Saifedean Ammous is an independent scholar researching and teaching bitcoin and economics in the Austrian school tradition on his website: www.saifedean.com.

Three years after the initial publication of The Bitcoin Standard in 2018, interest in the book has continued to grow steadily, with each of the first three months of 2021 registering a record in monthly sales, and translations rights sold for 25 languages. The growing demand made me consider publishing a second edition of the book, correcting some unfortunate errors, updating the book with the data and developments of the intervening three years, and adding two new chapters to discuss bitcoin's scaling and energy consumption in more depth. But a lot has changed in the world of bitcoin over the last three years, and introducing the data and developments of these years would require significant edits to the text. The Bitcoin Standard, and its analysis and conclusions, was the product of its time, a snapshot of a specific point in bitcoin's history, after the contentious hard fork wars were decisively resolved in a way that cemented bitcoin's value proposition of an immutable hard monetary policy, when the total value of the bitcoin network had settled around the milestone of $100 billion, just before the network was to enter its second decade and mature into an investment-grade asset class attracting the attention of the world's major financial institutions and corporations. While the events of the last three years do not invalidate the analysis and conclusions of the book, including them would change the book significantly from the original text, popular with readers around the world, and result in the creation of a different book, a product of a different time in bitcoin's life.

Instead of a significantly altered second edition, and in consultation with my editor, I decided to let The Bitcoin Standard live on in its original form, with only some minor adjustments to correct a few obvious mistakes, some of which were glaring, though inconsequential to the substance and arguments of the book. I will instead include new developments and analysis in a sequel, The Fiat Standard: The Debt Slavery Alternative to Human Civilization. The sequel will analyze the rise of bitcoin by analyzing the workings of the fiat monetary system using the same approach, methods, and terminology used in studying bitcoin in The Bitcoin Standard.

Unexpected to me at the time of writing, The Bitcoin Standard has proven popular among corporations and financial institutions entering the bitcoin space. The most astonishing compliment the book received was when Michael Saylor, CEO of publicly traded software intelligence firm Microstrategy, decided to put his company on a bitcoin standard, making bitcoin its prime treasury reserve asset. Mr. Saylor has not only backed his conviction in bitcoin by putting significant amounts of his personal wealth and company treasury in bitcoin, but he has, in a very short period of time, become one of the leading thinkers and analysts of bitcoin, as well as one of its most effective communicators. The conviction, courage, and clarity of Mr. Saylor in pursuing a bitcoin standard has been an inspiration, and I am honored he has agreed to write a foreword to include with this reprint, to contextualize the importance of this book for the continued emergence of a global bitcoin standard.

With the revisions complete, and a new foreword to introduce the book from the world's pioneering leader in adopting the bitcoin standard, I hope readers find this version of the book worthy of a place on their bookshelves, and in their recommendations to family, friends, and colleagues, well into the future.

In March 2020, the world was struck by a pandemic, which brought entire segments of our economy to a grinding halt, and interrupted patterns of behavior that we had all grown accustomed to over the course of hundreds of years. Offices and schools closed, public gatherings ceased, commercial and recreational travel were stopped, and in-person meetings became impossible or impractical. Stores were closed, factories idled, aircraft were grounded, ships anchored, roads were blocked, and borders closed.

The monetary response of policymakers to this economic shock was unprecedented. The supply of currency expanded at the fastest rate in modern history, with every nation engaged in aggressive asset purchases, fiscal stimulus, deficit spending, and interest rate suppression. The result was a K-shaped recovery—asset-rich firms rapidly bounced back and had their best performing year of the century, while operating companies saw their revenues collapse and their earnings dissipate.

The cognitive dissonance was bewildering, as was the massive wealth redistribution. Purely digital firms saw their demand and revenues explode upwards. Brick-and-mortar retail, travel, hospitality, and entertainment industries struggled to stay solvent. MicroStrategy was positioned in the middle of this economic landscape—and we spent the entire second quarter transforming our operations to become digital first, by rebuilding the sales, marketing, and services operations around our website, and implementing videoconferencing, automation, cloud services, and remote work.

