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Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies
In this fascinating deep dive into the evolution of monetary systems around the globe, Nik Bhatia takes us into the origins of how money has evolved to function in a "layered" manner. Using gold as an example of this term, he traces the layers of this ancient currency from raw mined material, to gold coins, and finally to bank-issued gold certificates. In a groundbreaking manner, Bhatia offers a similar paradigm for the evolution of digital currencies. Bhatia's analysis begins in Renaissance Florence with the gold Florin coin and a burgeoning banking culture, continues with the evolution of central banking, and concludes with a vision for the future of our international monetary system. As central banks around the world prepare to launch their own crypto-competitors, Bhatia illustrates how the invention of Bitcoin created a seismic shift in money and merged the monetary and cryptography sciences. His unique analysis of "layered money" illuminates money markets for the general reader and shows how Bitcoin is becoming a trusted global currency. Readers will come away with an understanding of the mechanics of our financial system, why the dollar is deeply entrenched despite its state of disrepair, and how Central Bank Digital Currencies (CBDCs) and cryptocurrencies will interact in our new monetary future.
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Published January 18, 2021
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December 30, 2021
หนังสืออธิบาย cryptocurrency ที่ดีที่สุดที่เคยอ่าน ชอบมากกว่า Bitcoin Standard ซึ่งดังกว่าเล่มนี้มาก (เล่มหลังนี้ก็ไม่ใช่ "ไม่ดี" แต่ส่วนตัวรำคาญช่วงกลางของหนังสือที่ด่า Keynes เสียๆ หายๆ โดยไม่จำเป็นและบางอย่างก็เป็นการป้ายสีหรือทฤษฎีสมคบคิดซึ่งไม่มีมูลความจริง แต่คิดว่าพวกเทรดคริปโตที่สมาทานแนวคิดแบบ libertarian คือเกลียดรัฐ ไม่อยากให้รัฐมีบทบาทอะไรใดๆ เลย คงคิดประมาณนี้ 55) แถมมีขนาดกะทัดรัด อ่านจบได้ภายใน 1-2 ชั่วโมง
ที่ชอบที่สุดคือการที่ผู้เขียนคิดค้นวิธีอธิบาย "เงิน" ในแง่การมี "ชั้น" (layer) หลายชั้น แต่ละชั้นเป็น "ฐาน" รองรับเงินในชั้นต่อๆ ไป ซึ่งเป็นแนวคิดที่มีประโยชน์มากเวลาเอามามอง cryptocurrency และวงการ DeFi ผู้เขียนเริ่มอธิบายเงินและระบบการเงินตั้งแต่ยุคก่อนมี layered money ครั้งแรก (ธนบัตรซึ่งรองรับโดยแร่เงินและทองคำ) และอธิบายการทำงานของระบบธนาคารและธนาคารกลาง ส่วนครึ่งหลังของหนังสืออุทิศให้กับการอธิบายปัญหาของระบบการเงินสมัยใหม่ (เช่น ทำไมธนาคารกลางสหรัฐถึงไม่มีข้อมูลชัดๆ ว่ามีเงินสกุลดอลลาร์เทรดในระบบทั้งหมดเท่าไหร่ เพราะกำเนิดของตลาด Eurodollar หรือดอลลาร์นอกสหรัฐ เป็นต้น) อธิบายว่าทำไมดอลลาร์สหรัฐถึงยังครองตำแหน่งสกุลเงินยอดนิยม ทำไมบิตคอย์นเริ่มได้รับความนิยม ก่อนจบเล่มเสนอว่าสกุลเงินดิจิทัลของธนาคารกลาง (CBDCs) และสกุลเงินคริปโตทั้งหลายน่าจะมีปฏิสัมพันธ์กันอย่างไรในอนาคต
อ่านสนุก อธิบายอย่างกระชับเข้าใจง่าย และเขียนอย่างเป็นกลาง ไม่เข้าข้างคริปโตหรือ "ระบบการเงินกระแสหลัก" ฝั่งใดฝั่งหนึ่งจนเกินเหตุ มองเห็นอดีต ปัจจุบัน และอนาคตที่เป็นไปได้ของระบบการเงินในหนังสือหนาไม่ถึง 150 หน้า
ที่ชอบที่สุดคือการที่ผู้เขียนคิดค้นวิธีอธิบาย "เงิน" ในแง่การมี "ชั้น" (layer) หลายชั้น แต่ละชั้นเป็น "ฐาน" รองรับเงินในชั้นต่อๆ ไป ซึ่งเป็นแนวคิดที่มีประโยชน์มากเวลาเอามามอง cryptocurrency และวงการ DeFi ผู้เขียนเริ่มอธิบายเงินและระบบการเงินตั้งแต่ยุคก่อนมี layered money ครั้งแรก (ธนบัตรซึ่งรองรับโดยแร่เงินและทองคำ) และอธิบายการทำงานของระบบธนาคารและธนาคารกลาง ส่วนครึ่งหลังของหนังสืออุทิศให้กับการอธิบายปัญหาของระบบการเงินสมัยใหม่ (เช่น ทำไมธนาคารกลางสหรัฐถึงไม่มีข้อมูลชัดๆ ว่ามีเงินสกุลดอลลาร์เทรดในระบบทั้งหมดเท่าไหร่ เพราะกำเนิดของตลาด Eurodollar หรือดอลลาร์นอกสหรัฐ เป็นต้น) อธิบายว่าทำไมดอลลาร์สหรัฐถึงยังครองตำแหน่งสกุลเงินยอดนิยม ทำไมบิตคอย์นเริ่มได้รับความนิยม ก่อนจบเล่มเสนอว่าสกุลเงินดิจิทัลของธนาคารกลาง (CBDCs) และสกุลเงินคริปโตทั้งหลายน่าจะมีปฏิสัมพันธ์กันอย่างไรในอนาคต
อ่านสนุก อธิบายอย่างกระชับเข้าใจง่าย และเขียนอย่างเป็นกลาง ไม่เข้าข้างคริปโตหรือ "ระบบการเงินกระแสหลัก" ฝั่งใดฝั่งหนึ่งจนเกินเหตุ มองเห็นอดีต ปัจจุบัน และอนาคตที่เป็นไปได้ของระบบการเงินในหนังสือหนาไม่ถึง 150 หน้า
February 15, 2021
This book uses a metaphor of a hierarchy of money to show the role bitcoin will play in a networked financial system. This framework for thinking about different forms of money builds on the work of Perry Mehrlings that analyses the existing system. I have long considered Merlings ideas to be critical for understanding bitcoin, this book makes the connection explicit. While we all have a strong familiarity with money, virtually all "financial" analysis looks past money itself and we rarely spend much time examining what money is. With only a superficial understanding of money, bitcoin is nonsense, and no explanation of the technology can change that. This book envisions a new hierarchy for digital money and gives the reader a sense of how the pieces would relate to each other in a way that inevitably parallels the familiar system.
For an example of how this will help, consider the number of times you have entertained comparisons of transaction rates of credit card systems to bitcoin. It is pretty easy to sense how the comparison is not meaningful but it can be hard to say exactly why. The hierarchy of money makes it obvious that bitcoin core never needs to be a credit card.
The forward-looking material is a little more speculative and there is a good chance our understanding of these relationships will be refined in the future. In particular, there is more than one legitimate thesis about what alternative currencies will hold value in the future. There is also a very good chance the system will pick up significant complexity as it becomes a transmission mechanism for AI. But even for developments beyond the scope of this book, the layering concept will be valuable and likely critical.
This book does a great job of developing a clear system for understanding the money of the internet.
For an example of how this will help, consider the number of times you have entertained comparisons of transaction rates of credit card systems to bitcoin. It is pretty easy to sense how the comparison is not meaningful but it can be hard to say exactly why. The hierarchy of money makes it obvious that bitcoin core never needs to be a credit card.
