Yousef M’s review of The Bitcoin Standard: The Decentralized Alternative to Central Banking

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Topic: Rather than dive into the emergence of digital currencies, their significance, and what the future may hold, this book takes a step back and asks “What is money and what purpose has it served historically?” before addressing “What is BitCoin and how is it the same/different as the money of the past?” Style: Author…

Topic: Rather than dive into the emergence of digital currencies, their significance, and what the future may hold, this book takes a step back and asks “What is money and what purpose has it served historically?” before addressing “What is BitCoin and how is it the same/different as the money of the past?” Style: Author is an Economics Professor at Lebanese American University. When he’s discussing the origins of money early in the book and BitCoin/blockchain towards the end, his writing is informative, thoughtful, and lucid. For the rest of the book (which is sadly more than half of it), it’s an exhausting narrative of libertarian doom-and-gloom: the Austrian school (i.e., Hayek, Menger, and Rothbard) upheld as prophets and “Keynesians” blamed for all sorts of evils, from the rise of totalitarianism to the demise of the family unit. The rhetoric in this portion comes across as very smug, very childish, and, more importantly, almost entirely irrelevant to understanding BitCoin.

Organization: For a book with “BitCoin” in its title, only about 25% of the book discusses it. The first three chapters, while off-topic, were a well-researched account of how humans have understood and used money, what purpose money serves in society, and (importantly) why different forms of money have emerged and declined over the last three millennia (Africa, Rome, Polynesia, Europe, and the US, to name a few examples).

Chapter 4 continues with a description of the emergence of fiat money in the 20th century, but this is the beginning of the author’s arrogant rants over five chapters on why 99% of today’s economists are idiots, how econ profs are fostering voluntary servitude by teaching the benefits of an elastic money supply, and how a return to “sound money” like the gold standard would solve everyone’s problems. Halfway through Chapter 8 through Chapter 10, the author finally discusses digital money with a focus on BitCoin, its mysterious creator Satoshi Nakamoto’s vision for a sovereign currency, the technology underlying it, and what impact it will have on monetary policy, financial institutions, and governance generally.

I have a feeling the author had two separate, fairly well-written articles on the origins of money and BitCoin, respectively. He then decided “why not spin this off into a book?” and his way of bridging these topics was channeling angry anarcho-capitalism, a free-market philosophy so averse to any authority, it would not be surprising to hear about these guys running red lights in protest of the government’s hegemony over traffic control. Takeaway: Blockchain and cryptoassets have increasingly come up in my legal work. I’ve had a coin wallet for the last two years after a friend recommended opening one, but never took it seriously. An article on the use of Ethereum (and similar platforms) for self-executing “smart contracts” in the legal profession recently piqued my curiosity, but a colleague recommended this book as a necessary starting point.

I can’t say I agree.

Let’s start with what I liked about the book. The author is clearly passionate about the subject matter and has given it a lot of thought.

The origins and evolution of money in the first 3.5 chapters were a great read and I can see why this could be a helpful context for discussing why BitCoin is (arguably) a currency.

I hadn’t appreciated how much technological changes have led (and continue to influence) what humans use as mediums of exchange (notably, how Europeans slowly drained Africa of wealth and slaves via advantages in making beads used as currency and why gold displaced silver as the preferred precious metal to the economic detriment of China and India in the early 20th century). Though I don’t agree with his argument on ditching fiat money, there is certainly more than a kernel of truth in the author’s warnings of the dangers of monetizing debt as a boon for politicians to woo voters with promises of war or welfare without financial accountability. When BitCoin is discussed, the author does a good job of explaining Nakamoto’s vision in 2009: creating a “sovereign” currency free from government’s ability to debase the value by printing money. A limit on supply (only 21 million BitCoins will exist, 17 million of which have been mined so far) and Blockchain are two key traits, the latter being a distributed, decentralized, and public ledger cryptographically recorded in a peer-to-peer network by different computer nodes which are bound by agreed-upon consensus rules (e.

g., what Proof of Work algorithm needs to be solved for “mining” BitCoin). If a disagreement arises over an “upgrade” to these consensus rules (for example, increasing the block size from 1 MB to 8 MB to increase the number of daily transactions), this can lead to a “hard fork” in the network if different groups of nodes agree to be bound by different rules. This block size dispute is what led to the hard fork between BitCoin and BitCoin Cash in 2017, where the latter essentially became a “spinoff” currency (BitCoin Cash itself has since forked over further disagreements on consensus rules). This block size debate underlies the scaling problems inherent to BitCoin. A small block size limits the number of transactions that can be made in a distributed network and leads to higher transaction fees based on demand exceeding capacity.

Opponents of increasing the block size (such as the author) argue this opens the door to undermining the protections a decentralized peer-to-peer network provides against concentration of power in the hands of fewer nodes that can satisfy the more expensive computing power to process larger transaction volumes. This has implications for the fundamental purpose of BitCoin: whether it can become a transactional currency capable of competing with fiat currency or will be relegated to a digital investment along the lines of gold. The author himself admits BitCoin will never be able to compete with fiat currency based on the technological limitations inherent to blockchain and predicts that, if BitCoin were adopted and stayed true to its principles, it would be an ideal reserve currency with smaller BitCoin-backed currency issued by “freely competitive” banks and transacted in an off-chain layer (along the lines of the current Lightning Network). This sounds more or less like a return to the gold-backed European and American fixed-rate currencies of the early 20th century. Whether one thinks this is a good or bad idea, it is certainly the best-case scenario for BitCoin’s use as money vs.

as a new commodity to diversify an investment portfolio.Unfortunately, these interesting topics represent a small portion as the majority of the book is a long-winded diatribe primarily against other prominent economists (labeled “monetarists”) being wrong about the causes of the Great Depression and how Keynes is a loser as well as a child molester (did we really need to go there?). I don’t pretend to be an economic historian but if you’re interested in counterpoints, this was a good rebuttal: https://seekingalpha.com/article/4162.

.. . One thing I agree with this rebuttal on was the author’s arguments appear to confuse causation. A country’s loose monetary policy isn’t the impetus for governments to sell their citizens war or new welfare programs or solve liquidity issues; those decisions were made even when the gold standard existed and are based on different (often irrational) considerations. Printing money is a tool resorted to, not a precursor for, bad decisions. Put another way, war wasn’t suddenly desired because countries went off the gold standard; countries went off the gold standard because they wanted to go to war.

The one point I felt the author was dismissing too quickly was the alternative uses of blockchain in the last chapter. It’s ironic that he would dismiss a smart contracts platform such as Ethereum, where individuals and businesses can use blockchain and self-executing protocols to resolve the time-consuming and expensive dilemma of trust and authentication in transactions that governmental bureaucracies and large banks do have a monopoly on. This should be music to his libertarian ears. This is the American Bar Association article that piqued my interest with some the effects it would have for government and the legal industry:

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