By June, we had done enough work and gained enough information to conclude that the five-hundred-million-dollar war chest that we were saving for a rainy day would be of no use in the new virtual world, and we would probably generate an additional five hundred million in cash flow due to our digital transformation. The good news was that we had plenty of cash and a high prospect of generating more over time. The bad news was that the monetary inflation rate had tripled, and the price of other assets was exploding at the fastest rate in a generation. Our treasury was a rapidly melting ice cube, and we needed to act quickly if we didn't want to see all the value it represented waste away.

This catalyzed a mad scramble for a solution to our problem. How does a modern corporation protect its balance sheet in an environment of monetary inflation where the currency is losing 15% of its purchasing power each year, while the after-tax yields available from traditional treasury instruments are effectively zero? A company generating seventy-five million per year in cash flow, holding five hundred million dollars in treasury balances at a negative real yield of 15% is destroying as much shareholder value as it is creating. In essence, we were running as hard as we could to stand still.

After considering and dismissing cash, bonds, real estate, equity, derivatives, art, commodities, and collectibles as treasury assets, we were left with just precious metals and cryptocurrencies. It was at this point in my search for a solution that I discovered The Bitcoin Standard by Saifedean Ammous, and it was this book, more than any other, that provided the holistic economic framework that I needed to interpret the macroeconomic forces reshaping our world, distorting our markets, and buffeting corporations.

The Bitcoin Standard should be required reading for everyone in modern society. It offers a concise, coherent narrative of monetary theory, the history of money, practical economics, and the impact of political policy on business, culture, and the economy. The book contains perhaps one of the best articulations of the virtues of strong money and the dangers of weak currency yet presented in modern business literature. The Bitcoin Standard also masterfully debunks the myths of modern monetary theory and the broken ideas that have dominated the fiat economic school of thought since the early twentieth century.

In May 2020, this book was critical in leading me to conclude that bitcoin was the solution to our corporate treasury problem. Our firm elected to invest our cash assets in bitcoin in August 2020, eventually adopting it as our primary treasury reserve asset and purchasing $2.2 billion in BTC over the following six months. The Bitcoin Standard helped us realize that the best business strategy for our firm was to hold just a small working capital balance in fiat currencies, sweeping the rest of our cash flows into our treasury and converting those sums into bitcoin as soon as practical. As I write these words, 99% of our assets are stored in bitcoin, with the remaining 1% stored in the local currencies required to do business in various markets. In essence, MicroStrategy has adopted the bitcoin standard.

The Bitcoin Standard is my first recommendation for those seeking a holistic appreciation of the economic theory, political history, and technological developments that have driven the growth of the bitcoin network and define its future trajectory. It is suitable for individuals, investors, executives, technologists, politicians, journalists, and academics alike, regardless of their agenda. Bitcoin is the world's first digital monetary network. Bitcoin is also the world's first engineered monetary asset. Together, these traits represent the most disruptive technology in the world, the greatest opportunity currently available to those who wish to create something new and wonderful, and the solution to the store-of-value problem faced by 7.8 billion people, 100+ million companies, and hundreds of trillions of dollars of investor capital.

I hope you enjoy this book as much as I did, and benefit from ideas contained within these pages.

Michael J. Saylor
Chairman & CEO
MicroStrategy
Miami Beach, FL
24 March 2021

On October 31, 2008, a computer programmer going by the pseudonym Satoshi Nakamoto sent an email to a cryptography mailing list to announce that he had produced a “new electronic cash system that's fully peer-to-peer, with no trusted third party.”¹ He copied the abstract of the paper explaining the design, and a link to it online. In essence, bitcoin offered a payment network with its own native currency, and used a sophisticated method for members to verify all transactions without having to trust in any single member of the network. The currency was issued at a predetermined rate to reward the members who spent their processing power on verifying the transactions, thus providing a reward for their work. The startling thing about this invention was that, contrary to many other previous attempts at setting up a digital cash, it actually worked.