The forward-looking material is a little more speculative and there is a good chance our understanding of these relationships will be refined in the future. In particular, there is more than one legitimate thesis about what alternative currencies will hold value in the future. There is also a very good chance the system will pick up significant complexity as it becomes a transmission mechanism for AI. But even for developments beyond the scope of this book, the layering concept will be valuable and likely critical.
This book does a great job of developing a clear system for understanding the money of the internet.
July 19, 2021
The first half of this book is fascinating! It contains a history of global currencies and I learned a ton! The author uses that historical basis to make the case for bitcoin as a disruptive technology that can and will take society back to its inception of "first-layered money." I get his point and I'm on board but I don't know if he really makes that point convincingly. I still have a lot of questions. It seems he wrote this during the pandemic and it could have benefited from a bit more development.
On the whole, I am with him! I do think that bitcoin is disruptive to monetary systems that need disruption. I appreciate this historical perspective. I recommend this book to anyone who is interested in preparing themselves for the global currency revolution. The author doesn't really give you a roadmap though. He doesn't teach you how to invest in or evaluate cryptocurrencies. He just makes a strong case that you'd better be ready.
On the whole, I am with him! I do think that bitcoin is disruptive to monetary systems that need disruption. I appreciate this historical perspective. I recommend this book to anyone who is interested in preparing themselves for the global currency revolution. The author doesn't really give you a roadmap though. He doesn't teach you how to invest in or evaluate cryptocurrencies. He just makes a strong case that you'd better be ready.
April 15, 2021
Possibly one the best books on Bitcoin I have read. It has little bit of everything. Bhatia convincingly outlines the historic process of money evolution, functioning of modern monetary systems, and further describes and analyses in great detail the 2007's financial meltdown. Building on those foundations, Bhatia moves to Bitcoin fundamentals and, perhaps most importantly, puts forward an idea of how the next generation monetary system based on Bitcoin standard could and should in reality look like.
It is also a huge advantage that Bhatia's writing is free from any unnecessary or aggressive rhetoric that could be found e.g. in Ammous' Bitcoin Standard which is very much to the detriment of the quality of the book itself. Nik Bhatia provides a solid fact-focused convincing account of the topic at hand and puts it forth in easily accessible and correct way.
Layered Money
Following his historic outline of the evolution of modern money and description of the system functioning on gold standard, Bhatia introduces the seminal idea in the book – idea of layered money. As the author explains, this means that money exist in layers based on which an underlying monetary system is subsequently built. Bhatia further provides for a close-up look on the layered structure of the today's monetary system having USD as world reserve currency. This also includes account of the so-called eurodollars (off-shore dollars), i.e. dollars created outside of the territory of the USA and the purview of the FED.
Having disclosed that what we call 'money' in our current system actually exists only on the third layer of the 'money pyramid', helps us uncover the inherent fragility of the whole monetary system. This is where a thorough analysis of the 2007 financial crisis comes in. On some parts maybe too technical though.
Bitcoin fundamentals and additional layers
Following the discovered fragilities of today's monetary system, Bhatia informs the reader of the Bitcoin basics and the outline of how the protocol works, what is bitcoin mining and proof of work, and other technical fundamentals such as how Bitcoin development and improvement process actually takes place. At this point, it is important to differentiate between Bitcoin protocol and bitcoin money unit (BTC). While BTC nowadays stands for a lucrative asset class that lures new investors and speculants by its rampant price discovery, Bitcoin protocol / network may have the potential to form a possible backbone of the new financial system under Bitcoin standard.
Nowadays, it becomes more and more clear that the main way forward in the development of Bitcoin protocol in order to scale is through introduction of additional layers, instead of meddling with fundamental aspects of Bitcoin protocol itself (block size etc.). This is why a so-called Lightning Network emerged. This is a solution based on the second layer built on top of Bitcoin blockchain that allows to scale and provides all those functionalities that Bitcoin blockchain cannot deliver (foremost the finality of settlement, volume and speed of the transactions). Bitcoin is often criticized that it is too slow and does provide capacity for only a few transactions per second, while VISA for example provides for thousands of transactions per second. Lightning Network solves that problem and allows for Bitcoin ecosystem to level up with services such as VISA. Possibly this is also why VISA et al are gradually starting to recognize the Bitcoin as a new opportunity and are finding their way in by partnering with some of the promising Bitcoin start ups (such as Jack Maller's Strike).
Having said that, there is absolutely no need for any alternative coins (altcoins) that are trying to compensate for Bitcoin's inability to scale on the main chain. It is because of the fact that the ability to do so comes with a price. Myriad of altcoins that were created in order to be able to do just that (to scale on the main chain) usually come as a project of one founder or a closed group of founders that exercise the absolute control over it. Bitcoin on the other hand is a decentralized solution. There is no central authority that has final say in what happens with the protocol. The level of decentralization is achieved through the possibility that basically each and every one of us can run a so-called node and verify the transactions on Bitcoin blockchain for himself. Should the block size had been increased in the past, as it was discussed in order to achieve better on-chain scalability, the whole network would probably become much more centralized as running a node would be very burdensome for individuals. That is why I think it was a good call to keep the block size on the lower amount so that anyone could run the node and thus securing the decentralization of the network.
Brave new world of Bitcoin standard
Perhaps the most valuable part of the book is Bhatia's proposal of how exactly could the new monetary system based on Bitcoin standard look like. The idea of Bitcoin standard is not new as Saifedean Ammous has already roughly introduced it in his book. But it is only in Bhatia's Layered Money where I have first encountered somewhat more specific proposal.
Bhatia assumes that a new monetary system could run on Bitcoin protocol while BTC at the same time was the firs layer money. There could be, however, other types of money existing on lower layers of the money pyramid. Bhatia even counts on the so-called CBDCs (central bank digital currencies). Bhatia suggests that CBDCs issued by individual central banks could work on the second layer of the network. I think that they could potentially even be fractionally reserved. CBDCs could be either issued as 'retail money' or 'wholesale money'. In the former, the commercial banks could be entirely bypassed and removed from the equation as the consumers would be direct beneficiaries of such second layer money. In the latter scenario, the commercial banks would remain at the receiving end of the CBDCs. Under such an arrangement (CBDCs as wholesale second-layer money), commercial banks could then issue stablecoins as third-layer money pegged to CBDCs (much like under the current system, in which loans issued by banks exist only as a credit on the commercial banks' balance sheets).
Why Bitcoin?
Nik Bhatia anticipates that there could be several CBDCs; however, each interchangeable for one and another, or for the BTC. Such interchangeability should be possible to achieve through so-called atomic swaps, automated algorithms working as much frictionlessly as possible utilizing the idea of smart contracts. This presupposes that all CBDCs would be based on the mutually compatible distributed ledger technology (DLT), preferably on Bitcoin Blockchain. Despite the fact that the whole idea seems very much intriguing to me, I could not help but to ask 'what if CBDCs would be based on a different DLT incompatible with Bitcoin?'
To play the devil's advocate here, why would Bitcoin be necessary at all in such a set-up? Cannot the central banks just create their CBDCs on their own private DLT or use other technology than Bitcoin? I cannot see why not, except perhaps because of the network effect that Bitcoin has. The argument here is that Bitcoin is for the potential 'new monetary system' what TCP/IP protocol is for the Internet. And that the Internet is also just one. Although I would wish very much that Bitcoin is in the epicenter of the new monetary system, the doubts expressed in this paragraph remain the sore spot of this entire concept to me (i.e. Bitcoin network's position in the new monetary system, not the viability of the BTC as a new asset class).
