In this episode Saifedean Ammous is talking about Austrian economics, it’s relation to Bitcoin, what sound money and inflation are, why proof-of-work is so important and his vision for money and bitcoin in the future. Also we talk about the origins of his interest in bitcoin and why many Bitcoiners are carnivores.
Saifedean Ammous is the author of “The Bitcoin Standard” a book about the history of money, austrian economics and the reasons why Bitcoin is superior to other forms of money tried in the past. Saifedean is working as an assistant professor of economics at the Adnan Kassar School of Business in Beirut and holds a PhD in Sustainable Development from Columbia University in New York, USA.
“Inflation and unemployment is not a god given thing” – Saifedean Ammous
“I don’t believe that bitcoin is going to completely replace the job of banking.” – Saifedean Ammous
“Ripple is probably the worst, it’s my least favourite of all of the shitcoins.” – Saifedean Ammous
“Nobody really controls bitcoin.” – Saifedean Ammous
“Bitcoin is a unique breakthrough. All the other coins are worthless copycats.” – Saifedean Ammous
“After all these years there is no single altcoin that is able to perform one single commercially viable thing that bitcoin does not perform.” – Saifedean Ammous
His bitcoin skepticism
I was pretty skeptical about it quite a while. It took me a long time to understand how reliable and how unkillable this thing is. The period from 2010 to 2013 I was still largely skeptical that Bitcoin could work. After 2014 when all things that I thought it would kill it where happening and yet it continued to survive, that was when I started to really paying attention.
09:43 The Austrian School of Economics – History
The starting point of Austrian Economics is, that all value is always subjective, it depends on the person making the valuation.
You can’t analyse economics outside of analysing individual choices and actions. Because it’s the mind of the individual that decides on the value and it’s the mind of the individual that’s going to make the trade-offs with any particular economic decision.
There is no right and wrong in economics. There is only decisions people want to make and people make the decisions that are best for them. Therefore we see that in economic systems in which people are able to freely decide what they want to do, people prosper, people do better and the markets adjust.
The Austrians (Economists) believe that money is something that should emerge on the free market. Sound money, is money, who’s value is determined through people buying and selling things for one another freely. Whereas unsound money or bad money is money who’s value is determined through government coercion.
The School of Austrian Economics is relevant to bitcoin in the issuing of money:
The stock to flow ratio of gold is extremly high. The stockpile that exists today is higher compared to the new supply of gold that is produced this year.
The annual supply growth rate for gold is almost always around 1-2%. Every year we are adding 1-2% to the global stockpile of gold and that is why gold is money. Because it’s hard for people to make ore gold in response to great demand and so gold is the bubble that cannot pop, because you cannot increase the supply more. And that are the economic properties that bitcoin copies. Bitcoin has not the physical properties of gold, but it does have this monetary property.
Not only the supply growth rate declines constantly until we reach the fixed supply of 21 million. This is the first time that we have a liquid asset that is divideable, that is combineable, that you can send and receive easily, but also is strictly limited in its quantity. I think this makes it an excellent store of value, because it’s impossible for people to make more of it to devalue the value that you store in it. That is really an astonishing aspect of bitcoin that I think is possibly the most important economic characteristic of bitcoin. It’s truly unique.
23:59 Proof-of-Work and Security
If there was a cheap way to make bitcoin and to make the proof-of-work, then the bitcoin security would fall apart. Similarly, if the earth gets hit by a meteor made of gold and everybody could go and chip gold out of it, the monetary role of gold would be destroyed. If gold gets cheap to produce and the supply begins to increase very easily, gold would not be money.
The entire quantity of gold that has been mined in all human history would fit in to about 2 olympic swimmingpools.
27:33 The Price of Bitcoin
Cost of production follows the value that people give the thing. The reason that diamonds are expensive or that bitcoin is expensive is that people value it.
You could spend your entire day baking a pie made out of mud, just because you spent an entire day behind it does not mean that people will pay you the wages that you think you deserve for them. If people value the mudpie they will pay for it and then based on how much they value it and are willing to pay for it, you will dedicate resources in order to produce it for them. Value is always subjective and therefore the cost of production follows the value.
30:04 Bitcoins energy consumption
32:21 The best Store of Value
What are the alternatives? What is Bitcoin saving us from with this energy consumption? In my opinion what Bitcoin allows us to do, by utilizing electricity for energy consumption, is to make monetary policy free of human control, free of political control, completely independent from politicians. And I think you know once we understand, what the cost of having central banks control by governments has been, then there is absolutely no chance that you think any amount of electricity is too much for bitcoin. Having central banks control the money supply is why we’ve had wars in the 20th century that lasted for so much longer than in previous centuries.
Bitcoin is economic reality. The way I see it is, that if Bitcoin continues to operate successfully, which it might not, but if it does, it will continue to maintain it’s scarcity and it will continue to clear payments around the world and I think it’s going to impose itself that people will use it not because they agree with it’s political philosophy but because they are economically self interested. People will want to have a store of value that can allow them to hold wealth into the future and over time more and more people will realize that bitcoin is the best for doing that because of it’s scarcity and it’s neutrality.
38:45 Bitcoin is an alternative to central banking.
Why you cannot compare a bitcoin transaction to a mastercard transaction
40:09 Comparing the electricity cost of a bitcoin settlement transaction to traditional settlement banking
41:22 Ripple and other shitcoins vs. Bitcoin
“Bitcoin does not compete with altcoins. Bitcoin is competing with the Dollar, and the Euro and with the IMF standard drawing rights and gold and all these international currencies for the settlement of international payments.” – Saifedean Ammous