While a clever and neat design, there wasn't much to suggest that such a quirky experiment would interest anyone outside the circles of cryptography geeks. For months this was the case, as barely a few dozen users worldwide were joining the network and engaging in mining and sending each other coins that began to acquire the status of collectibles, albeit in digital form.

But in October 2009, an Internet exchange² sold 5,050 bitcoins for $5.02, at a price of $1 for 1,006 bitcoins, to register the first purchase of a bitcoin with money.³ The price was calculated by measuring the value of the electricity needed to produce a bitcoin. In economic terms, this seminal moment was arguably the most significant in bitcoin's life. Bitcoin was no longer just a digital game being played within a fringe community of programmers; it had now become a market good with a price, indicating that someone somewhere had developed a positive valuation for it. On May 22, 2010, someone else paid 10,000 bitcoins to buy two pizza pies worth $25, representing the first time that bitcoin was used as a medium of exchange. The token had needed seven months to transition from being a market good to being a medium of exchange.

Since then, the bitcoin network has grown in the number of users and transactions, and the processing power dedicated to it, while the value of its currency has risen quickly, exceeding $7,000 per bitcoin as of November 2017.⁴ After eight years, it is clear that this invention is no longer just an online game, but a technology that has passed the market test and is being used by many for real-world purposes, with its exchange rate being regularly featured on TV, in newspapers, and on websites along with the exchange rates of national currencies.

Bitcoin can be best understood as distributed software that allows for transfer of value using a currency protected from unexpected inflation without relying on trusted third parties. In other words, bitcoin automates the functions of a modern central bank and makes them predictable and virtually immutable by programming them into code decentralized among thousands of network members, none of whom can alter the code without the consent of the rest. This makes bitcoin the first demonstrably reliable operational example of digital cash and digital hard money. While bitcoin is a new invention of the digital age, the problems it purports to solve—namely, providing a form of money that is under the full command of its owner and likely to hold its value in the long run—are as old as human society itself. This book presents a conception of these problems based on years of studying this technology and the economic problems it solves, and how societies have previously found solutions for them throughout history. My conclusion may surprise those who label bitcoin a scam or ruse of speculators and promoters out to make a quick buck. Indeed, bitcoin improves on earlier “store of value” solutions, and bitcoin's suitability as the sound money of a digital age may catch naysayers by surprise.

History can foreshadow what's to come, particularly when examined closely. And time will tell just how sound the case made in this book is. As it must, the first part of the book explains money, its function and properties. As an economist with an engineering background, I have always sought to understand a technology in terms of the problems it purports to solve, which allows for the identification of its functional essence and its separation from incidental, cosmetic, and insignificant characteristics. By understanding the problems money attempts to solve, it becomes possible to elucidate what makes for sound and unsound money, and to apply that conceptual framework to understand how and why various goods, such as seashells, beads, metals, and government money, have served the function of money, and how and why they may have failed at it or served society's purposes to store value and exchange it.

The second part of the book discusses the individual, social, and global implications of sound and unsound forms of money throughout history. Sound money allows people to think about the long term and to save and invest more for the future. Saving and investing for the long run are the key to capital accumulation and the advance of human civilization. Money is the information and measurement system of an economy, and sound money is what allows trade, investment, and entrepreneurship to proceed on a solid basis, whereas unsound money throws these processes into disarray. Sound money is also an essential element of a free society as it provides for an effective bulwark against despotic government.

The third section of the book explains the operation of the bitcoin network and its most salient economic characteristics, and analyzes the possible uses of bitcoin as a form of sound money, discussing some use cases which bitcoin does not serve well, as well as addressing some of the most common misunderstandings and misconceptions surrounding it.

This book is written to help the reader understand the economics of bitcoin and how it serves as the digital iteration of the many technologies used to fulfill the functions of money throughout history. This book is not an advertisement or invitation to buy into the bitcoin currency. Far from it. The value of bitcoin is likely to remain volatile, at least for a while; the bitcoin network may yet succeed or fail, for whatever foreseeable or unforeseeable reasons; and using it requires technical competence and carries risks that make it unsuited for many people. This book does not offer investment advice, but aims at helping elucidate the economic properties of the network and its operation, to provide readers an informed understanding of bitcoin before deciding whether they want to use it.