Right to currency denomination
Following the idea of the structure of the new monetary system, Bhatia argues that there is (while yet to be recognized) 'a right to currency denomination'. In other words freedom to choose your money. Anyone could be allowed to decide whether to store their wealth in BTC, CBDC or commercial bank's stablecoin. This goes even further and leaves place for an idea that there is a multitude of currencies not bound to a particular geographical territory, a true Internet money (this idea was discussed for example by Tomáš Sedláček and Kicom here: https://www.youtube.com/watch?v=y0Q2H...). As a consequence, there could a variety of Internet currencies (e.g. each bigger eshop could have one), while those would be at the same time instantly convertible to CBDCs or BTCs due to atomic swap. Brave new world indeed. No doubt that it is an intellectually stimulating idea of how the Bitcoin standard could and should work; however there is no way of telling whether it will actually happen. At least not now. It could very well remain just yet another naive utopia.
What next?
Nevertheless, I like this particular manifestation of Bitcoin standard very much, particularly because this set-up simply leaves space for customer friendly UX and potentially does not require everyone to have any technical abilities as it is the case with BTC self-custody. Having the system based on Bhatia's idea of Bitcoin standard would provide a possibility for tech savvy people to be 'their own bank' and to self custody the first layer money (BTC) and to transact using the Lightning Network without having to rely on any third party. But for the rest of the people it would still be possible to have their accounts in the bank the same they are used to and to check their balance on their account there without having to learn anything or having to change their patterns of behavior, not to mention to be solely responsible for their funds. It does not matter that the underlying backbone of it all would be the Bitcoin protocol and that the payments made between the individual bank accounts would utilize Lightning Network as well; the end-users would simply not need to know.
This somewhat addresses some of my fears of why Bitcoin may not succeed. It is simply because not everyone is capable or willing to educate themselves on how it works or how to handle the technical aspects of it. We certainly cannot just assume that all people will change in their ways and that it would be the reason why Bitcoin really takes off. Having an idea of how the Bitcoin could work sort of within the 'system', or even become the system, without requiring a fundamental change on part of everyone's behavior, is very much good news.
It is also a huge advantage that Bhatia's writing is free from any unnecessary or aggressive rhetoric that could be found e.g. in Ammous' Bitcoin Standard which is very much to the detriment of the quality of the book itself. Nik Bhatia provides a solid fact-focused convincing account of the topic at hand and puts it forth in easily accessible and correct way.
Layered Money
Following his historic outline of the evolution of modern money and description of the system functioning on gold standard, Bhatia introduces the seminal idea in the book – idea of layered money. As the author explains, this means that money exist in layers based on which an underlying monetary system is subsequently built. Bhatia further provides for a close-up look on the layered structure of the today's monetary system having USD as world reserve currency. This also includes account of the so-called eurodollars (off-shore dollars), i.e. dollars created outside of the territory of the USA and the purview of the FED.
Having disclosed that what we call 'money' in our current system actually exists only on the third layer of the 'money pyramid', helps us uncover the inherent fragility of the whole monetary system. This is where a thorough analysis of the 2007 financial crisis comes in. On some parts maybe too technical though.
Bitcoin fundamentals and additional layers
Following the discovered fragilities of today's monetary system, Bhatia informs the reader of the Bitcoin basics and the outline of how the protocol works, what is bitcoin mining and proof of work, and other technical fundamentals such as how Bitcoin development and improvement process actually takes place. At this point, it is important to differentiate between Bitcoin protocol and bitcoin money unit (BTC). While BTC nowadays stands for a lucrative asset class that lures new investors and speculants by its rampant price discovery, Bitcoin protocol / network may have the potential to form a possible backbone of the new financial system under Bitcoin standard.
Nowadays, it becomes more and more clear that the main way forward in the development of Bitcoin protocol in order to scale is through introduction of additional layers, instead of meddling with fundamental aspects of Bitcoin protocol itself (block size etc.). This is why a so-called Lightning Network emerged. This is a solution based on the second layer built on top of Bitcoin blockchain that allows to scale and provides all those functionalities that Bitcoin blockchain cannot deliver (foremost the finality of settlement, volume and speed of the transactions). Bitcoin is often criticized that it is too slow and does provide capacity for only a few transactions per second, while VISA for example provides for thousands of transactions per second. Lightning Network solves that problem and allows for Bitcoin ecosystem to level up with services such as VISA. Possibly this is also why VISA et al are gradually starting to recognize the Bitcoin as a new opportunity and are finding their way in by partnering with some of the promising Bitcoin start ups (such as Jack Maller's Strike).
Having said that, there is absolutely no need for any alternative coins (altcoins) that are trying to compensate for Bitcoin's inability to scale on the main chain. It is because of the fact that the ability to do so comes with a price. Myriad of altcoins that were created in order to be able to do just that (to scale on the main chain) usually come as a project of one founder or a closed group of founders that exercise the absolute control over it. Bitcoin on the other hand is a decentralized solution. There is no central authority that has final say in what happens with the protocol. The level of decentralization is achieved through the possibility that basically each and every one of us can run a so-called node and verify the transactions on Bitcoin blockchain for himself. Should the block size had been increased in the past, as it was discussed in order to achieve better on-chain scalability, the whole network would probably become much more centralized as running a node would be very burdensome for individuals. That is why I think it was a good call to keep the block size on the lower amount so that anyone could run the node and thus securing the decentralization of the network.
Brave new world of Bitcoin standard
Perhaps the most valuable part of the book is Bhatia's proposal of how exactly could the new monetary system based on Bitcoin standard look like. The idea of Bitcoin standard is not new as Saifedean Ammous has already roughly introduced it in his book. But it is only in Bhatia's Layered Money where I have first encountered somewhat more specific proposal.
Bhatia assumes that a new monetary system could run on Bitcoin protocol while BTC at the same time was the firs layer money. There could be, however, other types of money existing on lower layers of the money pyramid. Bhatia even counts on the so-called CBDCs (central bank digital currencies). Bhatia suggests that CBDCs issued by individual central banks could work on the second layer of the network. I think that they could potentially even be fractionally reserved. CBDCs could be either issued as 'retail money' or 'wholesale money'. In the former, the commercial banks could be entirely bypassed and removed from the equation as the consumers would be direct beneficiaries of such second layer money. In the latter scenario, the commercial banks would remain at the receiving end of the CBDCs. Under such an arrangement (CBDCs as wholesale second-layer money), commercial banks could then issue stablecoins as third-layer money pegged to CBDCs (much like under the current system, in which loans issued by banks exist only as a credit on the commercial banks' balance sheets).
Why Bitcoin?
Nik Bhatia anticipates that there could be several CBDCs; however, each interchangeable for one and another, or for the BTC. Such interchangeability should be possible to achieve through so-called atomic swaps, automated algorithms working as much frictionlessly as possible utilizing the idea of smart contracts. This presupposes that all CBDCs would be based on the mutually compatible distributed ledger technology (DLT), preferably on Bitcoin Blockchain. Despite the fact that the whole idea seems very much intriguing to me, I could not help but to ask 'what if CBDCs would be based on a different DLT incompatible with Bitcoin?'
To play the devil's advocate here, why would Bitcoin be necessary at all in such a set-up? Cannot the central banks just create their CBDCs on their own private DLT or use other technology than Bitcoin? I cannot see why not, except perhaps because of the network effect that Bitcoin has. The argument here is that Bitcoin is for the potential 'new monetary system' what TCP/IP protocol is for the Internet. And that the Internet is also just one. Although I would wish very much that Bitcoin is in the epicenter of the new monetary system, the doubts expressed in this paragraph remain the sore spot of this entire concept to me (i.e. Bitcoin network's position in the new monetary system, not the viability of the BTC as a new asset class).
Right to currency denomination
Following the idea of the structure of the new monetary system, Bhatia argues that there is (while yet to be recognized) 'a right to currency denomination'. In other words freedom to choose your money. Anyone could be allowed to decide whether to store their wealth in BTC, CBDC or commercial bank's stablecoin. This goes even further and leaves place for an idea that there is a multitude of currencies not bound to a particular geographical territory, a true Internet money (this idea was discussed for example by Tomáš Sedláček and Kicom here: https://www.youtube.com/watch?v=y0Q2H...). As a consequence, there could a variety of Internet currencies (e.g. each bigger eshop could have one), while those would be at the same time instantly convertible to CBDCs or BTCs due to atomic swap. Brave new world indeed. No doubt that it is an intellectually stimulating idea of how the Bitcoin standard could and should work; however there is no way of telling whether it will actually happen. At least not now. It could very well remain just yet another naive utopia.
