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.
• The preferred type of coin was gold.
• When transportatio...

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 wou...

• 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.)
• Sound money allows for trade to...

• Bitcoin can thus be understood as a technology that converts electricity to truthful records through the expenditure of processing power.
• Those who expend this electricity are rewarded with the bitcoin currency, and so they have a strong incentive to maintain its integrity. As a r...

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 ...