Only with such an understanding, and only after extensive and thorough research into the practical operational aspects of owning and storing bitcoins, should anyone consider holding value in bitcoin. While bitcoin's rise in market value may make it appear like a no-brainer as an investment, a closer look at the myriad hacks, attacks, scams, and security failures that have cost people their bitcoins provides a sobering warning to anyone who thinks that owning bitcoins provides a guaranteed profit. Should you come out of reading this book thinking that the bitcoin currency is something worth owning, your first investment should not be in buying bitcoins, but in time spent understanding how to buy, store, and own bitcoins securely. It is the inherent nature of bitcoin that such knowledge cannot be delegated or outsourced. There is no alternative to personal responsibility for anyone interested in using this network, and that is the real investment that needs to be made to get into bitcoin.

Bitcoin is the newest technology to serve the function of money—an invention leveraging the technological possibilities of the digital age to solve a problem that has persisted for all of humanity's existence: how to move economic value across time and space. In order to understand bitcoin, one must first understand money, and to understand money, there is no alternative to the study of the function and history of money.

The simplest way for people to exchange value is to exchange valuable goods with one another. This process of direct exchange is referred to as barter, but is only practical in small circles with only a few goods and services produced. In a hypothetical economy of a dozen people isolated from the world, there is not much scope for specialization and trade, and it would be possible for individuals to each engage in the production of the most basic essentials of survival and exchange them among themselves directly. Barter has always existed in human society and continues to this day, but it is highly impractical and remains only in use in exceptional circumstances, usually involving people with extensive familiarity with one another.

In a more sophisticated and larger economy, the opportunity arises for individuals to specialize in the production of more goods and to exchange them with many more people—people with whom they have no personal relationships, strangers with whom it is utterly impractical to keep a running tally of goods, services, and favors. The larger the market, the more the opportunities for specialization and exchange, but also the bigger the problem of coincidence of wants—what you want to acquire is produced by someone who doesn't want what you have to sell. The problem is deeper than different requirements for different goods, as there are three distinct dimensions to the problem.

First, there is the lack of coincidence in scales: what you want may not be equal in value to what you have and dividing one of them into smaller units may not be practical. Imagine wanting to sell shoes for a house; you cannot buy the house in small pieces each equivalent in value to a pair of shoes, nor does the homeowner want to own all the shoes whose value is equivalent to that of the house. Second, there is the lack of coincidence in time frames: what you want to sell may be perishable but what you want to buy is more durable and valuable, making it hard to accumulate enough of your perishable good to exchange for the durable good at one point in time. It is not easy to accumulate enough apples to be exchanged for a car at once, because they will rot before the deal can be completed. Third, there is the lack of coincidence of locations: you may want to sell a house in one place to buy a house in another location, and (most) houses aren't transportable. These three problems make direct exchange highly impractical and result in people needing to resort to performing more layers of exchange to satisfy their economic needs.

The only way around this is through indirect exchange: you try to find some other good that another person would want and find someone who will exchange it with you for what you want to sell. That intermediary good is a medium of exchange, and while any good could serve as the medium of exchange, as the scope and size of the economy grows it becomes impractical for people to constantly search for different goods that their counterparty is looking for, carrying out several exchanges for each exchange they want to conduct. A far more efficient solution will naturally emerge, if only because those who chance upon it will be far more productive than those who do not: a single medium of exchange (or at most a small number of media of exchange) emerges for everyone to trade their goods for. A good that assumes the role of a widely accepted medium of exchange is called money.