What next?
Nevertheless, I like this particular manifestation of Bitcoin standard very much, particularly because this set-up simply leaves space for customer friendly UX and potentially does not require everyone to have any technical abilities as it is the case with BTC self-custody. Having the system based on Bhatia's idea of Bitcoin standard would provide a possibility for tech savvy people to be 'their own bank' and to self custody the first layer money (BTC) and to transact using the Lightning Network without having to rely on any third party. But for the rest of the people it would still be possible to have their accounts in the bank the same they are used to and to check their balance on their account there without having to learn anything or having to change their patterns of behavior, not to mention to be solely responsible for their funds. It does not matter that the underlying backbone of it all would be the Bitcoin protocol and that the payments made between the individual bank accounts would utilize Lightning Network as well; the end-users would simply not need to know.
This somewhat addresses some of my fears of why Bitcoin may not succeed. It is simply because not everyone is capable or willing to educate themselves on how it works or how to handle the technical aspects of it. We certainly cannot just assume that all people will change in their ways and that it would be the reason why Bitcoin really takes off. Having an idea of how the Bitcoin could work sort of within the 'system', or even become the system, without requiring a fundamental change on part of everyone's behavior, is very much good news.
May 31, 2023
เราชอบเล่มนี้ คือเราก็อ่านหนังสือเรื่องการเงินมาบ้าง แต่ไม่ได้รู้ลึก รู้ละเอียด การอ่านเล่มนี้ รู้สึกเหมือนปูพื้นความเป็นมาของการแลกเปลี่ยนสินค้า บริการ จากเริ่มต้นที่ไม่มีอะไร เริ่มมามีทองคำ แล้วเอาพันธบัตรมาพยายามแทนที่ แล้วมีกองทุนโผล่ขึ้นมา ไปจนถึงการเกิดคริปโต และblockchain ซึ่งเป็นหนังสือที่ทำให้เราเข้าใจมากยิ่งขึ้น และอธิบายให้เราเข้าใจง่ายๆ มีพีรมิตสามเหลี่ยม อธิบายลำดับชั้นของเงินตรา ทองคำ กองทุน และคอยอธิบายความสำคัญของตัวกลางที่ใช้แลกเปลี่ยนแทนเงิน คือดีงามมาก อ่านแล้วแบบเห็นภาพได้ง่ายๆจริง ประทับใจ
May 1, 2021
Quick read, 2-3 days. The first half is a high-level look at the evolution of money in society. I thought this historical analysis was really simple but interesting, which is coming from somebody that enjoys economic history.
The second half focuses on bitcoin and digital currencies, but was less engaging. Perhaps it's because I've been reading quite a bit on the topic lately, but I didn't really gain any new insights from this section. I guess it's probably intended for people completely new to the topic. The same themes were rephrased and repeated throughout and the amount of actual content here could have been reduced to maybe 20 pages or a long article online. This section was a lot less "researched", but I guess that's to be expected when writing about a relatively new concept. Still, it could definitely be made to feel less like author's personal opinion, and instead focus more on the use-cases and numbers supporting the bitcoin thesis. Could also be that this book was rushed to captialize on the current crypto bull market?
The second half focuses on bitcoin and digital currencies, but was less engaging. Perhaps it's because I've been reading quite a bit on the topic lately, but I didn't really gain any new insights from this section. I guess it's probably intended for people completely new to the topic. The same themes were rephrased and repeated throughout and the amount of actual content here could have been reduced to maybe 20 pages or a long article online. This section was a lot less "researched", but I guess that's to be expected when writing about a relatively new concept. Still, it could definitely be made to feel less like author's personal opinion, and instead focus more on the use-cases and numbers supporting the bitcoin thesis. Could also be that this book was rushed to captialize on the current crypto bull market?
April 15, 2021
Before I picked this one up, I actually thought it was going to be super technical. I’d only ever listened to one podcast featuring Bhatia, and that was a while ago, so I couldn’t remember what his style was. Especially given the subject, I assumed I was in for a bit of a slog.
However, this book is anything but that, and I think that’s why I found it to be quite good. Bhatia takes something that’s super complex and vague (the layered money system) and breaks it down in just a handful of hours. More importantly, he does so in a way that just about anyone can understand.
Though I liked the entire book, the last third was my favorite. In that part, Bhatia takes all the layered money concepts he covers in the first two-thirds and applies them to Bitcoin and digital currencies.
Overall, it’s a very good read and one that I recommend.
-Brian Sachetta
Author of “Get Out of Your Head”
However, this book is anything but that, and I think that’s why I found it to be quite good. Bhatia takes something that’s super complex and vague (the layered money system) and breaks it down in just a handful of hours. More importantly, he does so in a way that just about anyone can understand.
Though I liked the entire book, the last third was my favorite. In that part, Bhatia takes all the layered money concepts he covers in the first two-thirds and applies them to Bitcoin and digital currencies.
Overall, it’s a very good read and one that I recommend.
-Brian Sachetta
Author of “Get Out of Your Head”
May 13, 2021
This is a GREAT book to understand how money has evolved which helps in understanding how it will keep evolving and lead to crypto. I must congratulate the author for ensuring that the entire discussion is related to basics of economics and also congratulate him for not digressing at all. Also he has been able to explain crypto and bitcoin very well. I have been trying to understand the jargons like mining for some time now but until now I wasn’t sure if I was getting any closer to understanding it. After reading this book I definitely feel that my concepts are getting solidified.
July 25, 2023
If Chuck Palahniuk was right in his revelation of there only being patterns, patterns on top of patterns, patterns that affect other patterns, patterns hidden by patterns, and patterns within patterns, then the lack of variables only seems more pronounced in finance, especially after reading Layered Money.
It took me a while to finish. Not because it was long or overdrawn but because it contains a wealth of insights (mentioned below) that couldn’t be more relevant to our ever-evolving discourse as human beings. Basically, as money is the omniscient tool that we use to measure and exchange value, I wanted to take my time to absorb and internalise the content rather than merely gloss over everything.
As outlined on Goodreads, Nik Bhatia charts the development of layered monetary systems around the world. He begins with the coins of ancient Lydia in Turkey, then explores the Renaissance period in Florence marked by the advent of the gold Florin coin. The narrative moves forward with the emergence of banking culture, the rise of central banking, and the formation of our current financial system. Lastly, the book concludes by theorising on how the future of money (and our role with it) might unfold.
Without giving away too much, a few sections that stood out to me include:
Page 9–10: Important characteristics of the first coins (parallels to Bitcoin). They were made with metals that were considered precious, durable, and rare (gold and silver). They were fungible, and divisible in the smallest transactions while also able to be amassed for other larger ones. The best coins were difficult to forge (difficult to mimic engravings) which reduced the issue of counterfeit/auditing every coin for authenticity. Gold and silver also accelerated money velocity relative to more primitive ages when precious metal bars and nuggets of non-standardised weights were used as mediums of exchange.
Page 12–13: Governments always have a repeat pattern of devaluing their currencies by printing more of it which reduces the value. This led to the collapse of the Roman Empire. When the Northern Italian cities of Florence, Venice, Genoa and Pisa established themselves as city republics after breaking away from feudal overlords in the eleventh century they created their own coinage — money.
This led to the Fiorino d’Oro, or gold florin inn 1252, which maintained an unchanged weight and purity, about 3.5 grams of pure gold, spanning four centuries. Because of this it began to be used as a staple currency and could be pawned to borrow silver for smaller transactions.
