The Bitcoin Standard presentation by Saifedean Ammous

1. Saifedean Ammous
Wharton Stevens Center Blockchain Validation Lab
December 4, 2020

2.  What is bitcoin
 Bitcoin’s monetary uniqueness
 What is bitcoin good for?
 Implications
 Individual
 Political
 Capital markets
 Energy markets
Outline

3.  Bitcoin is a peer-to-peer software for operating a payment network with its
own native currency that is protected from unexpected inflation, without
having to rely on any trusted third parties.
 Its significance lies in two main properties:
1) The hardest money ever discovered or invented
2)The only working alternative to central banks for international payment
settlement
What is bitcoin?

4.  Anything can be used as money if its
held as a store of value and used in
exchange
 But rising monetary demand raises the
price of the money
 Rising price incentivizes more
production of the money
 Excess production brings the price
down, making it a useless store of value
 But rising monetary demand raises the
price of the money
 Only things that are hard to make
succeed as money in the long term
Why does Bitcoin matter?

5. What have humans used as money?
 Cattle
 Lime Stones
 Rare seashells
 Glass beads
 Metals
 Precious metals
 Government money
 Cigarettes in prison
What do they all have in common (when they work)?
Hard to make

6. Gold: the hardest money wins
Gold’s monetary role is due to its high stock-to-flow ratio: existing stockpiles are
always many multiples of annual production

7. Bitcoin: The hardest money ever

8.  The more something is chosen as a
store of value the more its production
increases at the margin…
EXCEPT BITCOIN
 When Bitcoin is chosen as a store of
value, its value goes up, but more
production is not possible
 Instead, the difficulty of mining new
bitcoin increases, making Bitcoin harder
to produce
 This incentivizes more processing power
to produce Bitcoin, making the network
more secure.
Bitcoin’s monetary uniqueness

9. Bitcoin vs Every other money
Store of value
demand
Network
becomes harder
to attack
Store of value
demand
Price rises
More profitable
mining
Supply increases
Price drops
Store of value
demand
Bitcoin
survives longer
Price rises
Network
becomes harder
to attack
More
profitable
mining
More
hashpower
goes to mining
Bitcoin’s monetary uniqueness

10.  Difficulty adjustment is the most amazing technology in bitcoin:
 It protects the network from inflation
 Ensures the supply is auditable and verifiable by all network members
 Converts people’s inevitable incentive to increase bitcoin’s supply into network
security
 Bitcoin is an all-conquering juggernaut of economic incentives
 Whereas everyone competes to inflate all other moneys, people compete to secure
bitcoin.
How secure is Bitcoin

11.  The processing power to secure only 500,000 transactions per day:
 100 Exahashes/s
∼ 10,000,000 x the world’s top supercomputer
∼ 1,000,000 x the world’s top 500 supercomputers combined
∼ 10 trillion x your laptop
 The same transactions can be done on a single computer. But Bitcoin does it without
relying on anyone or anything.
How secure is Bitcoin

12.  No single point of failure
 No single piece of critical hardware or infrastructure
 No single critical individual or organization
 Bitcoin cannot be stopped—a protocol always open to anyone who wants it
 Around every 10 minutes, a new block of transactions is released. Has never failed.
 Has never confirmed a fraudulent transaction
How secure is Bitcoin

13.  The hardest money ever invented
 Available worldwide for anyone who can receive 2MB of data every 10 minutes
 Purely voluntary, does not need regulation, enforcement, or police
 Chosen and valued freely on the market: sound money.
Bitcoin’s monetary uniqueness

14.  First strictly scarce liquid asset
 Before Bitcoin, the only thing that was truly scarce was human time. The Ultimate
Resource, according to Julian Simon
 The only limit on how much of a resources we have is how much time we dedicate
to it
 Anything chosen as a store of value had the imperfection that its supply will
increase in response, causing a loss of the value stored
1. Store of Value:
What is Bitcoin good for?

15.  Only two things are genuinely scarce: time and bitcoin
 For the first time, you can store the value produced from your scarce time in a store
of value that is equally scarce.
 Our most advanced technology for transferring the value of time into the future
1. Store of Value:
What is Bitcoin good for?

16. What is Bitcoin good for?
 If it continues to not die, demand for Bitcoin will rise indefinitely.
 Hard money is not optional: you cannot isolate yourself from the consequences of
others using money harder than yours
 Bitcoin transactions cannot possibly handle consumer payments for everyone who
needs hard money
 Over time, Bitcoin on-chain transactions might increase, but only marginally.
 Bitcoin off-chain transactions can increase infinitely.
 As liquidity and people willing to accept Bitcoin as payment increase, the contours of
an alternative global settlement system will begin to develop
2. A decentralized free market alternative to central banking

17.  Bitcoin transactions need several minutes to be initially confirmed, and that’s useless
for consumer payments
 But Bitcoin transactions provide finality of settlement in an hour, and that’s much faster
than current central bank clearance
 Bitcoin won’t and can’t scale for mass payment numbers
 Bitcoin will scale through rising value for transactions
2. A decentralized, free market alternative to central banking
What is Bitcoin good for?

18.  Similar to gold scaling via the gold standard: Everyone wanted to get paid in it
because it is the hardest money, but transaction costs were too high
 Bitcoin second layer solutions are similar to financial instruments backed by gold
 Will it face gold’s fate? Maybe, but the key is that the cost of running a bitcoin full node
is far lower than running a ‘gold full node’, i.e. an international gold clearance bank
What is Bitcoin good for?
2. A decentralized, free market alternative to central banking

19.  The hardest money ever invented is available everywhere
 International payments are now possible without having to go through governments
and central banks
 The 21st century global digital free market will grow around Bitcoin, The Internet’s
Decentral Bank, running on hard money: The Bitcoin Standard
 What are the implications to individuals, politics, and capital markets?
What does global hard money mean?

20.  Easy money loses value & encourages short-termism and consumerism
 Hard money gains value & encourages long-termism and capital accumulation
 Easy money = artificially low interest rate = incentive to borrow more and save less
 Low time preference
What would a Bitcoin standard look like?

21. Low time preference “initiates the process of civilization”
Hard money Saving Capital
accumulation
Higher productivity Better material
living standards
Hard money and time preference

22. Hard money and time preference

23. Hard money and capital markets
 Easy money is simply the central
planning of the capital market
 Central planning always fails
 Easy money and interest rate
manipulation are the cause of business
cycles, inflation, and recessions
 Hard money is the solution to the
business cycle

24.  The twentieth century uninvented one of the humanity’s most remarkable
achievements: a global neutral money.
 We now have a system of ‘partial international barter’
 Fluctuations in currency prices are more important than fundamentals for businesses
 FX market around $1,860trillion, around 25x global GDP.
 Ending global barter
Hard money and capital markets

25. Hard money and capital markets
 Politically neutral censorship-free settlement
 Separates politicians’ morality from people’s money
 Automated monetary policy
 A free market in money, savings, capital, and investments.

26. Energy markets
 Bitcoin creates a global liquid market in electricity
 Cheap energy anywhere can be monetized: a global subsidy for energy production
 Will lead to massive investment in off-grid energy sources
 Finance initial capital investment for development around stranded energy sources
 Will kill energy subsidies, great for efficiency

27. Online courses & research:
Saifedean.com
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