Could Bitcoin Replace the Dollar & Central Banks? Will It Be The New Gold Standard? Saifedean Ammous

Financial institutions around the world and individuals have two central banks because you can now settle payments internationally without having to go through a central bank, which means it's no longer a political question. It's just a purely technical question that you need to solve. You put in the private keys and.

Your money travels across national borders, which.

Is something that could not happen before. Before the invention of Bitcoin, if you wanted to move money internationally, you had to go through central banks. That was the only mechanism for money transfer. Bitcoin offers offers us an alternative to that.

It is my pleasure to welcome Sefedine Amos. He is the author of a fantastic book that I just finished and really, really enjoyed. It was one of the best comic books I have read, and it is entitled the Bitcoin Standard. And he's got a new book coming out with a fascinating thesis as well about fiat money and really what it does to our culture and to our thinking and how it maybe impacts morality. I'll let him tell you about it, but it's a. It's a fascinating thesis. So safe. Welcome. How are you?

I'm very good.

Thank you for having me.

Good. It's good to have you on. So safe. Tell us a little bit about what brought about the book, the Bitcoin Standard. You know, it seems as though you really spend maybe the first half of the book talking about what is money, explaining economic concepts, and then the latter part, you talk about cryptocurrencies. But in the beginning, you know, let's just give people some background because there are some interesting fundamentals that I think are just really important to understand, to grasp this entire concept.

I think the book came out after having spent several years looking at Bitcoin and thinking about it, coming up with ways of analyzing it, which had gotten me some very small degree of prominence in a very small circle of Bitcoin Twitter users. And essentially, I had developed all these ideas about what bitcoin means and the significance and the economic meaning of bitcoin over time. And then I was arguing about people with it on the Internet all the time. And then my wife basically told me, you know, you should be doing something more productive than just arguing with people on the Internet. So I decided to write this down into long form. You know, every time I would. I would be tempted to answer someone online, I just decided, you know what, let me just go write a couple of pages in the book. And in that sense, I just kept on developing this until it became a whole book, and it became a full vision of how I understand the Economics of Bitcoin. And the title came toward the end, but I think it was a quite fitting title because the whole book is.

Well, the book makes a lot of.

Analogy to gold and the gold standard. And so the point that I'm trying to communicate is that bitcoin is effectively our new gold standard, or it could have the potential to be our new gold standard.

So when you look at money, I mean, money really is supposed to. Well, there's also distinction, of course, between money and currency, and maybe you want to go into that, but money really has three basic functions, right?

Yeah. Generally, people think about the three basic functions of money as being the medium of exchange, a store of value, and the unit of account. In my book, I focus the analysis on the function of a store of value, because in my mind, I think this is the one that ends up giving monetary choice, monetary role, that ends up deciding the monetary role just because of how economics really works. If you store your money in a thing that is easy to produce, then that thing will lose value over time and you won't have a lot of money. And so the money that is stored in things that are hard to produce, on the other hand, will hold its value quite well and will maintain its value. So over time, it will stay the same or it will increase. So the net result is that over time, money and wealth tends to concentrate and accumulate in the hands of the people who are holding the hardest money. And eventually everybody else learns that lesson. And so you end up with the hardest money dominating. And that's generally been the history of money.

So, of course, paper, fiat money, dollar bills, euros, whatever, in paper form especially, are very easy to produce. It's simply running printing press. Gold is hard to produce, right? It's hard to get gold out of the ground. It's very costly to do it. It's rare. And then, of course, bitcoin is mathematically rare, right?

Absolutely. I think the most interesting monetary property of bitcoin that I discuss in my book is that this is the first thing that we've ever invented that's a liquid asset, but also strictly scarce. There's no way of making more of it. There's no way of making more bitcoin than what the bitcoin code stipulates. And that's why over the last 12, Bitcoin has grown exactly according to the schedule of the supply as it was laid out before. There's not been any single person anywhere who's managed to find a way of making more bitcoin than what the schedule has And I think that's absolutely unique because it's the one good whose supply is completely irresponsive to demand. You know, no matter what happens with demand, the supply of bitcoin will not respond. It'll just always produce the pre programmed amount that needs to be producing.

