The Bitcoin Standard: The Decentralized Alternative to Central Banking
Let us follow the logic of things from the beginning. Or, rather, from the end: modern times. We are, as I am writing these lines, witnessing a complete riot against some class of experts, in domains that are too difficult for us to understand, such as macroeco-nomic reality, and in which not only is the expert not an expert, but he doesn’t know it. That previous Federal Reserve bosses Greenspan and Bernanke, had little grasp of empirical reality is something we only discovered too late: one can macroBS longer than microBS, which is why we need to be careful of whom to endow with centralized macro decisions.
What makes it worse is that all central banks operated under the same model, making it a perfect monoculture.
In complex domains, expertise doesn’t concentrate: under organic reality, things work in a distributed way, as F. A. Hayek has convincingly demonstrated. But Hayek used the notion of distributed knowledge. Well, it looks like we do not even need the “knowledge” part for things to work well. Nor do we need individual rationality. All we need is structure.
It doesn’t mean all participants have a democratic share in decisions. One motivated participant can disproportionately move the needle (what I have studied as the asymmetry of the minority rule). But every partic-ipant has the option to be that player.
Somehow, under scale transformation, a miraculous effect emerges: rational markets do not require any individual trader to be rational. In fact they work well under zero intelligence—a zero-intelligence crowd, under the right design, works better than a Soviet-style management composed of maximally intelligent humans.
Which is why Bitcoin is an excellent idea. It fulfills the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide on its fate. It is owned by the crowd, its users. And it now has a track record of several years, enough for it to be an animal in its own right.
For other cryptocurrencies to compete, they need to have such a Hayekian property.
Bitcoin is a currency without a government. But, one may ask, didn’t we have gold, silver, and other metals, another class of currencies without a government? Not quite. When you trade gold, you trade “loco” Hong Kong and end up receiving a claim on a stock there, which you might need to move to New Jersey. Banks control the custodian game and governments control banks (or, rather, bankers and government officials are, to be polite, tight together). So Bitcoin has a huge advantage over gold in transactions: clearance does not require a specific custodian. No government can control what code you have in your head.
Finally, Bitcoin will go through hiccups. It may fail; but then it will be easily reinvented as we now know how it works. In its present state, it may not be convenient for transactions, not good enough to buy your decaffeinated espresso macchiato at your local virtue-signaling coffee chain. It may be too volatile to be a currency for now. But it is the first organic currency.
But its mere existence is an insurance policy that will remind gov-ernments that the last object the establishment could control, namely, the currency, is no longer their monopoly. This gives us, the crowd, an insurance policy against an Orwellian future
Nassim Nicholas Taleb January 22, 2018
About the Author xi
Chapter 1 Money 1
Chapter 2 Primitive Moneys 11
Chapter 3 Monetary Metals 17
Why Gold? 19
Roman Golden Age and Decline 25
Byzantium and the Bezant 28
The Renaissance 29
La Belle Époque 34
Chapter 4 Government Money 41
Monetary Nationalism and the End of the Free World 43
The Interwar Era 47
World War II and Bretton Woods 53
Government Money’s Track Record 60
Chapter 5 Money and Time Preference 73
Monetary Inflation 81
Saving and Capital Accumulation 90
Innovations: “Zero to One” versus “One to Many” 96
Artistic Flourishing 98
Chapter 6 Capitalism’s Information System 105
Capital Market Socialism 109
Business Cycles and Financial Crises 113
Sound Basis for Trade 126
Chapter 7 Sound Money and Individual Freedom 135
Should Government Manage the Money Supply? 136
Unsound Money and Perpetual War 145
Limited versus Omnipotent Government 149
The Bezzle 155
Chapter 8 Digital Money 167
Bitcoin as Digital Cash 168
Supply, Value, and Transactions 177
Appendix to Chapter 8 191
Chapter 9 What Is Bitcoin Good For? 193
Store of Value 193
Individual Sovereignty 200
International and Online Settlement 205
Global Unit of Account 212
Chapter 10 Bitcoin Questions 217
Is Bitcoin Mining a Waste? 217
Out of Control: Why Nobody Can Change
Can Bitcoin Scale? 232
Is Bitcoin for Criminals? 238
How to Kill Bitcoin: A Beginners’ Guide 241
Blockchain Technology 257
List of Figures 282
List of Tables 284
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