Bitcoinist Book Club: “The Bitcoin Standard” (Chapter 9, Part 2, Instant Settlement)

It is time for The Bitcoin Standard to speculate. How can bitcoin’s status as a store of value and even as an international reserve currency evolve in the future? As the asset and the network prove their worth as a new alternative to traditional finance, the world will look at bitcoin in a new light. How will legacy players react when they understand the new kid about the superiority of the block?

To conclude the ninth chapter, Dr. Saifedean Ammous explores the possible role of bitcoin in international settlement and as a global unit of account.

Remember, The Bitcoin Standard was released in 2018. Most of what you are about to read are predictions that have come true. But before…

Information on the coolest book club on earth

The Bitcoinist Book Club has two different use cases:

1.- For the superstar executive investor on the run, we will summarize the must-read books for cryptocurrency enthusiasts. One by one. Chapter by chapter. We read them so you don’t have to and just give you the meaty pieces.

2.- For the meditative bookworm who is here for research, we will provide liner notes to accompany your reading. After our book club is done with the book, you can always come back to update concepts and find crucial quotes.

Everyone wins.

So far we have covered:

  • Prologue And Chapter 1
  • Primitive money (chapter 2)
  • Why gold? (chapter 3Part 1)
  • History (chapter 3Part 2)
  • Gold Standard (chapter 4Part 1)
  • Government money (chapter 4Part 2)
  • Money and hyperinflation (chapter 4Part 3)
  • Time preference (Chapter 5Part 1)
  • Capital accumulation (Chapter 5Part 2)
  • Price (Chapter 6Part 1)
  • Unhealthy money (Chapter 6Part 2)
  • Economic thinking (Chapter 7, part 1)
  • Inflation (Chapter 7, part 2)
  • Digital money (Chapter 8, part 1)
  • Proof of work (Chapter 8, part 2)
  • Buy The Future (Chapter 9, part 1)

And now, back to The Bitcoin Standard: “Chapter 9, Part 2: Instant Settlement”

The section begins by framing the bitcoin network as “a new independent alternative mechanism for international settlement that does not rely on any intermediary and can operate completely separate from the existing financial infrastructure.” And establishing one of the most important characteristics of the bitcoin asset, “It is much easier to move with a Bitcoin private key than with a gold treasure, and much easier to send it around the world without risking it being stolen or confiscated.”

Then, it’s time for the first prediction. This did not come true:

“Bitcoin can be seen as the emerging new reserve currency for online transactions, where the online equivalent of banks will issue Bitcoin-backed tokens to users while keeping their Bitcoin hoard in cold storage, with each individual being able to check in. the intermediary’s holdings in real time, and with online verification and reputation systems capable of verifying that there is no inflation in place “.

Also, no other token appears to be needed. Bitcoin itself is quite divisible. However, projects such as feminine propose tokens supported by Bitcoin, so perhaps Ammous is too far ahead of the curve.

The Bitcoin standard on instant settlement

The book recognizes one of the main advantages of bitcoin, it offers instant final settlement. And it does it for large payments, “across long distances and national borders”. As a means of settlement payments, bitcoin doesn’t just compete with traditional central banks and financial institutions, “it compares favorably with them thanks to its verifiable record, cryptographic security, and third-party security leak resistance. “.

Hence, The Bitcoin Standard predicts The Lightning Network:

“The number of transactions in a Bitcoin economy may still be as large as it is today, but the settlement of these transactions will not take place on the Bitcoin ledger, whose immutability and trust are too valuable for consumers’ individual payments.”

BTC price chart for 09/12/2022 on Bitstamp | Source: BTC/USD on TradingView.com

Can Bitcoin Become a Global Unit of Account?

This section begins by describing a problem. When the world abandoned the gold standard, it “destroyed people’s ability to conduct indirect trade using a single medium of exchange.” In turn, this has led to the “growth of a massive currency industry” that is worth billions but produces nothing of value.

The market looks ripe for bitcoin adoption, but there is a small problem:

“The persistence of volatility in bitcoin’s value will prevent it from playing the role of a unit of account, at least until it has grown to many multiples of its current value and the percentage of people around the world who hold and accept it.”

While using gold, the world had a monetary standard that was “independent of the control of any single government or authority.” And bitcoin promises a return to that ideal state. However, “for this possibility to materialize, Bitcoin would have to be adopted by an extremely large number of people around the world, most likely indirectly, through its use as a reserve currency.”

For a moment it seemed that we were close to that time, but it was a mirage. We’re far. We are so early.

The Bitcoin standard predicts the need for something stable

The book predicts that one day bitcoin will be “stable in value, as the daily transactions it contains would be marginal compared to the quantities held.” However, this is by no means guaranteed because “monetary status is a spontaneously emerging product of human action, not a rational product of human design”. It’s not as bad as it sounds, however:

“What in theory might seem like a better technology for money may not necessarily be successful in practice. The volatility of bitcoin may cause money theorists to reject it as a monetary medium, but monetary theories cannot prevail over the spontaneous order that emerges on the market as a result of human actions. “

As bitcoin adoption increases and money enters the system, “the level of demand will become much more predictable and stable, leading to a stabilization in the value of the currency.” If that happens, The Bitcoin Standard paints the possibilities as endless:

“If it were to achieve some sort of value stability, Bitcoin would be superior to using national currencies for global payment settlements, as is the case today, because national currencies fluctuate in value according to the conditions of each nation and government and their widespread adoption as the global reserve currency results in an “exorbitant privilege” for the issuing nation. “

What The Bitcoin Standard is trying to say is that, ultimately, bitcoin may be that neutral currency for global settlements the world so desperately needs. It may also be the only option with the characteristics needed to fill the role. If necessary, bitcoin will be there. Validate block after block after block.

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