Gold vs. Bitcoin
SAIFEDEAN AMMOUS: We're going to get to a point where there's going to be 21 million bitcoins and that's it and there's nothing else that anybody can produce. This makes it more of a gold than gold.
Bitcoin improves on gold, Bitcoin's fixed supply means that it is the first liquid commodity or liquid asset ever invented that has a supply that is truly fixed. You can't make more of it. I think this is a point that is not emphasized enough about Bitcoin.
From an engineering perspective, it's decentralized and the fact that it exists as a neutral protocol that for all practical intents and purposes, nobody can really change.
MARTY BENT: I am Marty Bent, founder of tftc.io here for Real Vision today, sitting down with Saifedean Ammous, economist and author of "The Bitcoin Standard." Saife, how we're doing today.
SAIFEDEAN AMMOUS: Very good. Thank you so much for hosting me, Marty.
MARTY BENT: I'm very happy to be sitting down with you here today in a foreign land in Real Vision, but very excited about the conversation.
SAIFEDEAN AMMOUS: Likewise.
MARTY BENT: We're here to talk about the gold standard versus the Bitcoin standard. We've been having brief conversations about this leading up to this. I think the best way to start is to describe how the world came to a gold standard originally and how that got bastardized to an extent.
SAIFEDEAN AMMOUS: Yeah, I think the interesting thing I discussed in my book about the gold standard, my book is about the Bitcoin standard. However, about 70% of the book is dedicated toward discussing the monetary history and primarily, gold. I think learning about gold and the gold standard is extremely significant for Bitcoin for a couple of reasons we'll get into in a bit.
I think the interesting thing about gold is that it became a global monetary standard without anybody having to politically decide upon it. Governments recognized gold as money, but it was the market that chose it as money before governments recognize that and the choice of gold emerging as the global monetary standard was not a political decision. Political decisions recognize that the reality of the monetary choice.
The world previously had used copper, silver and gold but by the end of the 19th century, practically the entire planet was using gold as money and people who were still on silver had suffered enormously from the massive devaluation of silver. What we saw was the spontaneous market monetization of gold as a universal monetary medium used all over the world. That primarily in my mind goes back to the stock to flow ratio of gold, the fact that gold has the lowest percentage increase in its supply reliably year in year out.
This is how it has operated because of its chemical properties, which mean that its existing stockpiles don't rust, don't corrode. All of the gold that we've been piling up for thousands of years, all the gold that we've accumulated over thousands of years of gold production, all of that is sitting somewhere there. People hold it, and it's very valuable. They take care of it. Nothing can ruin it. It can't trust, it can't corrode, it can't evaporate. Therefore, the stockpiles of gold continue to increase every year.
Every year, we just add more gold to the stockpile that we have, and we don't consume any. The quantity of gold that exists is very larger. Every year as we're adding to it, the addition that we add every single year is small compared to the existing stockpile. That means that every year, the primary market for gold is made up of people who already own the existing supply, selling to people who want to buy some of that.
The market is made up of holders buying and selling, but there's very small section of the market that's made up of new supply of miners, providing new supply. This, I think is the key property that made gold a monetary standard and made the gold successful as money because it means that should its price rise, the only way for people to make more of it or is to bid up the price further and to buy more of it from people who hold it. Therefore, it's useful as a store of value because people who hold it don't have to worry about some new way of increasing the supply, which increases the available supply in the market and brings the price down.
Therefore, with gold mining, being consistently and reliably a small percentage of gold supply and percentages are around 1% to 2% every year. Every year, we add around 1% or 2% to the global stockpiles of gold. Every year, we make a little bit more, but every year, we get a bigger stockpile. The growth rate continues at around 1% to 2% per year. This means that every-- on any given day, the quantity of gold that's being bought and sold is largely made up of people who hold it.
I think this is what I argue in my book was the primary reason why gold won out over other monetary metals. Silver was more popular. It was used by more people-- at the beginning of the 19th century,