Bitcoin is ‘Financial Dynamite’ – Saifedean Ammous (Interview)
I think Bitcoin is the most advanced and best form of money ever invented.
Bitcoinist: First, why did you decide to write The Bitcoin Standard?
Saifedean Ammous (SA): I found myself spending more and more time explaining and writing about the economics of Bitcoin to people as interest grew, and many friends would ask me what I think. I decided it would make sense to have my thoughts collected in one place and started working on that. I envisioned it being a brief book, but once I started writing it, I enjoyed it so much and got so engrossed in it, it quickly mushroomed to 300 pages.
Bitcoinist: As an assistant professor of economics, what do you think Bitcoin can be compared to as far as human inventions go?
SA: I think it’s the most advanced and best form of money ever invented. Money isn’t new, and we’ve had it before, but Bitcoin may have just perfected it by creating the first strictly scarce commodity with a fixed supply. It is something quite unique, and while many analogies exist, they will likely only capture one aspect of it.
One particular analogy I like is to think of it as financial dynamite, or gunpowder. In a world where everyone is using primitive sticks and stones, whoever has dynamite first can dominate the others.
Similarly, in a world where everyone is using crappy government-controlled and censored money whose supply is expanding, anyone who has unstoppable hard digital money is at a huge advantage.
Bitcoinist: Your book explains how money technology took many forms throughout history, from seashells to gold, etc. What properties does Bitcoin possess making it the best money technology for the Information age?
SA: The most important for me is the fixed supply, which makes Bitcoin the first truly scarce liquid asset. We can always make more of anything else on earth if we dedicate more resources to it, but we will never have more than 21 million bitcoin.
One of my favorite economists, Julian Simon, had written of how all natural resources are best understood as products of human time, and not resources, because more of them can always be made. The only truly scarce resource according to Simon is human time, whose allocation into the production of material things can always produce more of them.
Humans have always sought the monetary media whose supply is hardest to expand in order to use them as the store of value they produce with their time. But all these media of exchange were imperfect because their supply is constantly expanding, while of course the human time that created the value is finite. In other words, the fruits of your labor will be devalued once they go into a store of value whose supply is increased.
It is mind-boggling to imagine the implication of finally having a store of value that is also strictly scarce, like human time, with no possibility for increased supply devaluing the value stored inside it.
Bitcoinist: The pace of tech adoption has been accelerating from the 19th century onwards, with smartphone technology now only taking less than a decade. Where is Bitcoin right now on this curve? How long will it take to ‘go mainstream?’
SA: As an Austrian school economist, I do not think we can make accurate timeline predictions in matters of human action. It could take a year or one hundred, for all I know, as it depends on the actions of billions of humans.
Bitcoinist: What’s your take on the whole “Blockchain not Bitcoin” mantra we often hear from the likes of Jamie Dimon and traditional finance?
SA: A silly diversion and coping mechanism, an avalanche of pointless scams, a flood of stupid easy money being spent on worthless vaporware.
The only blockchains that matter other than Bitcoin are Bitcoin testnets.
Bitcoinist: Even the World Gold Council acknowledged that Bitcoin could undermine central banks. Are they scared? Do you think they will openly attempt to fight Bitcoin, or will they start buying it themselves?
SA: I can’t speak for their psychological state, but I think we will see a variety of approaches among countries to Bitcoin. The more computer-illiterate governments (likely the same ones that thought they could stop the internet) will likely attempt to ban it.
But I think that the more enlightened among them will understand the immense opportunity here, the important advancements, and be more open to it. In the end, it makes far more sense for bureaucrats and central banks to take the path of least resistance and try to own some Bitcoin than try to fight it. As soon as some central banks have done that, it will get the others to start considering more seriously because the last thing you want is to be the last one arriving at a new gold rush.
Bitcoinist: What do you see as the biggest threat to Bitcoin? Central banks, governments? Infighting within the community? Something else?
SA: Arguably governments and central banks are the most serious threats, as they could make life difficult for Bitcoiners in many places around the world, even though their attempts will likely be futile in the long run.
I don’t think that anything happening in the community matters in any meaningful sense, as the rules of consensus are largely immune to politics and drama.
