On the Book ‘The Bitcoin Standard’ by Saifedean Ammous, as presented in the Israeli Embassy of Bitcoin
From Asher Idan and Georgi Karov
All the book “The Bitcoin Standard” in one sentence: Breaking the Dunbar Barrierers (5:15:50:150 people) necessitated an emergent scalability, which created the saleability (sale), which created the almost perfect scarcity of gold and now the perfect scarcity of Bitcoin.
The book has four parts: 1, what problems of money and value, the Bitcoin network solves. 2, the history of money. 3, the money as a measure and information. 4, How the Bitcoin network works
Part 1, Chapter 1 Scalability and saleability
As a community expands beyond a certain size threshold (say, Dunbar number, 150), there are 4 scalability problems:
1, Quantity limit, how to replace a cow in 11.4 chickens? After all, you can’t “break a chicken” 😎.
2, the time limit, it is impossible to give a mortgage in a barley sack because the barley is rotting.
3, the space restriction, rent a house in Paris from Bob, and rent a house in Tel Aviv to Alice.
4, The quality limit, can not be carried with stock goods. More convenient to carry with a commodity symbol (gold or dollar for example)
The Saleability (Sales) Problem of Money, according to Karl Menger, the founder of the Austrian School of Economics: How to Sell a Value at a Time I Choose, at an Optimal Price? Saleability depends on the four scalability problems: namely quantity, time, space, quality.
Products quantity money can buy = money quantity multiplied by the velocity of payments. The later depends entirely on the available communication/transportation system. V is vastly different between the ages of donkeys and postal pigeons as compared with the age if almost instant (on planetary scale) electric or optic communications. Which dictates the scalability.
Saleability? Yes it has a touch to the money realm. Money are always commodoty, always a good, a product, a tangible entity. Cf.: https://www.scribd.com/document/354688866/Bitcoin-A-5-8-Million-Valuation-Crypto-Currency-and-A-New-Era-of-Human-Cooperation , page 5. Money is like common language. It translates the trade complexity from Q^n to Qn. Go back to Dunbar x5 concentric circles. We, humans have language, it is emergenta which boosts communication beyond the limits of cost efficiency ( at least x2 grooming ) and scaleability (orders of magnitude) over mere grooming and we go even further with other communication systems like.: money, writing, ledgers technologies / like library … / without to be necessary to change our brain and bodies which takes so many thousands of generations …
Scaleability of money comes from the nature of goods / commodity of ANY conceivable/imaginable form of money. WE buy everything with dollars, but every dollar gets bought with everything a dollar can buy. Monopoly in monetary units is impossible just like it is impossible to impose a single natural human language. Having a currency = having the notion of currency = alts and forks. Money buy money — other money and also in time, cf.: https://www.investopedia.com/terms/m/monetary-aggregates.asp …
«Saleability» of money is function of their mainstreaming or mainstreamability, which is matter of first mover advantage and of brute force. Historically the Roman coinage ( incl. Byzantium ), before that of the Athenian drahma ( which name stuck into even modern arabic currencies ), later the Spanish silver dollar ( ) , and the modern US petrodollar … they rely upon the physical/geoplitical ability of the issuing authority or Power to … keep the trade routes open. Period. That is it!
Bestseller money are those which can buy the most. Which the people, the economical agents are mostly willing to take part with their belongings for.
Money are always backed solely and only by what money can buy!
Thus, different money (languages of trade, where prices are words!) possess different degrees of saleability. And this difference lies ONLY into the quality and efficiency of the intrinsic FORCING of the who-what-when transactional function which the particular monetary product or technology provides.
The most important feature of money is that it is a medium of exchange in terms of scalability and saleability. That is, not used for consumption, or investment. Money is mostly a medium of exchange but secondary is also a Store of value.
Money, like a computer, like a factory, has three functions: processing, communication, storage.
A, on the processor that makes output from the input, is similar to a machine in a factory that makes output of products from the raw materials of the input, and is similar to money that absorbs goods and emits its value.
B, after processing on the computer, the output is transmitted over the Internet. After processing in the machine the output is transported. After processing, the output was transferred from one hand to another, and is currently being transferred from computer to computer in Bitcoin.
C, After processing on the computer, the output is stored on a hard disk. In the factory it is stored in merchandise warehouses, in the money it is called Store Of Value = SOV. Whereas functions a, b, are called “medium of exchange” Medium of Exchange.
The three functions together determine the degree of salability of the money
So in Chapter 1, we learned a new concept of “saleability” — sales, which depends on three functions of any money:
1, Storage (Value Warehouse).
2, Communication (exchange medium).
3, Processing (unit of measure as meter or pound).