Page 23: the most important characteristic of first layer money is the disciplinary constraint it applies to the layers beneath it as exampled by Goldsmiths in fifteenth century England. These people weren’t meagre craftsmen. They also fulfilled the role of the banker due to their ability to securely store precious metals better than anyone else. This is how monetary instruments like gold deposits issued by trusted and reputable goldsmiths often functioned as cash. Cash was defined by anything we use as a form of money that others accept at face value. For something to work as cash, people have to trust the issuer, or whoever has made the promise to pay, regardless of Counterparty risk. In that sense, gold deposits gained credibility based on the trustworthiness of the goldsmith. If a goldsmith issued more deposits without properly reserving the corresponding gold in his vault, he risks defaulting should there be a full redemption request. This is called fractional reserving banking, as opposed to full reserve banking when all deposits have a corresponding gold in the vault.
Page 26–29: the creation of the Antwerp Bourse in 1531 birthed the money market. The fairs occurred four times a year seasonal patterns in which bankers from all around Europe would come together to cancel or clear out tabs offsetting debits and credits.
Page 33–34: Governments and currencies are inextricably linked today because governments established a monopoly on second-layer money and used it to their own benefit, starting with the Bank of Amsterdam in 1609. The Bank of Amsterdam was only created thanks to the world’s first joint-stock company, the Dutch East India Company (VOC). The VOC’s tale begins in 1585 when the Dutch swiftly ended Antwerp’s position as the centre of international trade by closing off the Scheldt River and blocking access to the sea. The Dutch Revolt is credited as inspiring a shift away from monarchy and towards more representative forms of government inn England, France, and the United States of America.
At the turn of the seventeenth century, Dutch traders were commissioning ships to the Indonesian island of Java in order to buy spices and sell them back to Europe for handsome profits. Profits attracted additional entrepreneurs, and soon a collective of international merchants started to identify with each other. These merchants realised their efforts could greatly multiply by joining forces and attracting capital in a unified body. This result was the first ever joint-stock company formed in 1602, the VOC. It was the first example of equity investors providing capital in exchange for share of ownership in the form of a paper certificate. As the shares increased in value, original investors wanted to realise their gains and sell them for cash to new investors, and that is how the first stock market was born. The Amsterdam Bourse (Amsterdam Stock Exchange), named after its predecessor in Antwerp, was founded shortly after the first signs of a market for VOC shares.
Page 36: the Bank of Amsterdam was founded in 1609 following the rise of The Amsterdam Bourse. The BoA’s first order of business was to outlaw cashiers and their notes and mandate all gold and silver coins be deposited at the bank. Cashiers, until their activities were made illegal, were the money changers of Amsterdam. They held custody of gold and silver coins and issued paper claims against it. Cashiers were the principal actors between first- and second-layer money in Amsterdam. In order to attract capital, the BoA had to do so by decree. All cashiers were forced to surrender precious metal to the Bank of Amsterdam and were issued BoA deposits in return. Through this the BoA was able to successfully monopolise the issuance of second-layer money by eliminating public access to first-layer money.
Page 57: The difference between wholesale money vs retail money. Wholesome money (Fed reserves) is money that the banks use, and retail money (Fed notes) is money that the people use.
Page 63: President Franklin Roosevelt issued Executive Order 6102 on April 5, 1933 which instructed all “gold coin, gold bullion, and certificates to be delivered to the government.” The order was effectively a forced sale of gold in exchange for Federal Reserve notes (cash) by all United States citizens and outrightly eliminated the people’s access (temporarily) to first-layer money. This brazen declaration made the possession of and trafficking inn first-layer money illegal and punishable by up to ten years in prison.
Page 65: In 1944, world leaders gathered at a hotel in Bretton Woods, New Hampshire and formalised that all currencies besides the dollar were forms of third-layer money within the dollar pyramid. The Bretton Woods agreement would come to be known as the dollar’s world reserve currency coronation.
Page 76: During the Second World War, the United States Treasury suspended the Federal Reserve’s independence with regard to monetary policy and effectively forced the Fed to finance the war effort. The Fed purchased enormous quantities of of U.S Treasuries at fixed interest rates as a result, and the United States government’s quest for geopolitical dominance supplanted the Fed’s politically independent monetary policy. A few years after the war ended, the Treasury-Fed Accord restored independence to the Fed, but more importantly, transitioned a vast portfolio of Treasuries into the hands of dealer banks, responsible for the healthy functioning of the Treasury market and dealing of Treasuries. This created Treasury Repo dollars.
Page 81: Cash today means monetary instruments that are safe relative to basically all other investments that have risk. It’s a higher order money relative to stocks and bonds, not exclusive to paper currency.
Page 70, 77, 87 : The initial rigidity of the Fed caused it to lose control of measuring the amount of second-third layer money like Eurodollars and Treasury Repo Dollars. Yet the market saturation and near failure of these new money types, coupled with decline of interbank trust/ derivatives/ 2007–2008 collapse caused it to transform its position from a lender of last resort to a lender of only resort.
Page 108: 1999 ruling by the United States Court of Appeals, Ninth Circuit (Bernstein v. United States), confirming that encryption, like math, is an expression of scientific ideas and therefore a form of speech: “Cryptographers use source code to express their scientific ideas much in the same way that mathematicians use equations or economists use graphs. Of course, both mathematical equations and graphs are used in other fields for many purposes, not all of which are expressive. But mathematicians and economists have adopted these modes of expression in order to facilitate the precise and rigorous expression of complex scientific ideas. Similarly, the undisputed record here makes it clear that cryptographers utilise source code in the same fashion. In light of these considerations, we conclude that encryption software, in its source code form and as employed by those in the field of cryptography, must be viewed as expressive for First Amendment purposes.
Page 115: Bitcoin has become its own monetary pyramid due to its properties as first-layer money (gold). BTC is a neutral, Counterparty-free money like gold that people trust as a form of final settlement. Only it doesn’t need purity testing, only a Bitcoin node.
The IRS determined that ownership of BTC was to be treated as property and that gains realised in USD terms were subject to capital gains taxes.
Page 129: Alternative cryptocurrencies exist on a lower layer within the BTC money pyramid due to a price relationship, much like national currencies existed on a layer below the dollar after Bretton Woods agreement of 1944. Like the USD acts as the base price for currencies from around the world, BTC acts as a base price for all digital currencies. BTC will never be alone as a digital asset, it will always have both ancillary and auxiliary assets. The Bitcoin protocol’s dominance as the primary value-transfer protocol of the Internet will likely endure for decades to come, much like how the Transmission Control Protocol, Internet Protocol, and Hypertext Transfer Protocol (TCP/IP/HTTP) dominate our digital interactions every day when we connect to the Internet or browse the web.
Page 137: “What is the attraction of central bankers to issuing their own digital currencies? The answer lies in wider access to second-layer money. Recall that the Federal Reserve issues two types of money, wholesale reserves for private sector banks and retail cash for people. In order to provide monetary stimulus, the Fed issues reserves and hopes that private sector banks will use those reserves to circulate third-layer deposits into the economy by lending money. With a CBDC, the Fed could issue second-layer money directly to people in the form of digital helicopter money; the phrase “helicopter money” comes from Milton Friedman, who in 1969 provided the imagery of dropping cash out of a helicopter in order to stimulate economic demand.”
Page 139: Central banks could issue wholesale or retail CBDCs. Issuing digital currency in the form of wholesale reserves would only be accessible to banks — perhaps as a way to modernise the financial infrastructure for the banking system, but it won’t impact how society interacts with money. A wholesale CBDC doesn’t bring about the displacement of banks. A retail CBDC has the potential to change the concept of monetary policy by giving central banks the ability to interact with people directly instead of only with other banks. Different central banks will choose different paths.
Page 143: Fedcoin will most likely be a second-layer money alongside reserves and cash.
