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One of the great technological disruptions of the last ten years has been Bitcoin. First, very discreetly, almost secretly; then, vertiginously. Price fluctuations that have raised not a few doubts. Nevertheless, its price has grown from just a few cents of a dollar at the end of 2009 to more than 6,000 dollars at the time of writing, although it has fallen from the 25,000 mark. Apart from the price, in view of the possibilities and promises that are beginning to emerge around this new digital monetary standard, it is easy to understand the growing interest it arouses.
To approach Bitcoin, a currency based on decentralized software on an encrypted basis, in a solvent manner, requires an analysis on two differentiated levels: first, to understand the possibilities that blockchain encryption technology can offer, which allows direct exchange (peer-to-peer) without the need for third parties (something truly revolutionary in the world of the Internet, today dominated by large intermediaries, i.e., FAANG); and, second, and equally important, to understand the main fundamentals of monetary theory and what properties money must possess to fulfill its function as a unit of account and store of value.
Addressing these two levels is the objective of The Bitcoin Standard (recently published in Spanish by Deusto), by economist Saifedean Ammous. It is probably one of the most effective and rigorous analyses of the possibilities of blockchain in the 21st century. It is a book, essentially, of sound monetary theory and good economics. The author, before unraveling some of the mysteries and myths surrounding Bitcoin and the rest of cryptocurrencies, reflects on the importance and articulation of saving, time preference, and the vital importance of capital accumulation for the advancement of human civilizations. This allows us to understand the benefits derived from having an economy that grows rationally, without inflation, and the prejudices caused by the irruption of nationalization and the political use of fiat money by a few.
Ammous explains how Bitcoin, based on blockchain technology, offers a viable future alternative that can solve the historical problem of money by taking advantage of the benefits of the digital worldA devalued currency, whose closest origin is in the system that gave birth to Bretton Woods, gives rise to the inflation crisis that by default devastates any economy, as was premonitorily divined Henry Hazlitt, and which accelerated massively after the "Nixon shock" of 1971. Since then, we have been accumulating more and more debt, as long as it could be paid by printing unlimited currency, leading to an inflationary spiral that turns out to be the origin of the bubbly nature of most developed economies and the constant erosion of the purchasing power of real wages.
In this scenario, which structurally tends towards inflation, the latest financial crisis is merely one more episode: Ammous explains how Bitcoin, based on blockchain technology, offers a viable future alternative that can solve the historical problem of money by leveraging the advantages of the digital world. Any form of money, the author explains in a didactic tone, must be able to respond to three basic needs: unit of account, medium of exchange, and store of value; the latter being the part in which all forms of fiat money have spectacularly failed. This is the classic definition of money, on which authors from Bernanke's first predecessor, John Law, to the celebrated economists of the Vienna School, Carl Menger or Ludwig von Mises, of whom the author considers himself a disciple, agree.
Bitcoin, due to its unique properties, is in a position to become the closest thing to "digital gold": a new form of money whose supply cannot be manipulated by politicians or central bankers and, therefore, capable of safeguarding the purchasing power of savings. And also capable of supporting an economy in which the monetary supply plays a more neutral role, not so much based on artificial stimuli that subject the economy to an exhausting bipolar disorder oscillating between euphoria and depression. A decentralized, antifragile money, in the felicitous expression of Nassim Taleb (who signs a delightful foreword), for the 21st century, in the sense that its supply is stable according to a preconceived and unalterable protocol by anything or anyone.
Knowing the theory, in practice no one has a crystal ball and it is impossible to know, as the author himself acknowledges, what Bitcoin's destiny will be. In this sense, Bitcoin today resembles more an option on future digital gold, than digital gold itself. The risks are high and the future unpredictable, but once the fundamental characteristics of this new technological irruption are unraveled, it is easy to guess the important and profound consequences that derive from its satisfactory development. The book fulfills the objective of analyzing Bitcoin beyond its price, glimpsing what its scope and value may become. A book that, in addition to shedding light on the future of finance, contains invaluable reflections on monetary theory from one of the most interesting young economists on the international scene.
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