The Bitcoin Standard by Saifedean Ammous offers a comparison between bitcoin and fiat currencies like the dollar and the pound.
My biggest takeaways:
History of the dollar/pound & how these (fiat) currencies got to their current state.
The technical underpinnings (engineering) of both bitcoin & the dollar.
Ideas on what the future may hold (macro), based on these understandings.
History of Fiat Currencies:
Britain got off the gold standard in 1914. This decision was driven by the financial pressures of World War I, leading to a temporary suspension that eventually became permanent. The abandonment of the gold standard allowed for greater flexibility in monetary policy but also paved the way for inflation and the devaluation of currencies over time.
Engineering of Bitcoin versus Fiat Currencies:
The underpinnings of bitcoin and the dollar are very different. Bitcoin is engineered as a decentralized digital currency, relying on blockchain technology to ensure security. Fiat currencies like the dollar are centrally managed and rely on trust in governments and financial institutions. Bitcoin’s fixed supply (and decentralized nature) make it resistant to inflation, while fiat currencies can be printed at will, leading to extreme devaluation over time. The book does a great job of explaining these differences in technical detail, highlighting why many see bitcoin as a better store of value.
Ideas for the future of Bitcoin and Fiat:
The book offers insights into what the future may hold. Personally, I buy bitcoin with a small percentage of my monthly income, similar to how one might contribute to a ROTH-IRA. I also use bitcoin to pay overseas contract workers via the blockchain, which is efficient and cost-effective.
My hope for the future is that the United States converts to a “Bitcoin Standard.”
This would mean that the country's currency and economic system would be pegged to bitcoin instead of fiat currency. There are a handful of long-term affects this would have, below are the three that I think are the most important;
Transitioning to Bitcoin would create a more decentralized global economic system, potentially reducing geopolitical tensions related to currency manipulation.
Banks would no longer be able to print more money by lending out funds excessively. This would curb the practice of fractional reserve banking, where banks create money through issuing loans, potentially leading to a more stable financial system.
Bitcoin’s fixed supply of 21 million coins would stabilize the currency value over time, reducing the risk of hyperinflation and protecting citizens' savings/income from being devalued by inflation.
However, this transition would cause significant turbulence in the short term. The shift to a Bitcoin Standard would require an intense rewiring of financial infrastructure, legal systems, and public acceptance. The volatility of bitcoin’s value could lead to economic instability. The energy consumption of bitcoin mining raises environmental and sustainability concerns.
Most importantly though, this drastic change is unlikely to happen until America is in a dire economic situation with overwhelming support for drastic measures. Until then, the idea of a Bitcoin Standard remains a fascinating but challenging proposition.