Page 145: The plain truth about Bitcoin is that nobody controls it. It has become the first-ever government free, universally accessible digital currency. And for these reasons, all currencies in the purely digital realm will face a price discovery in BTC terms. This means that all digital currencies, from cryptocurrencies to CBDCs, will be measured in BTC, just like the Bretton Woods agreement in 1944, mandated all currencies be measured in USD. It could be the worlds only first-layer money.
Page 151: As a vision of the future… for the public, all money will be digital tokens that will be held in digital wallets. People will simultaneously hold an assortment of currencies: BTC for neutrality, CBDCs for paying taxes and collecting benefits, and stablecoins for earning interest. Many will rely on second-layer CBDCs and do away with third-layer bank deposits altogether. A growing number of people will survive exclusively on non-government currencies like BTC and never subject themselves to Counterparty risk. No currency in the digital realm will ever be able to prove itself as resistant to corruption as BTC, wherein transactions once confirmed are impossible to override, making Bitcoin the ultimate tool of financial freedom anywhere in the world. Bitcoin is where the Internet collides with money to bring about change in the same transformative way it did with communication and commerce.
Note to self: read Perry Mehlring’s 2012 paper “The Inherent Hierarchy of Money”
Overall, after reading Layered Money, I have a renewed appreciation for Bitcoin and the broader ecosystem that is open finance (DeFi). It’s worth noting that (according to Bhatia) central banks are taking cues from this ecosystem for their own Fed coins, underscoring the importance of blockchain protocols that address the blockchain trilemma.
Alongside the timeless works of Andreas Antonopoulos, I highly recommend it to those who are new to the topic or anyone looking for a fresh perspective. And lastly, I’m all for sharing my thoughts on crypto books because it’s a great way to remind myself that if I know anything, it’s that I know nothing.
It took me a while to finish. Not because it was long or overdrawn but because it contains a wealth of insights (mentioned below) that couldn’t be more relevant to our ever-evolving discourse as human beings. Basically, as money is the omniscient tool that we use to measure and exchange value, I wanted to take my time to absorb and internalise the content rather than merely gloss over everything.
As outlined on Goodreads, Nik Bhatia charts the development of layered monetary systems around the world. He begins with the coins of ancient Lydia in Turkey, then explores the Renaissance period in Florence marked by the advent of the gold Florin coin. The narrative moves forward with the emergence of banking culture, the rise of central banking, and the formation of our current financial system. Lastly, the book concludes by theorising on how the future of money (and our role with it) might unfold.
Without giving away too much, a few sections that stood out to me include:
Page 9–10: Important characteristics of the first coins (parallels to Bitcoin). They were made with metals that were considered precious, durable, and rare (gold and silver). They were fungible, and divisible in the smallest transactions while also able to be amassed for other larger ones. The best coins were difficult to forge (difficult to mimic engravings) which reduced the issue of counterfeit/auditing every coin for authenticity. Gold and silver also accelerated money velocity relative to more primitive ages when precious metal bars and nuggets of non-standardised weights were used as mediums of exchange.
Page 12–13: Governments always have a repeat pattern of devaluing their currencies by printing more of it which reduces the value. This led to the collapse of the Roman Empire. When the Northern Italian cities of Florence, Venice, Genoa and Pisa established themselves as city republics after breaking away from feudal overlords in the eleventh century they created their own coinage — money.
This led to the Fiorino d’Oro, or gold florin inn 1252, which maintained an unchanged weight and purity, about 3.5 grams of pure gold, spanning four centuries. Because of this it began to be used as a staple currency and could be pawned to borrow silver for smaller transactions.
Page 23: the most important characteristic of first layer money is the disciplinary constraint it applies to the layers beneath it as exampled by Goldsmiths in fifteenth century England. These people weren’t meagre craftsmen. They also fulfilled the role of the banker due to their ability to securely store precious metals better than anyone else. This is how monetary instruments like gold deposits issued by trusted and reputable goldsmiths often functioned as cash. Cash was defined by anything we use as a form of money that others accept at face value. For something to work as cash, people have to trust the issuer, or whoever has made the promise to pay, regardless of Counterparty risk. In that sense, gold deposits gained credibility based on the trustworthiness of the goldsmith. If a goldsmith issued more deposits without properly reserving the corresponding gold in his vault, he risks defaulting should there be a full redemption request. This is called fractional reserving banking, as opposed to full reserve banking when all deposits have a corresponding gold in the vault.
Page 26–29: the creation of the Antwerp Bourse in 1531 birthed the money market. The fairs occurred four times a year seasonal patterns in which bankers from all around Europe would come together to cancel or clear out tabs offsetting debits and credits.
Page 33–34: Governments and currencies are inextricably linked today because governments established a monopoly on second-layer money and used it to their own benefit, starting with the Bank of Amsterdam in 1609. The Bank of Amsterdam was only created thanks to the world’s first joint-stock company, the Dutch East India Company (VOC). The VOC’s tale begins in 1585 when the Dutch swiftly ended Antwerp’s position as the centre of international trade by closing off the Scheldt River and blocking access to the sea. The Dutch Revolt is credited as inspiring a shift away from monarchy and towards more representative forms of government inn England, France, and the United States of America.
At the turn of the seventeenth century, Dutch traders were commissioning ships to the Indonesian island of Java in order to buy spices and sell them back to Europe for handsome profits. Profits attracted additional entrepreneurs, and soon a collective of international merchants started to identify with each other. These merchants realised their efforts could greatly multiply by joining forces and attracting capital in a unified body. This result was the first ever joint-stock company formed in 1602, the VOC. It was the first example of equity investors providing capital in exchange for share of ownership in the form of a paper certificate. As the shares increased in value, original investors wanted to realise their gains and sell them for cash to new investors, and that is how the first stock market was born. The Amsterdam Bourse (Amsterdam Stock Exchange), named after its predecessor in Antwerp, was founded shortly after the first signs of a market for VOC shares.
Page 36: the Bank of Amsterdam was founded in 1609 following the rise of The Amsterdam Bourse. The BoA’s first order of business was to outlaw cashiers and their notes and mandate all gold and silver coins be deposited at the bank. Cashiers, until their activities were made illegal, were the money changers of Amsterdam. They held custody of gold and silver coins and issued paper claims against it. Cashiers were the principal actors between first- and second-layer money in Amsterdam. In order to attract capital, the BoA had to do so by decree. All cashiers were forced to surrender precious metal to the Bank of Amsterdam and were issued BoA deposits in return. Through this the BoA was able to successfully monopolise the issuance of second-layer money by eliminating public access to first-layer money.
Page 57: The difference between wholesale money vs retail money. Wholesome money (Fed reserves) is money that the banks use, and retail money (Fed notes) is money that the people use.
Page 63: President Franklin Roosevelt issued Executive Order 6102 on April 5, 1933 which instructed all “gold coin, gold bullion, and certificates to be delivered to the government.” The order was effectively a forced sale of gold in exchange for Federal Reserve notes (cash) by all United States citizens and outrightly eliminated the people’s access (temporarily) to first-layer money. This brazen declaration made the possession of and trafficking inn first-layer money illegal and punishable by up to ten years in prison.
Page 65: In 1944, world leaders gathered at a hotel in Bretton Woods, New Hampshire and formalised that all currencies besides the dollar were forms of third-layer money within the dollar pyramid. The Bretton Woods agreement would come to be known as the dollar’s world reserve currency coronation.
Page 76: During the Second World War, the United States Treasury suspended the Federal Reserve’s independence with regard to monetary policy and effectively forced the Fed to finance the war effort. The Fed purchased enormous quantities of of U.S Treasuries at fixed interest rates as a result, and the United States government’s quest for geopolitical dominance supplanted the Fed’s politically independent monetary policy. A few years after the war ended, the Treasury-Fed Accord restored independence to the Fed, but more importantly, transitioned a vast portfolio of Treasuries into the hands of dealer banks, responsible for the healthy functioning of the Treasury market and dealing of Treasuries. This created Treasury Repo dollars.