The processing function becomes more and more complex as the division of labor increases. Because in a fishing village of 100 people, every person can estimate how much fisherman has invested in the fishing net and therefore how much is worth. But in today’s global village of 8 billion people, most people don’t know how much Google or Amazon have invested in software development. So what’s the solution?
Thousands of years ago, the solution developed on a remote island. About that in Chapter 2 of the book.. In the book of Genesis, Jacob called the solution “Jager Shahdada” or Stone-Witness
An ancient Proof of Work
Part 2 A short history of scalability, saleability and scarcity (Chapters 2,3,4,5,6)
The word salary comes from the word “salt” which is also rare and stable. The word pecuniary in English comes from the Latin root “pecus” — cattle.
Thus, long-term capital accumulation was made in cattle and sheep, and short-term wage payments were made in salt.
What these three types of money have in common is that they are rare in their physical and social features.
But when new technology emerges, physical and social scarcity is destroyed. In the industrial economy, machines can print “Fiat Beads,” “Fiat Arak,” “Salt Fiat,” and knock down entire civilizations. Today internet technology drops modern nation state civilization and turns fiat money into trash
Nick Szabo 2002 Shelling Out: The Origins of Money
The striking similarity between the fall of the dollar against the Bitcoin in 10 years (left) and the fall of the silver metal against the gold metal in 300 years (right).
Both the Greek-Roman Empire, as well as the European-American Empire, fell as soon as they began to cheat and dilute the precious metal with cheap substitutes. Bitcoin replaces the gold and the dollar because Bitcoin has the openness and decentralization of the fifth power of the mob. But most cryptocurrencies are based on centralization and closure. So Bitcoin eats the other crypto coins without salt.
But when new technology emerges, physical and social scarcity is destroyed.
In the industrial economy, machines can print “Fiat Beads,” “Fiat Arak,” “Salt Fiat,” and knock down entire civilizations.
Today internet technology drops modern nation state civilization and turns fiat money into trash
In the beginning the copper (the copper snake in the Bible) replaced the seashells and beads and salt, which we explained in Chapter 2. Then it was replaced by the silver metal (silver is a spell, witchcraft), which is rarer than the copper (second and third charts). But gold (this is the one = bring it to me) is the rarest. Only Bitcoin approaches the rarity of gold.
The key concept here is scarcity = cash flow / inventory. They were never able to add more than 4% of the existing gold stock mined in 5,000 years in one year (Figure 1). While silver metal can add 20% in one year. Why is rarity important and critical?
Scarcity is a feature, but not scarcity dictates the usability or saleability of money. The core is DEMAND. People demand money because have money = have what money can buy. This is the utility of money — trade complexity compression. Taming the infinity. If money is scarce then its transaction function drives economic growth and PQ gets bigger while MV stays lower = more to buy with same or less quantity of money. = Store of Value. Even USD which lost 95% of its value in the last century still buys very well, because the PQ grew more than 20 times! So, scarcity is a feature — less quantity and velocity of money = money get dearer with time.
Most wars were about money. Not about ideology or values!
The first half of Chapter 4 deals with the transition from metallic silver to printed silver created in China in 1000 AD and brought to Europe in 1500 AD. Until World War I, in 1914, countries printed only gold backed by gold. But sometimes they deceived the ordinary citizens because the politicians and their millionaire supporters held gold, but the common citizens held papers backed up (to varying degrees) by the gold.
Gold is not and never was ‘’commodity money’’ it was ALWAYS ‘’political’’. Gold was never money by the gram, infinitely fungible and divisible. Cold since conception, since emergence as money was COINed. It was stamped with the faces and curses of those who hold other metals.: bronze and iron in the form of swords. Example.: https://en.wikipedia.org/wiki/Duchy_of_Naples : ‘’ The duchy was not yet hereditary; in 818, the patrician of Sicily appointed Theoctistus without imperial approval. He revoked this appointment, and appointed one Theodore II in 821, but he was chased from the city the same year in favour of the elected Stephen III. This Stephen first began to mint pieces with his own initials on them and not those of the Eastern Emperor.‘’
Why gold? — https://winklevosscapital.com/money-is-broken-but-its-future-is-not/ , naturally scarce and durable metal suffices nicely the requirement for ideal pocket cash — finite state automaton. In an environment where nobody can impose global world order. A global law would mean global fiat, global external centralized ledger of transactions. Cf.: USA 1944-present. No finite state automata abacus beads needed.
Gold was never apolitical money. Always coined. And being strongly fiatized had its fiat-like illths. With paper fiat money — the printing press control excerts the highest power. In precious metals politized money — the metal content of the coinage is the trick.
