[How About This Book] Bitcoin Replaces Money, Just Like Cars Replaced Horses

"The abacus was not replaced by the calculator and then the computer because it was problematic. Nor was the horse replaced by the automobile because it was problematic. The advantages of computers and automobiles were highlighted. Similarly, Bitcoin will continue to expand its influence because of its advantages. Even if the dollar does not collapse and maintains a certain strength, Bitcoin will continue to grow. Bitcoin inevitably rises because of the advantages it inherently possesses."

Professor Saifedin Amos, an economics professor at the Lebanese American University, summarized the future of Bitcoin in this way. He advises the government of El Salvador, the first country in the world to adopt Bitcoin as legal tender. He was appointed as an advisor to El Salvador's Bitcoin Strategy Office in May last year. He is one of the scholars who has studied Bitcoin most deeply. His 2018 publication, The Bitcoin Standard, made a significant impact. The book was translated and published domestically in the same year under the title Why Does the Dollar Hate Bitcoin? (Turning Point).

To explain how Bitcoin works, Professor Amos published The Fiat Standard in 2021. Dasan Books translated and published it domestically last month under the same title. He said that understanding fiat currency is necessary to explain Bitcoin, and Bitcoin serves as a good tool for understanding the fiat currency system. At the same time, Professor Amos pointed out that fiat currencies are very complex and problematic compared to Bitcoin.

Saifedin Amos, Professor of Economics at the Lebanese American University [Photo by Dasan Books]

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Professor Amos recently visited Korea for the first time on the occasion of his book release. We met him on the 1st at the Kyobo Building in Gwanghwamun before his lecture. In an interview with Forbes last year, Professor Amos said that if the El Salvador government continues to accumulate Bitcoin, it might be able to pay off its debt within 5 to 10 years. El Salvador's government debt was $26.7 billion as of 2022. This seems like a plausible scenario. The price of Bitcoin has risen about 2.7 times since October last year. However, Bitcoin has experienced several cycles of sharp rises and falls in the past. Therefore, there are concerns about the current overheating of Bitcoin prices.

Regarding this, Professor Amos said, "In the long term, Bitcoin has continued to rise while the dollar has shown a downward trend," and questioned, "Looking at the big picture, perhaps the dollar is a much riskier asset than Bitcoin." In his book, Professor Amos explains that fiat currencies have the characteristic of depreciating in value over time. Unlike gold or Bitcoin, the supply of fiat currency can increase indefinitely.

Professor Amos defines the fundamental characteristic of the fiat currency system as treating not only the currency currently in hand but also the promise to pay that currency in the future as having value, if the currency is created by the government or lending institutions authorized by the government. In other words, currency is created based on credit, and the money supply increases. Professor Amos explained, "Not only central banks but all lending institutions have the ability to increase the money supply through loans," adding, "In the case of fiat currency, money supply increases as long as credit loans are made."

"If someone goes to a bank and requests a loan of one million dollars and the bank approves it, that itself creates one million dollars of new money. The bank just needs to record the number one million dollars in its ledger, and new money is created. To obtain gold or Bitcoin, mining is required, but in the case of fiat currency, lending is equivalent to mining. Individuals take loans to buy houses, and companies take loans for investments. As a result, the world operates on debt. Also, money flows from individuals to the government. Because the government keeps printing money, increasing the money supply, the money held by individuals keeps depreciating. Meanwhile, the government accumulates more and more money. It is the entity that creates money freely. Wealth is transferred from individuals to the government, and this fiat currency system might be the reason why government power becomes stronger," he said.

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Anyone can easily get loans, increasing the money supply and continuously decreasing the value of currency. Therefore, Professor Amos argues, "It's like closing your eyes and being robbed," and claims there is no reason to hold dollars that are continuously depreciating. He said the continuous decline in the value of fiat currencies like the dollar has a significant impact on human life, citing the recent phenomenon of young people not getting married as a clear example.

"People are not having children or forming families partly because they cannot save money. This is because the government keeps printing a lot of money, so even if you save, the value of that money drastically drops over time." To Professor Amos, fiat currency is merely a tool that provides the government with the ability to spend unlimitedly.

In fact, fiat currency firmly established itself during World War I, when enormous war expenses had to be raised. Countries like the UK and the US abandoned the gold standard one after another to raise massive war funds during World War I. After the war, the Bretton Woods system was established, adopting the dollar as the reserve currency, but the US again abandoned gold convertibility during the Vietnam War. They gave up the principle of printing money only as much as gold reserves.

Professor Amos points out that the fiat currency standard was ultimately born as governments became practically unable to fulfill gold convertibility obligations. It was a desperate measure by central banks facing bankruptcy due to enormous war expenses, a geopolitical outcome inevitably arising from the combination of politics and currency. He criticizes that the history of fiat currency is essentially the history of governments coping with debt defaults. Therefore, it was neither a technology intentionally designed to supply sound currency nor to facilitate international settlements, nor was it designed to optimize user experience in terms of currency, transactions, and banking. He even states that because the boundary between cash and credit is ambiguous, it is practically impossible to measure the exact money supply. In his book, Professor Amos defines fiat currency as "a technology that forcibly implements a debt-based centralized ledger monopolizing global financial and monetary services."

Professor Amos explains that after countries abandoned gold convertibility following the outbreak of World War I in 1914, both the dollar and the pound depreciated by more than 95% against gold. He said, "Since 1971, when US President Richard Nixon abandoned gold convertibility, exchanging one ounce of gold for 35 dollars during the Vietnam War, the downward trend of the dollar's value has never changed in the past 50 years, while Bitcoin has been appreciating over the past 10 years."

Saifedin Amos, Professor of Economics at the Lebanese American University [Photo by Dasan Books]

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Professor Amos emphasized that unlike fiat currencies, whose supply can increase indefinitely, the number of Bitcoins is fixed at 21 million, and no one can change this. He also explained that one Bitcoin equals 100 million satoshis, and in El Salvador, where Bitcoin is currently used in daily life, prices are calculated in satoshis, such as a few satoshis for a cup of coffee. Professor Amos predicted that in the long term, Bitcoin will completely replace the cash assets held by individuals.

"Currently, the total amount of cash assets worldwide is about $300 trillion. The value of Bitcoin is only about $1 trillion. I believe that ultimately, Bitcoin will replace the demand for $300 trillion of cash assets existing on Earth."

The Fiat Standard | Written by Saifedin Amos | Translated by Lim Kyung-eun | Dasan Books | 512 pages | 38,000 KRW

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