Bitcoinist: What’s your opinion of the Bitcoin Cash hard fork? Was it an ‘attack’ on Bitcoin as many claim?
SA: I wouldn’t dignify it enough to call it an attack on Bitcoin as it hardly did anything other than slow down payment processing for a few weeks as it took some hashrate away. This, in typical Bitcoin style, turned out to be a positive by showing us the transaction fee market working successfully. I view it as a scam and an attack on people new to the space and those who do not understand Bitcoin’s value proposition. Sad, but an inevitable part of growth.
Bitcoinist: With the surging popularity in ICOs, it seems startups have realized that they can essentially ‘print money.’ Could Bitcoin be replaced by a potentially superior coin? Besides its first-mover advantage, does Bitcoin possess properties that can’t be replicated?
SA: Yes, immutability and the absence of a third party in charge of it. The fact that Bitcoin possesses this property is absolutely astounding, and it is not something that can be installed like an app, as the charlatans behind ICOs and altcoins seem to suggest.
Bitcoin has already gone through 9 years of growth out in the wilds of the internet, mostly without a central planner in charge of it after its creator disappeared. It grew because it offered utility to enough users and developers to keep maintaining it.
It has weathered attacks and hacks and “community conflict” and plenty of powerful interests and questionable characters trying to bend it to their will. After all of this, Bitcoin can indeed claim to be immutable. Once it became clear Bitcoin was successful at doing this, then anyone who was interested in an immutable digital hard money could use it.
There would be absolutely no reason to build an alternative that would not have this immutability when Bitcoin is already there, since Bitcoin is an open protocol and not a good. In the same exact way there is no reason to build a new internet to communicate with others.
Just like there is no market demand for a smaller internet knock-off, there was never any real demand for a smaller, unsafe, unreliable, untested, new Bitcoin alternative.
As a result, no other coin could ever compete with Bitcoin on the free market without active promotion. Hence, if we look at the world of altcoins today, you would find that every single one has a small group of people actively marketing it, promoting it, writing ridiculously overhyped nonsensical puff pieces about it in the press, as well as coding it and mining it.
In every single altcoin, it is trivial to see how a small group of people controls it. It is absolutely laughable that any of these coins could ever lay a claim to being immutable and decentralized. Ethereum can hard fork at the whim of a few developers, as we’ve seen repeatedly. Monero can perform hard forks without mining equipment manufacturers even finding out, such is the extent of its decentralization! I could go, but the crux of the matter is:
If your currency is not immutable and decentralized, then the entire sophisticated blockchain structure that you have copied for it is completely unnecessary. You can do whatever else it is you want to do without having to burn all this electricity into mining. This is cargo cult engineering, where things are included not for any rational purpose, but in order to imitate the rituals of Bitcoin. All of these other coins are growing now because we are in the stage of the US Dollar business cycle where easy money is very widely available, and easy money is stupid money. But stupid money can’t last forever, it will either stop being stupid or stop having any value.
Bitcoinist: You’ve recently criticized Stern School, NYU professor Nouriel Roubini for his anti-Bitcoin stance and apparent schadenfreude in light of the recent drop in Bitcoin price. What is your main argument against his ideas? Is academia as a whole lacking in their understanding of Bitcoin right now?
SA: Roubini is a propagandist, not a scholar, and his hysteria over Bitcoin is a joy to behold for us Bitcoiners. Had he had a shred of academic or intellectual integrity, he would clearly spell out what are his criteria for Bitcoin failing or succeeding and then approach it with an open mind, and see how matters unfold and then revise his views. For instance, when I first heard of Bitcoin and could not make much of sense of its technical details, I was naturally skeptical it could work. But I did consciously make an effort to specify what would be the things that would cause me to revise my skepticism.
As the value of the network rose very quickly, and much higher than I anticipated it rising, I had to revise my initial position that this network would likely remain a fringe network for nerds online. As Silk Road collapsed and yet Bitcoin continued operating with barely a dent in its transaction numbers, and as its price continued to rise, this forced me to revise my idea that Bitcoin would be mainly used for dark markets. If you cannot come up with scenarios that would challenge your position and force you to change it, you are being emotional, not rational.