Page 81: Cash today means monetary instruments that are safe relative to basically all other investments that have risk. It’s a higher order money relative to stocks and bonds, not exclusive to paper currency.
Page 70, 77, 87 : The initial rigidity of the Fed caused it to lose control of measuring the amount of second-third layer money like Eurodollars and Treasury Repo Dollars. Yet the market saturation and near failure of these new money types, coupled with decline of interbank trust/ derivatives/ 2007–2008 collapse caused it to transform its position from a lender of last resort to a lender of only resort.
Page 108: 1999 ruling by the United States Court of Appeals, Ninth Circuit (Bernstein v. United States), confirming that encryption, like math, is an expression of scientific ideas and therefore a form of speech: “Cryptographers use source code to express their scientific ideas much in the same way that mathematicians use equations or economists use graphs. Of course, both mathematical equations and graphs are used in other fields for many purposes, not all of which are expressive. But mathematicians and economists have adopted these modes of expression in order to facilitate the precise and rigorous expression of complex scientific ideas. Similarly, the undisputed record here makes it clear that cryptographers utilise source code in the same fashion. In light of these considerations, we conclude that encryption software, in its source code form and as employed by those in the field of cryptography, must be viewed as expressive for First Amendment purposes.
Page 115: Bitcoin has become its own monetary pyramid due to its properties as first-layer money (gold). BTC is a neutral, Counterparty-free money like gold that people trust as a form of final settlement. Only it doesn’t need purity testing, only a Bitcoin node.
The IRS determined that ownership of BTC was to be treated as property and that gains realised in USD terms were subject to capital gains taxes.
Page 129: Alternative cryptocurrencies exist on a lower layer within the BTC money pyramid due to a price relationship, much like national currencies existed on a layer below the dollar after Bretton Woods agreement of 1944. Like the USD acts as the base price for currencies from around the world, BTC acts as a base price for all digital currencies. BTC will never be alone as a digital asset, it will always have both ancillary and auxiliary assets. The Bitcoin protocol’s dominance as the primary value-transfer protocol of the Internet will likely endure for decades to come, much like how the Transmission Control Protocol, Internet Protocol, and Hypertext Transfer Protocol (TCP/IP/HTTP) dominate our digital interactions every day when we connect to the Internet or browse the web.
Page 137: “What is the attraction of central bankers to issuing their own digital currencies? The answer lies in wider access to second-layer money. Recall that the Federal Reserve issues two types of money, wholesale reserves for private sector banks and retail cash for people. In order to provide monetary stimulus, the Fed issues reserves and hopes that private sector banks will use those reserves to circulate third-layer deposits into the economy by lending money. With a CBDC, the Fed could issue second-layer money directly to people in the form of digital helicopter money; the phrase “helicopter money” comes from Milton Friedman, who in 1969 provided the imagery of dropping cash out of a helicopter in order to stimulate economic demand.”
Page 139: Central banks could issue wholesale or retail CBDCs. Issuing digital currency in the form of wholesale reserves would only be accessible to banks — perhaps as a way to modernise the financial infrastructure for the banking system, but it won’t impact how society interacts with money. A wholesale CBDC doesn’t bring about the displacement of banks. A retail CBDC has the potential to change the concept of monetary policy by giving central banks the ability to interact with people directly instead of only with other banks. Different central banks will choose different paths.
Page 143: Fedcoin will most likely be a second-layer money alongside reserves and cash.
Page 145: The plain truth about Bitcoin is that nobody controls it. It has become the first-ever government free, universally accessible digital currency. And for these reasons, all currencies in the purely digital realm will face a price discovery in BTC terms. This means that all digital currencies, from cryptocurrencies to CBDCs, will be measured in BTC, just like the Bretton Woods agreement in 1944, mandated all currencies be measured in USD. It could be the worlds only first-layer money.
Page 151: As a vision of the future… for the public, all money will be digital tokens that will be held in digital wallets. People will simultaneously hold an assortment of currencies: BTC for neutrality, CBDCs for paying taxes and collecting benefits, and stablecoins for earning interest. Many will rely on second-layer CBDCs and do away with third-layer bank deposits altogether. A growing number of people will survive exclusively on non-government currencies like BTC and never subject themselves to Counterparty risk. No currency in the digital realm will ever be able to prove itself as resistant to corruption as BTC, wherein transactions once confirmed are impossible to override, making Bitcoin the ultimate tool of financial freedom anywhere in the world. Bitcoin is where the Internet collides with money to bring about change in the same transformative way it did with communication and commerce.
Note to self: read Perry Mehlring’s 2012 paper “The Inherent Hierarchy of Money”
Overall, after reading Layered Money, I have a renewed appreciation for Bitcoin and the broader ecosystem that is open finance (DeFi). It’s worth noting that (according to Bhatia) central banks are taking cues from this ecosystem for their own Fed coins, underscoring the importance of blockchain protocols that address the blockchain trilemma.
Alongside the timeless works of Andreas Antonopoulos, I highly recommend it to those who are new to the topic or anyone looking for a fresh perspective. And lastly, I’m all for sharing my thoughts on crypto books because it’s a great way to remind myself that if I know anything, it’s that I know nothing.
January 23, 2022
5 stars for the core thesis, and the simplified description of how money works today. I would still recommend this book as one of the best ways to grok the financial system (I never quite understood it as well before despite endless highlighting of textbooks and papers in university).
I also have to mention here that Nik’s substack newsletter is excellent, and this book adds good context.
But, I think there could be more in this book (perhaps a future edition):
- more on how money is printed, and the link to inflation, and the dilemma modern central banks face
- more on how bonds and rates work, and directly addressing the popular idea that Bitcoin is not finance because it has no yield
- a chapter about payment rails, and more on why this matters both in terms of transacting with 1st layer money, and in terms of network effects
A great contribution to the literature - looking forward to more.
I also have to mention here that Nik’s substack newsletter is excellent, and this book adds good context.
But, I think there could be more in this book (perhaps a future edition):
- more on how money is printed, and the link to inflation, and the dilemma modern central banks face
- more on how bonds and rates work, and directly addressing the popular idea that Bitcoin is not finance because it has no yield
- a chapter about payment rails, and more on why this matters both in terms of transacting with 1st layer money, and in terms of network effects
A great contribution to the literature - looking forward to more.
February 15, 2022
Comprehensive brief on the entire monetary system, and how fragile it is in its current state. Adds credibility to all the fear of yet another collapse (inflation, overexposure to the Evergrande properties, rising housing prices, and a looming war to name a few) - and further solidifies Bitcoin as digital gold, being the most stable, secure, scarce, and uncensored medium heading into the future. Especially relevant in highlighting the cryptography behind Bitcoin, and it isn't a bubble in any form or way.
August 30, 2021
A great book on the history of money. It helps you to understand how money has evolved through the history and how it will evolve in the future.
February 28, 2022
i learned a lot about the most important thing in the world.
March 19, 2023
กระชับกว่า bitcoin standard, ส่วนตัว ชอบกว่า
February 9, 2022
I love learning about the history of money, how it works and how crypto is set to disrupt it, but this was too dense even for me.
August 26, 2021
To properly understand the significance of Bitcoin, one needs to understand both the history and structure of Money.
Nik Bhatia's "Layered Money" is clear, concise, and easy to comprehend, leaving the reader with a deep understanding of Money and Bitcoin.
Bhatia's framework of Money functioning in a "Layered" manner clarifies the complex structure of money.
A great read for those both new to Bitcoin and seasoned veterans.
Nik Bhatia's "Layered Money" is clear, concise, and easy to comprehend, leaving the reader with a deep understanding of Money and Bitcoin.
Bhatia's framework of Money functioning in a "Layered" manner clarifies the complex structure of money.
A great read for those both new to Bitcoin and seasoned veterans.
January 11, 2022
3.5 stars rounded down.
The good:
* Solid introduction to the concept of layered money.