During World War I, capitalists and politicians had an interest in inflating fiat prices regardless of gold backing, to increase their control over colonies in Africa, Asia, and South America. Therefore, excessive printing of money eventually leads to wars. Because when the gold (gold is a long tail) is decentralized by the people, governments cannot pay soldiers with fictitious fiat money
Welfare Society is a Warfare society
‘’Economic Policy’’ is an oxymoron. Economy grows only if kept untouched. The only intrinsic function of state is to let it go, to maximize the voluntarily of transactions by preventing the economic actors from violating each other.
Btw, violence is currency too. The most primitive, primordial one where actors just take by force what they need from each other. Currency, driver of current of value. But it is one-off and unilateral and does NOT increase the overall value of the economy. In mere voluntary barter the very transaction increases the overall value simply because the participants value higher what they receive as opposed to what they give.
Value is KNOWLEDGE on utility. Even for the most basic utilities like water, food. If salt or glucose detectors in the human neural system are damaged the DEMAND for water or food is lower or none, although they are metabolically necessary, and this is deadly condition. The thirst or hunger as ‘subjective’ states of mind are the knowledge for utility. So is the greed for money on wider scale.
Where goods cannot cross borders openly, armies will cross them.
When printing money without a constant measure of gold or bitcoin, it’s like various builders trying to build one building with an elastic meter that is constantly changing.
Measure and proof are computational problem. Different monetary systems have different capacity and efficiency to account for total value and flux of it. Exactly like comparison between different computers in hardware specs and software installed.
The second part of Chapter 4 deals with what happened from the end of World War II and the Burton Woods agreements (in which world currencies were pegged to gold-backed dollars), through the cancellation of agreements by the United States in 1971, and the rise of gold from $ 35 to $ 1,200, and a surge in non-global trade. Effective due to the lack of an international standard, to $ 1,800 trillion a year.
What Ibn Khaldon understood in the 15th century, the modern economist of the 20th century, Keynes does not understand. Keynes said gold mining was a waste (and he would probably say to Bitcoin that it was even more waste). Ibn Khaldon said that gold mining does not directly contribute to wealth production. But gold mining contributes to the economy as much as the accountant does to the economy. The accountant does not produce tomatoes like the farmer, nor t-shirts like the industrialist, but he does measure and information which is a means of representation of the means of production. Bitcoin “is a wealth accountant” more accurate than the gold. Fiat money making by banks is a much bigger waste than gold and bitcoin.
The Central Bank as Capital Market Socialism”, How the Central Bank Causes Cyclical Crises
The Central Bank and the Keynesian Economy, similar to the contractor who participated in a purchase group tender (state citizens in the state), built 100 houses with 10,000 bricks in each house. But to win the tender, he pledged to build 120 homes in 8,000 bricks per home. Over time, members of the acquisition group go deeper into the illusion that their contractor is a magician. If they understand the scam in the early stages, they will lose a little because they will be left with 90 houses instead of a hundred. But if they do not understand the scam, they will be left with 120 unfinished homes and all their money will be over. Then the deal will explode. This is what happens in the economic crises of 1929 and 2008. As a result, socialism and every major economy failed less because of the financial incentive for labor, and more failed because of a lack of reliable information on what was happening. Because the crowds are smarter than any genius, if not addicting crowds in opiate-type religion or spoil science.
In Bitcoin, however, it is impossible to create fictitious bricks.
Keynesians suffer the absolute knowledge fallacy. Austrians are valuable because decades before they prophetized the Cybernetics of Shannon and Ashbey. Knowledge is physical state. In that sense Marxism, Keynesianism, etc are not EconomICS but economisms, ideology not science.
“Eat and Drink, Because We Die Tomorrow,”
Priority in time = future / present
Since technology is an amplifier of man, the preference for the future over the present is a powerful lever. A man with a horse plow does ten times the job of a man with a hoe. A man with a tractor makes 10 times more than a man with a horse and 100 times as much as a man with a hoe. But to train the horse you have to invest time and money, and for the development of tractor technology you have to spend even more time and money. Therefore, the higher the future preference, the higher the leverage and efficiency. But to invest in the future more than the present, one must believe that an arbitrary factor will not hurt my time and money investment.
Until the 19th century, the gold standard secured the future belief. But the fiat money that the state is arbitrarily printing, and therefore can overthrow it, makes us fear for the future.
Therefore, collaboration between people and organizations will diminish, as each person will quickly snatch anything of value that they can snatch from the partners.
Part 3 Digital money and Bitcoin (chapters 7,8,9)
How to Boost the Economy?
Through Keynesian government projects, or the reduction of monetary taxes (Milton Friedman)? Or how to free the economy, from the government.