Being a medium of exchange is the quintessential function that defines money—in other words, it is a good purchased not to be consumed (a consumption good), nor to be employed in the production of other goods (an investment, or capital good), but primarily for the sake of being exchanged for other goods. While investment is also meant to produce income to be exchanged for other goods, it is distinct from money in three respects: first, it offers a return, which money does not offer; second, it always involves a risk of failure, whereas money is supposed to carry the least risk; third, investments are less liquid than money, necessitating significant transaction costs every time they are to be spent. This can help us understand why there will always be demand for money, and why holding investments can never entirely replace money. Human life is lived with uncertainty as a given, and humans cannot know for sure when they will need what amount of money.¹ It is common sense, and age-old wisdom in virtually all human cultures, for individuals to want to store some portion of their wealth in the form of money, because it is the most liquid holding possible, allowing the holder to quickly liquidate if she needs to, and because it involves less risk than any investment. The price for the convenience of holding money comes in the form of the forgone consumption that could have been had with it, and in the form of the forgone returns that could have been made from investing it.

From examining such human choices in market situations, Carl Menger, the father of the Austrian school of economics and founder of marginal analysis in economics, came up with an understanding of the key property that leads to a good being adopted freely as money on the market, and that is salability—the ease with which a good can be sold on the market whenever its holder desires, with the least loss in its price.²

There is nothing in principle that stipulates what should or should not be used as money. Any person choosing to purchase something not for its own sake, but with the aim of exchanging it for something else, is making it de facto money, and as people vary, so do their opinions on, and choices of, what constitutes money. Throughout human history, many things have served the function of money: gold and silver, most notably, but also copper, seashells, large stones, salt, cattle, government paper, precious stones, and even alcohol and cigarettes in certain conditions. People's choices are subjective, and so there is no “right” and “wrong” choice of money. There are, however, consequences to choices.

The relative salability of goods can be assessed in terms of how well they address the three facets of the problem of the lack of coincidence of wants mentioned earlier: their salability across scales, across space, and across time. A good that is salable across scales can be conveniently divided into smaller units or grouped into larger units, thus allowing the holder to sell it in whichever quantity he desires. Salability across space indicates an ease of transporting the good or carrying it along as a person travels, and this has led to good monetary media generally having high value per unit of weight. Both of these characteristics are not very hard to fulfill by a large number of goods that could potentially serve the function of money. It is the third element, salability across time, which is the most crucial.

A good's salability across time refers to its ability to hold value into the future, allowing the holder to store wealth in it, which is the second function of money: store of value. For a good to be salable across time it has to be immune to rot, corrosion, and other types of deterioration. It is safe to say anyone who thought he could store his wealth for the long term in fish, apples, or oranges learned this lesson the hard way, and likely had very little reason to worry about storing wealth for a while. Physical integrity through time, however, is a necessary but insufficient condition for salability across time, as it is possible for a good to lose its value significantly even if its physical condition remains unchanged. For the good to maintain its value, it is also necessary that the supply of the good not increase too drastically during the period in which the holder owns it. A common characteristic of forms of money throughout history is the presence of some mechanism to restrain the production of new units of the good to maintain the value of the existing units. The relative difficulty of producing new monetary units determines the hardness of money: money whose supply is hard to increase is known as hard money, while easy money is money whose supply is amenable to large increases.

We can understand money's hardness through understanding two distinct quantities related to the supply of a good: (1) the stock, which is its existing supply, consisting of everything that has been produced in the past, minus everything that has been consumed or destroyed; and (2) the flow, which is the extra production that will be made in the next time period. The ratio between the stock and flow is a reliable indicator of a good's hardness as money, and how well it is suited to playing a monetary role. A good that has a low ratio of stock-to-flow is one whose existing supply can be increased drastically if people start using it as a store of value. Such a good would be unlikely to maintain value if chosen as a store of value. The higher the ratio of the stock to the flow, the more likely a good is to maintain its value over time and thus be more salable across time.³

If people choose a hard money, with a high stock-to-flow ratio, as a store of value, their purchasing of it to store it would increase demand for it, causing a rise in its price, which would incentivize its producers to make more of it. But because the flow is small compared to the existing supply, even a large increase in the new production is unlikely to depress the price significantly. On the other hand, if people chose to store their wealth in an easy money, with a low stock-to-flow ratio, it would be trivial for the producers of this good to create very large quantities of it that depress the price, devaluing the good, expropriating the wealth of the savers, and destroying the good's salability across time.