You know, our client Keith Gibson referred you to the program and I'm very thankful to him for asking you to come on the show. And he had a question. He said, could you explain how bitcoin acts as a base layer money similar to the central bank settlement layer, and how that ties into the criticisms of bitcoin's low transaction per second compared to say MasterCard or Visa or PayPal? So you talk in the book, and I remember this, about how bitcoin is actually inefficient. People like to talk about how the blockchain is efficient, but you know, it's really not very efficient. Right, but it's very. That that's one of the things that makes it very secure, I think. Maybe I'm not saying that.

Reliable, not efficient.

Yeah, good. Tell, tell us more about that in this base layer question that Keith has.

Yeah, I think before my book was published, the predominant view on bitcoin was that bitcoin was some kind of new PayPal, new Visa, new MasterCard, new Union. It was going to disrupt banks. It was an alternative to banks. You can be your own bank, you can have your bank in your own pocket. This was generally how people viewed bitcoin. And based on this, people thought that the main criticism of bitcoin and the main limitation of Bitcoin was that, well, bitcoin can only do so many transactions, but visa does 5,000 times as many transactions as Bitcoin's maximum capacity. So bitcoin has no chance of competing with Visa. And my book made the case that bitcoin does not compete with Visa. Bitcoin and Visa are like petrol and cars. They're not competitive goods. They need each other to function. You can't have cars without petrol. And so my point is that bitcoin is not a payment network. It's not comparable to PayPal or Visa. Bitcoin is more comparable to central bank settlement layers. Bitcoin is more similar to the national central banks and the national currencies that Visa, MasterCard, PayPal use to settle their transactions with others, with other financial institutions or with their clients.

Would Those be the SDRs, the Special Drawing rights?

Well, I mean mainly it's national currencies is what bitcoin replaces. So the subtitle of my book is that the Bitcoin standard is the decentralized alternative to central banking. And that's the point, is that it is. You know, Bitcoin does not compete with banks and it does not compete with payment processes. Bitcoin will need banks and payment processors built on top of it. Bitcoin competes with this settlement layer behind banks and payment processors. It offers companies like PayPal and like Visa and like MasterCard. It offers them a monetary standard that they can use without having to resort to central banks. It's the only alternative that financial institutions around the world and individuals have to central banks. Because you can now settle payments internationally without having to go through a central bank. Which means it's no longer a political question. It's just a purely technical question that you need to solve. You put in the private keys and.

Your money travels across national borders.

Which.

Is something that could not happen before. Before the invention of Bitcoin, if you wanted to move money internationally, you had to go through central banks. That was the only mechanism for money transfer. Bitcoin offers us an alternative to that.

Okay, so I think that's a good segue to just maybe telling you a little bit about my evolution in this, because I think it will. Some of the skepticism that people have out there, you know, I started hosting a show called the Crypto Cast several years ago and expressed some of this skepticism very openly. So I learned about Bitcoin when it was $74 and of course have many regrets now. So I'll be the first to say that, you know, for a long time I just didn't get it right. I didn't understand it. And you know, some of my skepticism that still remains is this. I believe the two most power, powerful forces in the world are governments and central banks. They have standing armies, they have their cartels. They, they just run the world largely. You know, their product is currency. That is their widget. Right? Just like if, you know, I'm in business and I have a product I sell and you know, someone else is in business, they have a widget they sell and they don't like competition. Right. So why would they let this exists? And I, I know you may well say there's an argument that they can't do anything about it. Okay, great. I, you know, and I've always said safe. I'd love to be wrong about this because my libertarian side says I would not love nothing more than to see a decentralized currency controlled by the people, not the, the central banks and governments flourish because so Much of our lives are controlled by the fiat money. We're all. We all become puppets on the strings of inflation, deflation velocity, et cetera, and capital controls and economic Berlin walls. So I don't like any of that. But, you know, that. That's kind of my evolution now. I bought into the market when it was about $800, and then I bought a lot more when I saw Michael Saylor and MassMutual getting into it and putting hundreds of millions of dollars. And I thought, the institutions get into it. You know, the central banks probably aren't going to screw over the institutions, but they'll screw over the little people. Right. That was. That was kind of my. My thinking. So there's a lot for you to chew on there. But what do you think?

