Do we need yet another book about Bitcoin [1,2,3]? After reading The Bitcoin standard, the answer is a resounding yes. Here is why.

While Bitcoin is commonly viewed as a technological phenomenon, the author views it as but one “decentralized alternative to central banking,” investigating it in the larger context of the history of money and how the exchange of goods has evolved over time. He provides transparent arguments for his hypothesis: “Bitcoin offers the modern individual the chance to opt out of the totalitarian, Keynesian, and socialist states” (p. 203).

This transparency is achieved by providing a framework that compares and evaluates the effectiveness of how “money” and its various manifestations have evolved historically and globally. For the author, three concepts come into play when discussing the various formats of money and its function in society over time:

(1) Money as a medium of exchange takes into account scale, location, and time of value transfer.

(2) The stock-and-flow ratio determines whether money is easy or hard. Easy money with a low stock and high flow ratio is not well suited to store value over time, since it likely loses value due to the possibility of a significant increase in its supply.

(3) Sound versus unsound money. Sound money enables savings and investments, which for the author is a prerequisite for the advancement of civilization and a guard against despotic governments (p. xvii).

Let’s look at the three concepts introduced above and relate them to Bitcoin. Bitcoin is ideal as a medium of exchange since its scale allows for small value units (each Bitcoin can be broken into 100 million Satoshis). Bitcoin has a high stock-and-flow ratio since there is an upper limit (22 million Bitcoins) to the number of Bitcoins that will be in circulation. Hence, Bitcoin is a good store of value over time and cannot be debased as other currencies in circulation. For these reasons, Bitcoin is sound money since it keeps its value over time and salability across time.

The book is divided into three parts and could serve three distinct readerships. Part 1 elucidates the function and importance of money in ancient and contemporary societies at large. Here, the author explores the function of money, from trading with limestone, beads, and coins to silver, gold, and government debt. Part 2 gives a historical evaluation of sound versus unsound money and its impact on individuals and society, for example, when the fate of a society depends on monetary policies. Part 3 discusses the role of Bitcoin as a sound money alternative, presenting favorable and unfavorable use cases with a discussion of the broader issues, such as the role of central banks, individual freedom, taxation, and so on.

Chapter 8, “Digital Money,” lays out the intricate mechanism that allows Bitcoin to be an asset with low and predictable supply growth. Readers are also introduced to the basic technical pillars of Bitcoin: hashing, public-key cryptography, and peer-to-peer networking. The content of this chapter is very approachable, albeit tackling the intricacies and statistics of Bitcoin. Readers interested in Bitcoin could start here, since it is crucial for understanding the later discussions on use cases, policies, and central banks.

The next chapter, “What Is Bitcoin Good For?,” deals with the political implications Bitcoin aficionados like to espouse: “It is a simple technological fix to the modern pestilence of governments surviving by exploiting the productive individuals who happen to live on their soil” (p. 203). Apart from this individual sovereignty issue, discussions on Bitcoin as a store of value, international and online settlement, and global account ownership are included.

The final chapter (10) discusses questions ranging from the relevance of Bitcoin mining and scalability to “How to Kill Bitcoin.” The section on blockchain stands out due to the author’s unequivocal rejection of a standalone blockchain technology outside of Bitcoin. While blockchain is being touted as the panacea for digital payments, contracts, and database and record management, its overhead is not commensurate with the problems people are trying to solve. Blockchain is meant to ensure that processes execute without third-party involvement. Blockchain is “the conversion of electric power to verifiable undisputed ownership and transactions” (p. 271). Once this principle is impacted and the decentralized system is transformed to a centralized system, security is negatively impacted since it has a single point of failure and each member of the blockchain is a potential security threat.

Cryptocurrencies could be an answer to the abusive power of central banks, whose added value is having a negative impact on creating wealth for individuals. Case in point is the universal adoption of near-zero interest rates that help governments gloss over their inability to budget responsibly, while precluding individuals from harvesting interest for their future.

Bitcoin proponents claim Bitcoin’s importance and its impact on society: it can perfectly function as a currency without intermediaries. Intermediaries like banks and other payment processors introduce risks and extra costs into what should be a straightforward, secure, and pain-free transaction: execute and exchange payment for goods and services.

However, proponents of cryptocurrencies such as Bitcoin are prone to two types of fallacies. First, the currency fallacy: Bitcoin is not commonly used for day-to-day transactions due to its unpredictable exchange ratio (most transactions are not pegged to the official dollar-Bitcoin exchange rate) and lengthy processing time. Based on this criteria, Bitcoin is not equivalent to “money” and is strictly speaking not a currency. Second, the reserve currency fallacy: the author suggests that Bitcoin could serve as an ideal reserve currency, with national currencies “backed” by Bitcoin because it is impervious to inflation, as opposed to the inflationary supply of gold. Opponents argue against the possibility of a cryptocurrency ever becoming a reserve currency. They stipulate that a reserve currency has to be stable, universally adopted, accepted, and used--Bitcoin does not meet most of these. Moreover, gold is stabilized by inflation whereas Bitcoin is stabilized by fees, so this criterion is not a reason for endorsing Bitcoin as a reserve currency.

The author’s background in both economics and engineering makes him uniquely equipped to bring transparency to a commonly perceived complex subject. His way of explanation and writing makes this book an exciting read for anyone interested in the sociopolitical, economic, and technological impacts of Bitcoin. While the book may appear as an endorsement of Bitcoin for investors, the author also warns would-be investors to make sure to take responsibility for how to transact and store Bitcoin securely and not abdicate it to a third party.

In his foreword to the book, Nassim N. Taleb provides a poignant rationale for why Bitcoin is important to the future:

It fulfills the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide on its fate. It is owned by the crowd, its users. (p. xiv)

This book provides a rationale for why the disintermediation of money is needed and could have a positive impact on the future of our society.

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