COST TO COPY. It is valid for anything, for both P and M sides of the Exchange equation. Bitcoin is scarce. Algorithmically guaranteed scarcity. Scarcity so strong that even if all the resources of the entire Universe engaged into BTC mining we’ll never have more than 21 000 000 pieces. Only the price will go infinite. :)
THIS is the essence of the revoluionarity of Bitcoin and nothing else. If we mine or synhesize gold we can have as much of it as resources we pour in.
Bitcoin is https://en.wikipedia.org/wiki/Instrumental_convergence#Paperclip_maximizer -proof. It can not be a grey goo.
Digital Money and Difficulty Adjustment.
1, The increase in the number of users raises the price of Bitcoin. 2, then the profitability of the miners increases. 3, so new miners and old miners are joining investors in upgrading the mining machinery. 4, then mining speed increases. 5, and then to maintain the Bitcoin Super Law which does not allow for more or less than 10 minutes between block and block, the Bitcoin algorithm raises the mining difficulty. This five-step mechanism, along with the cross-over mechanism, is the basis of Bitcoin’s “Season 4 Botany.”
This keeps Bitcoin rare. It’s different from junk money like a dollar and a dime that can be printed indefinitely by manipulative bureaucrats.
But it is similar to gold, whose non-monetary use, as jewelry, maintains the rarity of gold even if there are fluctuations in monetary uses.
That is, the jewelry is a 5,000 year old mechanism for “adjusting the difficulty”
The Benefits of Bitcoin
A, value warehouse. In, personal liberty. C, a replacement for Swift’s decaying international transfer system. D, a global unit of measure (as the unit of weight made, and the unit of meter length). In that bitcoin is very similar to gold, only much more effective than it, because bitcoin power is the fifth power, the power and the wisdom of the masses in the network. The wisdom of the crowd has much higher ICQ than the wisdom of bankers and economists and leaders (image below)
It’s amazing that Hal Fini, №2 after Satoshi wrote in 2010 (in photography): The Bitcoin blockchain is very well-suited to be the global interbank network, provided that the proof of work principle is maintained. About 1,000 banks will be the nodes (miners can also be no banks, the game is open), and the private user will work in a layer above the blockchain. Lightning is not lightning, but light (light). Then the banks will go back to their 19th-century role, before the monopoly that the banks did together with the nation-state. Page 209.
1, Substitutes — fungibility means that each unit of money is equivalent to any other unit. 2, Liquidity is the ability to sell quickly at market price. 3, Sovereignty — sovereignty is exchange + liquidity. There are degrees of sovereignty
As the book and the train have previously dismantled the monarchy and religion, The smartphone and the network are breaking down state and science today.
Part 4 Chapter 10, the future of Bitcoin and Blockchain
Chapter 10 and the last of the book deals with the attacks of miners, programmers, hackers, and states, and ends with real danger that can occur in a span of 3–10 years.
The photo shows an amazing quote from hacker Kaminsky that Microsoft and Cisco are using. Kaminsky argues that any attempt to break through the Bitcoin core received an automatic “attack neutralized” response.
In 2013, Silk Road’s crime exposure led to Bitcoin’s fall from $ 120 to $ 100, but within a few months it jumped to $ 1,200. In 2017, China blocked Chinese stock exchanges, dropping Bitcoin by 40%. But within 4 months, he corrected to over 100%. Reducing trade only increased the HODLERS.
The real dangers in the long run
This is the option of breaking the fire encryption, based on SHA-256. In previous lessons, we said that Bitcoin is like a new ship in a hostile and unfamiliar environment, where miners (payers), programmers (navigators), nodes (engine operators) and users (passengers) will fear an internal conflict that will cause everyone to drown. Therefore, they will stick to the set of rules that governed the ship when it left the port, and behave conservatively.
But what would happen to the consensus and the set of rules if a torpedo (quantum decoding of encryption, for example) hit the ship and was about to drown? Conservatism will hurt here. Because unless there is a majority to adopt a new ship (new encryption system) the journey to the new country will cease, and the Bitcoin era will end.
Here we must distinguish between what is technologically possible and what is economically feasible or lucrative. If my neighbour has a $ 1,000 safe deposit box, it doesn’t pay me to buy burglary for $ 10,000 to steal the money, even though this is technologically possible.
Shitcoins are like all fiat and it doesn’t matter if Trump or Vitalick or Zuckerberg issue money. All are centralized shitcoiners who care about their limited interests, and not a universal standard of wealth, like Bitcoin.
The blockchain chain of blocks is like a water tap. Without the wisdom of the crowds and the power of the network of nodes and miners, the blockchain is like a water tap that is not connected to the piping infrastructure that conducts water. Once upon a time, Indians came to the city, bought awater tap, which is mounted in the cabin wall, and did not understand why water did not come out of it.