I mean, I think that was. That was also my initial impression about Bitcoin. And the reason I was late to bitcoin is that I spent a lot of years just thinking, well, you know, I don't want to be holding it when they crack down on it and start throwing people in jail for it.

Yeah, maybe they make it illegal, right?

Yeah, make it illegal or it's not something you want to do.

You know, a lot of people have.

Gone into jail for doing things that threaten banking monopolies. So it's no joke. You would think that this would be far more seriously persecuted. But by 2013, it became clear that there was something a little bit different about this. They're just not going to go after it very directly. And I think in my mind, the turning point was when the Silk Road website was shut down and its owner was arrested or its alleged operator was arrested. In 2013, early 2013, in my mind, this was going to be the end of bitcoin. And in my mind, this was the scenario that I had for why bitcoin would end. You know, they would find a website like that and shut it down and then say, well, this was enabled by bitcoin. And so if you hold bitcoin, you are a criminal. And, you know, then everybody's going to dump their bitcoin and the price of bitcoin is going to crash. And. And that will probably be end of the experiment because it won't be able to recover because, you know, the damage.

It'll have this bad perception that it's used by criminals and terrorists, which interestingly, and you aptly point this out in the book, that it's actually a terrible thing for criminals and terrorists because it is not private, contrary to popular belief, it is traceable on the blockchain. Right. So, you know, we should dispel that myth that some still believe. But go. Go ahead.

Yeah, it's. It's quite easy to make mistakes that make you easily trackable. It's not very easy to not be tracked. It's not easy to be anonymous on bitcoin, because it's not an anonymous network. It's pseudonymous network. And it's always possible that somebody could. Well, not always possible, but, I mean, it is possible that your identity could be identified. So I think what was interesting was that after that website was closed down, number one, bitcoin did not crash. In fact, bitcoin recovered and rallied from that. After that, over the next six or seven months, it went up tenfold in price after what should have killed it, in my estimation at that time. And the other thing which I found extremely interesting was that there was no direct persecution of bitcoin. In fact, in 2013 is when Bitcoin started going mainstream and US companies started offering it as a service and it became legal. It didn't become legal. It was never illegal, but it became increasingly mainstream. I mean, obviously nowhere near as mainstream as it is right now. But up until 2012.

You could have.

Been forgiven for thinking that bitcoin was mainly for people to buy drugs online, because that was the thing that most people had heard about when it comes to bitcoin. But by 2013, that had begun to shift a little bit, and then obviously, it has shifted much more. But what I think is interesting is in 2013 and 14 is when this idea started to occur to me that, you know what, maybe they're not going to ban it just because this is just a far more advanced form of technology than what we have. And I'm sure some individual governments will ban it. But I started thinking of it as bitcoin is like gunpowder. And when gunpowder came out, gunpowder was massively disruptive to the existing armies. If you had an army that did not have gunpowder and then another army had gunpowder, well, your army is basically no more, because the other army can just take them all out from long range before your army could even take out a single sword. So when gunpowder came about, governments didn't ban it, government sought to get it. And I see something similar developing with bitcoin in that once people begin to understand the value proposition of bitcoin, rather than want to attack it, they start wanting to acquire it. And so one interesting, I think, turning point is that the prosecutor in the Silk Road case or the investigator in the Silk Road case, they could have taken the path of recommending that we go after bitcoin itself instead. They ended up becoming bitcoiners themselves. And they even work in the bitcoin space right now. And we see this over and over and over again. Once you get a taste of bitcoin's incredible potential, it almost like bitcoin co opts you to its purposes. You know, suddenly you have just been bitten by the bug and now you're just like all the other bitcoin victims. You're just, you know, thinking about it and thinking about how to serve bitcoin and how to further bitcoin, because that's it. You've been. You've been bitten.

