The Bitcoin Standard - by Saifedean Ammous

Date read: 2019-01-23
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Key ideas: Published in 2018. “A comprehensive and authoritative exploration of Bitcoin and its place in monerary history.” (S. Ammous)

NOTES

Fungibility

Of the most persistent characteristics of money historically are fungibility (any unit of money is equivalent to any other unit), and liquidity (ability of the owner to sell quickly at market price). People choose moneys that are fungible and liquid because they want sovereignty over their money. Sovereign money contains within it all the permission needed to spend it; the desire for others to hold it exceeds the ability of others to impose controls on it.

While intermediated payments compromise some of the desirable features of money, these shortcomings are not present in physical cash transactions.

Privacy

By its very nature, Bitcoin’s blockchain structure is not ideal for privacy.

All of this means that for any crime that actually has a victim, it would be inadvisable for the criminal to use Bitcoin. Its pseudonymous nature means that addresses could be linked to real‐world identities, even many years after the crime is committed. The police, or the victims and any investigators they hire, might well be able to find a link to the identity of the criminal, even after many years.

This means that even if you are not a criminal, your addresses and all of your transactions could be linked to your identity.

Digital Cash

While it is common to think that these currencies [Altcoins] exist in competition with Bitcoin, and that one of them might overtake Bitcoin in the future, in reality they are not in competition with Bitcoin because they can never have the properties that make Bitcoin functional as digital cash and sound money.

As I see it, there is a flaw in author’s argument:

  1. Fungibility is one of the most important characteristics of cash. Fungibility implies privacy (these terms are synonymous).
  2. Bitcoin is not private because the bitcoin ledger is public (transparent, “not ideal for privacy”), which means history of each Bitcoin unit (UTXO) could be traced, analized, and judged.
  3. Therefore, Bitcoin is not fungible. It’s just a matter of time before some units of Bitcoin are marked as “tainted” and others as ’clean.” The “tainted” units will either be rejected in transactions or will be valued less than the “clean” units.
  4. Therefore, Bitcoin cannot function as cash. This contradicts author’s conclusion that Bitcoin is functional as digital cash.