346. The Bitcoin Standard 2018 Launch

Saifedean Ammous (0:00)

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Thank you very much, everybody, for hosting me, and thank you to Bitcoin Austria and to National Bank. It's really a pleasure to be in Vienna, particularly a pleasure for me, for those of you who've read my book, because I'm extremely influenced by Austrian economists, and that's why I insisted on trying to make this the first stop on my book tour. So, the topic of my book is Bitcoin, and in particular, it's about the idea that Bitcoin is emerging as a new monetary standard. Bitcoin is becoming something like the gold standard, and that's why the title of the book comes from that, the Bitcoin standard, similar to the gold standard. So, I'm not going to obviously summarize the entire book, but I'm just going to drop a few of the main ideas that I make in the book, so that we can have an open discussion around them.

The first concept that I discuss in terms of trying to understand what is it that makes Bitcoin money is to understand what is it that makes anything money. Why does money come around? And there's a... I mean, the first seven chapters of my book do not even mention Bitcoin almost entirely, because they discuss money in general. And we look at the history of money over time. What gets chosen as money? What stops being used as money? Why do things go from being used as money to stopping being used as money? And I think, in my opinion, the argument that I make is that the most important factor that determines whether something can be used as money today or in the last couple of thousand years, is the fact that it is hard to produce. If something is easy to produce, people use it as money, others will produce more of it, and then the price of it will come crashing down, and then it becomes a useless store of value. If it's hard to produce, people use it as money, they store their value in it, the price goes up, it's hard for others to produce more of it, and then bring the price down. So this is why if we look historically, we find that the best forms of money were always the hardest to make. In places where seashells were rare to find, rare seashells were used as money. In places where cattle initially was used as money, because it's hard to make, if we look at limestones or all sorts of things that in any particular location were used as money, there was always a way or a physical or a political mechanism of restraining the supply growth. That's really the key point. And whenever we find an example of several forms of money interacting, usually what ends up happening is, or almost always what ends up happening is, what survives as money is whatever is hardest to produce. Because if you have several forms of money interacting with one another, then people who store their money in the money that is easy will lose all of their wealth over time because the money continues to get to produce, produce more and more of it, and then the supply of it increases, and so the value drops.

So, historically, we find that gold became money for this very important reason, which is that the supply growth of gold is the lowest of all the metals because, number one, it's very rare in the earth, but even more importantly, gold does not ruin. And because it doesn't ruin, that means that the current supply that we have around the world has been stockpiled over thousands of years. And so even if production were to increase next year, it will only be a small little fractional addition to all the thousands of years of stockpiles that we've piled up. In other words, the potential for the supply of gold to grow as a response to increased demand for gold is the lowest of all other metals. Therefore, it's a hard money. Therefore, gold was the hardest money that humanity had ever had because the supply grows every year at around between one and two percent. That's it. You know, no matter what happens to the gold price, the mining output of gold is always around one or two percent of stockpiles. And that's what I think makes gold money over many, many years because nobody could ever guarantee such a low supply growth. Now, if we move and look at government monies, we find the same story.