I recently finished a very interesting book called "The Bitcoin Standard". In this article I wanted to talk about one aspect of this book. The author, Saifedean Ammous, compares Bitcoin to gold and describes it as digital gold. In one of the chapters, he talks about how a certain standard can lead to technological improvement and how this has already happened in time. As always, this article is not financial advice and for entertainment purposes only. With that said, let's take a look at why BTC can propel us into new technological dimensions.
Gold Standard: a golden era?
Before looking at technological improvements, we need to define the term sound money. In short, sound money is a currency that neither depreciates nor appreciates suddenly. Its purchasing power remains relatively constant in the long run, which is helped by free market mechanisms. The main properties of sound money are scarcity, divisibility, combined with a good availability model. Currently, governments around the world can print their own money as they wish. Unfortunately, this is not sound money, because it does not meet the scarcity requirement. At such times, the stock of value is not given and people have to look for other investments. This has not always been the case.


Earlier (before 1914) the world economic system operated under the Gold Standard. The thing about gold is that this expensive medal can be taken as sound money. It fulfills all the properties. It is scarce because you have to mine it and therefore put some effort into it and it can be divided so that you have different payment options. Furthermore, its pledge-to-flow model looks very promising, since you can't "create" gold out of nothing as is possible with paper money by printing money. In these times, the impact of sound money on society and development can be seen not only in the level of savings but also in the type of projects invested in.
Due to the fact that gold can be seen as a store of value, people are more inclined to think long-term. If you knew your money was worth as much today as it is in a year, you would do the same. That's why people during this time invested in projects that required long-term payback. As a result of this behavior, some of the most important innovations in human history happened in the late nineteenth century.


Zero to one against one to many
The book emphasizes that our modern world was invented in the gold standard years before World War I. If you think about it, the twentieth century was the century that refined and improved on all the ideas created during that golden age. It is very easy to forget that the step from nothing to something is much more difficult than the step from something to a lot. A good example would be the financial sector. How many millionaires say the first million is the hardest? Another example would be the use of theorems in math or science. Someone has to first discover the theorem (zero to one) so that another scientist can prove some more exciting methods they started working on after discovering the theorem (one to many). To put it in a more general perspective: the first step is always the hardest and requires a lot of energy and patience. The second step is always a matter of scaling, marketing and optimization.
Let's look at some examples the book gives us. The first example would be something that the majority of people in developed countries use every day. Hot and cold running water, toilets and central heating. These inventions were the main factor in getting rid of the whole world and allowed the growth of urban areas. Another example is electricity, internal combustion or mass production. Our modern society is built around the use of energy. All of these methods were invented in the nineteenth century. The transportation system such as cars or airplanes was also discovered during this golden age, as well as the electric elevator. And let's not forget one of the most important inventions of that time: the telephone. It could be argued that our century is the age of mass communication.
A new era with the Bitcoin standard?
And what happened? Why did governments abandon this gold standard? One of the most important reasons was the costs during the wars. Because governments could not pay their military at a moment's notice, they had to change the economic payment system, which led to the paper money we have today. Of course, this is described briefly and there are a few more steps in between, such as backing the dollar with gold and so on, but that should not be the focus of this article. The main point is that we now live in a time without sound money.


With the financial crisis in 2008, there was little light at the end of the tunnel. Bitcoin was invented and with it the hope of a more stable financial system. With the growing acceptance of Bitcoin, the main advantages of Bitcoin are becoming clear. BTC is the perfect sound money! It is scarce (the maximum amount is 21 million) and can be divided into many small parts. Its stock-to-flow model does not change due to the fact that it is hard to implement and cannot be changed. This leads to the question: can bitcoin be the next sound money? And could it lead to a new era of innovation?
Some might argue that we are already seeing innovation in the financial sector. The whole DeFi space is getting wider and wider and slowly putting governments and their central banks under pressure. Furthermore, BTC is giving freedom back to the people. But that's a topic unto itself. A good example would be El Salvador. It seems that bitcoin adoption is going very well and could lift that country out of poverty. Of course, this is mostly speculative and we will see results in a few years. But it's very exciting to be around at times like this. Another great innovation that could come to us is the Metaverse. More and more developers are innovating in this space and developing interesting applications. This topic can also be covered by an article of my own that I'm working on right now.
Conclusion
To summarize this article, I want to mention that I got this idea from the aforementioned book I'm reading. I'm very curious to see the developments over the next few years. I think regulations will slow down the process, but they will never stop. At some point there will be confusion among the generations currently living and cryptocurrency will get its acceptance. Of course crypto needs some rules. The best example seems to be Tether, but that is also very speculative. I sincerely hope you enjoyed this article and would love any kind of feedback or your thoughts on this topic!