I like to call this the easy money trap: anything used as a store of value will have its supply increased, and anything whose supply can be easily increased will destroy the wealth of those who used it as a store of value. The corollary to this trap is that anything that is successfully used as money will have some natural or artificial mechanism that restricts the new flow of the good into the market, maintaining its value across time. It therefore follows that for something to assume a monetary role, it has to be costly to produce, otherwise the temptation to make money on the cheap will destroy the wealth of the savers, and destroy the incentive anyone has to save in this medium.

Whenever a natural, technological, or political development resulted in quickly increasing the new supply of a monetary good, the good would lose its monetary status and be replaced by other media of exchange with a more reliably high stock-to-flow ratio, as will be discussed in the next chapter. Seashells were used as money when they were hard to find, loose cigarettes are used as money in prisons because they are hard to procure or produce, and with national currencies, the lower the rate of increase of the supply, the more likely the currency is to be held by individuals and maintain its value over time.

When modern technology made the importation and catching of seashells easy, societies that used them switched to metal or paper money, and when a government increases its currency's supply, its citizens shift to holding foreign currencies, gold, or other more reliable monetary assets. The twentieth century provided us an unfortunately enormous number of such tragic examples, particularly from developing countries. The monetary media that survived the longest are the ones that had very reliable mechanisms for restricting their supply growth—in other words, hard money. Competition is at all times alive between monetary media, and its outcomes are foretold through the effects of technology on the differing stock-to-flow ratio of the competitors, as will be demonstrated in the next chapter.

While people are generally free to use whichever goods they please as their media of exchange, the reality is that over time, the ones who use hard money will benefit most, by losing very little value due to the negligible new supply of their medium of exchange. Those who choose easy money will likely lose value as its supply grows quickly, bringing its market price down. Whether through prospective rational calculation, or the retrospective harsh lessons of reality, the majority of money and wealth will be concentrated with those who choose the hardest and most salable forms of money. But the hardness and salability of goods itself is not something that is static in time. As the technological capabilities of different societies and eras have varied, so has the hardness of various forms of money, and with it their salability. In reality, the choice of what makes the best money has always been determined by the technological realities of societies shaping the salability of different goods. Hence, Austrian economists are rarely dogmatic or objectivist in their definition of sound money. They define it not as a specific good or commodity, but as whichever money emerges on the market, freely chosen by the people who transact with it. It is not imposed by coercive authority, and its value is determined through market interaction, not government imposition.⁴ Free-market monetary competition is ruthlessly effective at producing sound money, as it only allows those who choose the right money to maintain considerable wealth over time. There is no need for government to impose the hardest money on society; society will have uncovered it long before it concocted its government, and any governmental imposition, if it were to have any effect, would only serve to hinder the process of monetary competition.

The full individual and societal implications of hard and easy money are far more profound than mere financial loss or gain, and are a central theme of this book, discussed thoroughly in Chapters 5, 6, and 7. Those who are able to save their wealth in a good store of value are likely to plan for the future more than those who have bad stores of value. The soundness of the monetary media, in terms of its ability to hold value over time, is a key determinant of how much individuals value the present over the future, or their time preference, a pivotal concept in this book.

Beyond the stock-to-flow ratio, another important aspect of a monetary medium's salability is its acceptability by others. The more people accept a monetary medium, the more liquid it is, and the more likely it is to be bought and sold without too much loss. In social settings with many peer-to-peer interactions, as computing protocols demonstrate, it is natural for a few standards to emerge to dominate exchange, because the gains from joining a network grow exponentially the larger the size of the network. Hence, Facebook and a handful of social media networks dominate the market, when many hundreds of almost identical networks were created and promoted. Similarly, any device that sends emails has to utilize the IMAP/POP3 protocol for receiving email, and the SMTP protocol for sending it. Many other protocols were invented, and they could be used perfectly well, but almost nobody uses them because to do so would preclude a user from interacting with almost everyone who uses email today, because they are on IMAP/POP3 and SMTP. Similarly, with money, it was inevitable that one, or a few, goods would emerge as the main medium of exchange, because the property of being exchanged easily matters the most. A medium of exchange, as mentioned before, is not acquired for its own properties, but for its salability.