Roubini has spent years celebrating every single price drop in Bitcoin. The lack of self-awareness here is absolutely astounding. Would he be willing to specify a price at which he would admit that Bitcoin succeeded? He has been claiming Bitcoin failed with every price drop from $58 to $6000. If Bitcoin failed when it dropped to $58, what did Roubini think when it rose to $580? $5,800? If the price of a Bitcoin rises to a million dollars and then drops to $900,000, will he also be celebrating Bitcoin’s failure?
Of course, he does not have to use Bitcoin’s price as his metric for its success, but if he celebrates it dropping as a sign of its death, it is an embarrassingly emotional and childish mistake to not then step back and admit he was wrong when the price rebounds. But, then again, you should expect nothing better from someone who works for the IMF and similar Keynesian rackets. Their entire world runs on government money, so do not expect them to see much value in any alternatives.
Bitcoinist: One major criticism of Bitcoin is that it’s too slow and can’t scale to compete with the likes of Visa and MasterCard for everyday transactions. How do you see Bitcoin overcoming this hurdle?
SA: Second layer payments. This is one of the key points of my book: Bitcoin’s blockchain transactions cannot be compared to consumer payments, because it is far too slow for that and takes minutes to confirm. But more importantly, because it offers final settlement, meaning payments clearing without any remaining counter-party risk, in less than an hour. It is more similar in that regard to final clearance payments between financial institutions and central banks.
We can already see this happening as most exchanges, payment operators, and exchanges that deal with Bitcoin are beginning to batch their transactions, and clear most of them offline. We can see the bitcoin on-chain transactions, but arguably there are around ten times as many transactions now clearing off-chain, on exchanges and other websites.
In this regard, the Bitcoin Standard is already emerging online, as Bitcoin becomes more and more to look like the reserve currency of the internet.
The simplest answer to your question is that all of the current payment technologies that exist over government money can be used over Bitcoin, if Bitcoin reserves underpin the institutions using them and the Bitcoin network is used for settlements.
The more sophisticated and accurate answer is that the next decades will witness innovations in payments built over Bitcoin, tailored to the strengths of Bitcoin, and my bet would be that they will eventually be far more advanced than the current state of the art payment networks built over decrepit government monopolies that have been protected from competition for decades. The Lightning Network might just be the beginning of these innovations.
Bitcoinist: How important is price in Bitcoin? Do you check it everyday? If so, any predictions for this year?
SA: It is important because the price is Bitcoin’s Trojan horse for world domination.
People will buy Bitcoin for the financial gains, and most won’t realize they are voting with their wallets and self-interest to build a world based on peace and cooperation, even if that conflicts with their own political ideals.
Having said that, the short-term movements in price are really not important nor are they predictable. My interest in Bitcoin is far more long-term, and as an Austrian school economist, I know better than to make price predictions!
Bitcoinist: Would you consider yourself to be a “Bitcoin maximalist”? Also, I’ve noticed quite a few Bitcoin ‘hodlers’ advocating a carnivore lifestyle. What’s the connection there?
SA: Yes. My take on the intersection of Bitcoin and carnivory is that it takes a special kind of person to emerge from decades of government propaganda and Keynesian stupidity and be able to understand the sound economics behind Bitcoin.
You are subject to social and professional ostracism for diverting from the standards of the cult, and it takes a special kind of person to manage to shrug all of that off and still see clearly what’s right and what’s wrong.
But once you’ve done that on one topic, you become open-minded on any other topic, and it becomes easy for you to contemplate the idea that, yes, a lot of the things you were told are wrong. It turns out it isn’t just modern economics that is full of garbage.
Nutrition as well, is a load of nonsense, and just like Keynes, it had its own con artist, Ancel Keys, who has popularized the absolutely criminal idea that animal fats are dangerous, that carbohydrates are essential, that 6-10 servings of grains a day are necessary, that seed oils are not just edible but also healthy, and so on. Naturally, the kind of people who will fall for Keynes’ ridiculous ramblings masquerading as science will have no problem falling for Keys’ ridiculous ramblings. These people are not likely to be early Bitcoiners or carnivores.
[Editor’s note: You can purchase The Bitcoin Standard for bitcoin here.]
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