“The introduction of Bitcoin, as a currency native to the Internet superseding national borders and outside the realm of governmental control, offers an intriguing possibility for the emergence of a new International monetary system.” – The Bitcoin Standard
In 2021, El Salvador became the first country to make Bitcoin a legal tender, with businesses required to accept the cryptocurrency as a medium of exchange. After offering citizens an incentive of $30 in Bitcoin for downloading the app, the government successfully transitioned more Salvadoreans into Bitcoin wallets than those with bank accounts. With remittances from expatriates accounting for 25 percent of El Salvadorean's GDP, many unbanked citizens can now receive electronic cash from family and friends abroad without paying additional transfer fees. As Salvadoreans recognize the benefits of Bitcoin, President Nayib Bukele was rewarded with a landslide victory in his 2024 re-election campaign.
In Saifedean Ammous’s 2018 book, “The Bitcoin Standard”, Ammous recounts the history of money, its successes and failures, and how Bitcoin, a new digital monetary system that began offering a peer-to-peer electronic cash system in 2008, may be the best opportunity to thwart government fiat money and its inflationary penalties. As a PayPal alternative without an intermediary, Bitcoin is borderless and autonomous. Since Bitcoin operates as a decentralized cryptocurrency, it looks to usurp the control of central banks and governments. However, as Ammous notes, one must understand the history of money before one can appreciate the benefits of cryptocurrency.
Money is more than a medium of exchange, it is a store of value. The best money is hard money whose supply is difficult to increase, thus providing a stable unit of measurement. When money has lost its hardness historically, or been centralized by governments, it has been the death knell for civilization. Sound money, on the other hand, has always been tied to human flourishing.
From 1870 to 1914, the world experienced 40 years of growth by uniting the global economy under one sound monetary unit, gold. By limiting its supply, and through its rare, portable, and divisible characteristics, a gold standard provided universal stability and relative peace. However, once the banks started holding gold as a reserve, they began to increase the money supply beyond what was held, leading to currency devaluation. Then when the gold standard was abandoned, the government stepped in and began to centrally plan the economy using inflationary fiat money. The 20th century began an era of unsound money and monetary inflation from irresponsible government policies.
Using fiat (paper) money, governments now had a means to continuously inflate the supply of money. As a result, central banks could more easily finance wars, plan the economy, manipulate currency, and threaten dissidents for their lack of compliance. Since governments could operate outside the wishes of the citizens, they no longer had to seek their approval. Nor are governments subjected to the private sector's need to consider trade-offs and opportunity costs in the management of money. As of 2024, government mismanagement of the money supply has led to a 35 trillion dollar debt.
Sound money's greatest gift to society is its promotion of savings, allowing for the accumulation of capital, expansion of global trade, and the ensuing improvement in living standards for society. But a stable currency is also a natural check on government bureaucracies, hamstrung by the sound money’s lack of inflationary characteristics. The best opportunity for stable money comes from a currency developed by markets and individuals. When capitalism is allowed to operate outside government control, market prices can transmit knowledge to entrepreneurs and investors, allowing consumers to make voluntary decisions in their best interests. While sound money may require more responsibility, it also allows for more freedom and the creation of more wealth for all.
The Bitcoin possibility of disrupting the government system is a game-changer. As a source of sound money for the digital age, Bitcoin has structured a system that limits its supply, making it a good store of value. Bitcoin is simply software for a payment network that is verifiable by all its users without needing any physical infrastructure, other than a laptop and Internet access. Since Bitcoin is the hardest form of money ever invested, it allows full control by its owner.
Subsequently, money can be sent anywhere at any time, without the necessity of a third party, and any outside oversight. Freed from government surveillance, Bitcoin is the first real alternative to central banking. With the potential to return government to the role of servant, not master, the public will have more control over private matters, making government less and less relevant.
Bitcoin is an exciting alternative that has the potential to once again reign as a reserve currency for a freer and more amicable world.
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