Further, wide acceptance of a medium of exchange allows all prices to be expressed in its terms, which allows it to play the third function of money: unit of account. In an economy with no recognized medium of exchange, each good will have to be priced in terms of each other good, leading to a large number of prices, making economic calculations exceedingly difficult. In an economy with a medium of exchange, all prices of all goods are expressed in terms of the same unit of account. In this society money serves as a metric with which to measure interpersonal value; it rewards producers to the extent that they contribute value to others, and signifies to consumers how much they need to pay to obtain their desired goods. Only with a uniform medium of exchange acting as a unit of account does complex economic calculation become possible, and with it comes the possibility for specialization into complex tasks, capital accumulation, and large markets. The operation of a market economy is dependent on prices, and prices, to be accurate, are dependent on a common medium of exchange, which reflects the relative scarcity of different goods. If this is easy money, the ability of its issuer to constantly increase its quantity will prevent it from accurately reflecting opportunity costs. Every unpredictable change in the quantity of money would distort its role as a measure of interpersonal value and a conduit for economic information.

Having a single medium of exchange allows the size of the economy to grow as large as the number of people willing to use that medium of exchange. The larger the size of the economy, the larger the opportunities for gains from exchange and specialization, and perhaps more significantly, the longer and more sophisticated the structure of production can become. Producers can specialize in producing capital goods that will only produce final consumer goods after longer intervals, which allows for more productive and superior products. In the primitive small economy, the structure of production of fish consisted of individuals going to the shore and catching fish with their bare hands, with the entire process taking a few hours from start to finish. As the economy grows, more sophisticated tools and capital goods are utilized, and the production of these tools stretches the duration of the production process significantly while also increasing its productivity. In the modern world, fish are caught with highly sophisticated boats that take years to build and are operated for decades. These boats are able to sail to seas that smaller boats cannot reach and thus produce fish that would otherwise not be available. The boats can brave inclement weather and continue production in very difficult conditions where less capital-intensive boats would be docked uselessly. As capital accumulation has made the process longer, it has become more productive per unit of labor, and it can produce superior products that were never possible for the primitive economy with basic tools and no capital accumulation. None of this would be possible without money playing the roles of medium of exchange to allow specialization; store of value to create future-orientation and incentivize individuals to direct resources to investment instead of consumption; and unit of account to allow economic calculation of profits and losses.

The history of money's evolution has seen various goods play the role of money, with varying degrees of hardness and soundness, depending on the technological capabilities of each era. From seashells to salt, cattle, silver, gold, and gold-backed government money, ending with the current almost universal use of government-provided legal tender, every step of technological advance has allowed us to utilize a new form of money with added benefits, but, as always, new pitfalls. By examining the history of the tools and materials that have been employed in the role of money throughout history, we are able to discern the characteristics that make for good money and the ones that make for bad money. Only with this background in place can we then move on to understand how bitcoin functions and what its role as a monetary medium is.

The next chapter examines the history of obscure artifacts and objects that have been used as money throughout history, from the Rai stones of Yap Island, to seashells in the Americas, glass beads in Africa, and cattle and salt in antiquity. Each of these media of exchange served the function of money for a period during which it had one of the best stock-to-flow ratios available to its population, but stopped when it lost that property. Understanding how and why is essential to understanding the future evolution of money and any likely role bitcoin will play. Chapter 3 moves to the analysis of monetary metals and how gold came to be the prime monetary metal in the world during the era of the gold standard at the end of the nineteenth century. Chapter 4 analyzes the move to government money and its track record. After the economic and social implications of different kinds of money are discussed in Chapters 5, 6, and 7, Chapter 8 introduces the invention of bitcoin and its monetary properties.