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1-Page Summary of The Bitcoin Standard
Overview
Money is the driving force of today’s society. Without it, we would be stuck with a system that our ancestors used to trade goods and services for each other. It’s hard to scale up this system beyond a small village because not everyone has what you need or vice versa. Therefore, money is the best way to get things done on a large scale so people can buy what they need from others who have something they want in return.
The trick to finding something that will be accepted by everyone is finding something that is stable and can retain its value. In the modern age, paper currency backed up by gold was a good way to do this. The idea behind it was simple but effective because few things are better suited than precious metal to retaining their value. This resulted in an era of growth and prosperity unlike any other time in history. Things started going wrong when governments abandoned what had become known as the “gold standard” and began simply printing money instead, which led to a century of boom and bust cycles and increasing debt for nations around the world.
We don’t have to return to gold if we want sound finances. There’s a new kid on the block that’s perfectly suited for our digital age: Bitcoin. Like gold, it is highly stable and can be used anywhere, anytime. If it can overcome some teething problems, it may become the new standard of growth in today’s economy.
The technology revolution has changed the way we do things. It’s possible to send money around the world for a fraction of what it used to cost, and Bitcoin is at the forefront of this movement.
Big Idea #1: Money was first used as a medium of exchange.
How does an economy work without money? It’s simple. You trade what you have for something else that you need, and vice versa. But sometimes those things don’t align with each other, so people use money to make trades easier. That’s known as indirect exchange because everyone wants money, so it can be used for any transaction.
Early money was different from the kind of money we carry around today.
In the past, people used large stones for trading. The largest ones weighed up to four tons! When a new stone was ready, it was placed on top of a hill so that everyone could see it. People would then exchange ownership or part-ownership of the stone in return for goods and services. Those transactions were announced to the whole community, which acknowledged them accordingly.
Money has worked for so long because it’s something that people can use to buy things. The Yap Islanders knew that if they had Rai stones, they could sell them. They also liked the fact that the stone was visible from anywhere on the island and could be divided into smaller parts in case someone wanted a small purchase like fruit or a bigger one like rafts.
The Rai stones were very effective, but they had a major drawback. They were not as valuable or salable over time, because the supply increased and their value decreased. This wasn’t an issue at first since it was difficult to get them from nearby islands and transport them without modern technology. It became a problem when David O’Keefe arrived on the island after his shipwreck and started importing large quantities of Rai stones using modern technology in exchange for coconuts. Soon enough, there were so many that they no longer worked as money – they had been transformed back into mere stones!
Big Idea #2: Gold became the basis for sound money.
The first money that resembled the change in your pocket was a product of a revolutionary technology pioneered by early civilizations. This technology allowed people to create coins that could be carried far and wide. Gold stood out from other metals because it couldn’t be destroyed, and you needed a shovel to get more gold underground. Furthermore, as you mine for gold, it gets deeper into the ground, so even though mining technologies improved over time, gold supply grew slowly and predictably.