Yeah, you got the bug. Right. Well, there, there are certainly. There's no shortage of gold bugs in the world. Right? So, you know, similar concept, I guess, but you don't think that any government can shut it down, but they could make it illegal. Right? I mean, you know, look what the example I used over the years many times in interviewing crypto experts is, cocaine is a commodity, right? It's a, it's an illegal drug. It's a commodity, right? People trade it, but it's not traded widely because it's illegal and people are afraid of going to jail, you know, but it is a commodity nonetheless. If they said bitcoin is illegal because you've got to use fedcoin, for example, their cryptocurrency that they'll eventually make, and they want to control velocity and inflation and so forth, couldn't that displace it and really hurt the store of value?

I really don't think so.

I mean, first of all, let me just be clear. The governments can do all kinds of things. I don't know.

They can do whatever they want.

Yeah, well, within the realms of the laws of physics and economics, yes. But I think the way that I see it is that ultimately any kind of action against bitcoin can hurt bitcoin, but it can't eradicate bitcoin. That's the difficult thing about it. It's almost impossible to eradicate bitcoin because bitcoin can shrink to the size it needs to shrink to in order to survive. If you restrict people buying it and you restrict people mining it, the mining declines in volume and the price of the bitcoin commodity declines in volume enough for it to be essentially able to run at a very small scale that is very hard to detect. And so it fades into insignificance, but it doesn't die. But then the fact that it doesn't die will likely spur a rebirth in a sense. So we always have this. The fact that it's not easy to eradicate it means that you don't want to pick a fight with it, because you don't want to undermine your authority and credibility by picking a fight and then losing it. And then also the aspect of preferring to use it. Now, I think you're correct in that central banks can introduce their own digital currencies. And in one of my recent podcasts, I discussed this in the Bitcoin Standard podcast. But I think ultimately these kind of currencies are really an advertisement to Bitcoin more than they are a competition to Bitcoin. Because what they do is they really serve to illustrate the Bitcoin value proposition, because what they show you is the national currencies that will be linked to the central bank, the reason they're doing them is that they want to control monetary policy. And the reason they're doing this so that they can have full surveillance over financial transactions. So you have. Now, the two main value propositions of Bitcoin cannot exist in a central bank currency, because that's the whole reason we have a central bank, is because we want to have financial control over financial flows and because we want to have control over inflation. So if you introduce a central bank digital currency that offers the central bank the ability to survey all transactions and to unilaterally and arbitrarily set monetary policy, discretionary monetary policy, then all that you're doing is just providing a much more efficient way of illustrating the superiority of Bitcoin. You're telling people you can have your digital currency, which is connected to the central bank and the government, and that is being devalued every year at anywhere between 5 and 20%, depending on your luck. Or you can have Bitcoin, which is being divided every year at exactly of this percentage, which we know exactly before going into the year, and we stick to throughout the year. And you know exactly how much is going to be devalued over the next 100 years. Whereas with national currencies, you have no idea about what's going to happen in five years or maybe even one year last year. Who had any idea that look the way it looked.

And when those national currencies start coming in digital form, as they inevitably will, it will become extremely, extremely convenient for the powers that be, the governments and the central banks that issue them, and extremely negative for the population, because they can control so many things. They can control, you know, undoubtedly they'll come on your phone. They will control where you spend, which merchants and businesses can accept the currency, how far they can be from your home. If there's a lockdown or a quarantine, for example, they may have expiration dates on them. So they can increase or decrease the velocity of money. They can devalue over time, maybe overnight, whatever. I mean, they can just do whatever they want. It's.

The possibilities are endless for them.

They can do it already with dollars, some of those things, but they can do so much more and so much more conveniently with the digital currency, right?

Absolutely.

Yeah.

And really, Bitcoin is. I mean, I think people miss the point of Bitcoin when they think that the point is that it is digital and that these currencies are digital. Well, national currencies are digital, too. The vast majority of dollars is not out there as dollar bills and coins. It's digital. It exists on bank ledgers. The physical dollars are a tiny little fraction of the total supply of dollars. So the digital aspect is not something unique or interesting about Bitcoin or about central bank digital currencies. What's unique and interesting about Bitcoin is the fixed monetary policy.

Absolutely. So as a segue to your new book, which is a really interesting thesis, you talk a lot in the Bitcoin stage.