* Thorough treatment of the evolution of money and global financial system.
* Simple and concise language. Uses just as many pages as required for the topics at hand.
The bad:
* It's mostly around the latter half of the book around the discussion on crypto currency. The author turns instantly into fanboyism and abandons the measured tone of discussing benefits and drawbacks equally. For example, there was no mention at all of the whole Mt. Gox debacle back in the day even though it was such a pivotal event in the history of Bitcoin.
* Lots of claims and projections for the future of crypto currency that don't quite have the idealogical construction required to justify them.
Everything said, this is still a very good book to read for econ nerds; just take the latter half of the book with a pinch or two of salt.
The good:
* Solid introduction to the concept of layered money.
* Thorough treatment of the evolution of money and global financial system.
* Simple and concise language. Uses just as many pages as required for the topics at hand.
The bad:
* It's mostly around the latter half of the book around the discussion on crypto currency. The author turns instantly into fanboyism and abandons the measured tone of discussing benefits and drawbacks equally. For example, there was no mention at all of the whole Mt. Gox debacle back in the day even though it was such a pivotal event in the history of Bitcoin.
* Lots of claims and projections for the future of crypto currency that don't quite have the idealogical construction required to justify them.
Everything said, this is still a very good book to read for econ nerds; just take the latter half of the book with a pinch or two of salt.
February 19, 2021
«Bitcoin is antifragile because it thrives off global monetary disorder within the dollar pyramid and is resilient to the threats, slander, and legislation from dismissive bureaucratic entities. The plain truth about Bitcoin is that nobody controls it. It has become the first-ever government-free, universally accessible digital currency. And for these reasons, all currencies in the purely digital realm will face price discovery in BTC terms. This means that all digital currencies, from cryptocurrencies to CBDCs, will be measured in BTC, just like the Bretton Woods agreement in 1944 mandated all currencies be measured in USD»
March 3, 2021
Perfect sized book
It gets to the point and explains spectacularly well how the current monetary system works. Bitcoin isn’t even that large a part of the book but it doesn’t have to be. Once you see how fragile the current system is it makes Bitcoin look like a much more attractive alternative
It gets to the point and explains spectacularly well how the current monetary system works. Bitcoin isn’t even that large a part of the book but it doesn’t have to be. Once you see how fragile the current system is it makes Bitcoin look like a much more attractive alternative
December 26, 2022
Nice introductory look at the evolution of money and the structure of our monetary systems. Effective simplifications of complex topics, but nothing particularly novel or complex (from a crypto pov). As someone that's quite deep in the space, most of this seems common sense, but would be incredibly insightful and useful to introduce new people to the space. Fantastic book!
September 13, 2022
Great book to intro to Bitcoin concepts!
October 15, 2022
One of the best introductions to Bitcoin and evolution of money, in general.
November 1, 2022
Short and to the point book. It opened up my views about Bitcoin and cryptocurrency.
February 7, 2023
This was a very interesting book. It was well written though at times hard to understand because of some technical terminology from the finance world.
February 13, 2023
Great framework for conceptualizing money and its different layers.
July 26, 2021
Great summary of History of Money. More neutral and comprehensive than Bitcoin Standard book, but much shorter. The pyramid graphs in the book visualized well how are monetary layers have developed in the history
My summary of three money pyramids: (wish I could insert photos here)
Good old gold-pegged monetary system had Gold on the top as the hardest Store of Value asset, national currencies issued as second layer money
After numerous twists our current monetary system looks much more complex. On top of the pyramid, there is no gold, instead US Treasuries. Under that there are FED, Banks and Money Market Funds. Under that Reserve Notes, Treasury Repo and MMF Shares… gets complicated.
The interesting thing is that the money layers are different inside and outside of the US borders, because of Treasury Repo dollars and Eurodollars. So what are these?
Treasury Repo dollars: To fund WW2, US gov forced FED to purchase Treasuries (UST). When war was over, USTs were distributed among so-called dealer banks. Because USTs were the hardest asset, banks could use them as collateral and effectively print money without FED’s permission
Eurodollars have nothing to do with EUR. Instead, it references to US dollars that were created in banks outside the US. This was possible because banks in Europe had different regulatory and reserve requirements. Lot of US dollars moved to Europe because of better interest rates
As much as Soviet Union was against America, even they needed US dollars for trading. They never wanted to work with American banks. That’s why there was lot of Soviet owned dollars stored in London, which still today holds a special place for Russian money
To summarize, FED lost its ability to track the amount of dollars in circulation already in 1982 due to the Treasury Repo dollars used as collateral, and because of Eurodollars. FED wasn’t the only one holding the money printer anymore
The largest problem of our current monetary system is that Price Discovery mechanism is falling apart. When the trust between banks end, also trading ends. The whole financial world freezes instantly. This has happened already several times.
The solution has been that FED as the last resort borrower comes and promises to buy the problematic assets with some floor price. Markets start to work again and trading continues. Everyone’s happy?
Not so fast. The other side of the coin is that Price Discovery is not allowed to happen. Different assets and papers are not facing their ultimate market truth
Price Discovery is one of the most important corner stones of market economy. It allocates resources where they are most needed. Main problem in Soviet Union and planned economies were the absence of Price Discovery, and thus poor allocation of resources.
Because of these massive support purchase by central banks, we already live partly in centrally controlled planned economy, without free markets.
So, how will the layered money pyramid look in the future? Gold’s main feature was Store of Value without counter-party risk. However, physical gold doesn’t fit well to the digital economy of modern times. Heavy and difficult to transport
In the future, Bitcoin might take the place of top of the pyramid as the hardest Store of Value asset. Just like gold, Bitcoin is the counter-party free neutral money. However, it works in the digital space and can be send with few clicks in seconds. Its throughput doesn’t scale well, though, and layer-2 solutions such as stable-coins and CBDCs of some sort are needed.
See this link for photos: https://twitter.com/mikkoikola/status...
My summary of three money pyramids: (wish I could insert photos here)
Good old gold-pegged monetary system had Gold on the top as the hardest Store of Value asset, national currencies issued as second layer money
After numerous twists our current monetary system looks much more complex. On top of the pyramid, there is no gold, instead US Treasuries. Under that there are FED, Banks and Money Market Funds. Under that Reserve Notes, Treasury Repo and MMF Shares… gets complicated.
The interesting thing is that the money layers are different inside and outside of the US borders, because of Treasury Repo dollars and Eurodollars. So what are these?
Treasury Repo dollars: To fund WW2, US gov forced FED to purchase Treasuries (UST). When war was over, USTs were distributed among so-called dealer banks. Because USTs were the hardest asset, banks could use them as collateral and effectively print money without FED’s permission
Eurodollars have nothing to do with EUR. Instead, it references to US dollars that were created in banks outside the US. This was possible because banks in Europe had different regulatory and reserve requirements. Lot of US dollars moved to Europe because of better interest rates
As much as Soviet Union was against America, even they needed US dollars for trading. They never wanted to work with American banks. That’s why there was lot of Soviet owned dollars stored in London, which still today holds a special place for Russian money
To summarize, FED lost its ability to track the amount of dollars in circulation already in 1982 due to the Treasury Repo dollars used as collateral, and because of Eurodollars. FED wasn’t the only one holding the money printer anymore
The largest problem of our current monetary system is that Price Discovery mechanism is falling apart. When the trust between banks end, also trading ends. The whole financial world freezes instantly. This has happened already several times.
The solution has been that FED as the last resort borrower comes and promises to buy the problematic assets with some floor price. Markets start to work again and trading continues. Everyone’s happy?
Not so fast. The other side of the coin is that Price Discovery is not allowed to happen. Different assets and papers are not facing their ultimate market truth
Price Discovery is one of the most important corner stones of market economy. It allocates resources where they are most needed. Main problem in Soviet Union and planned economies were the absence of Price Discovery, and thus poor allocation of resources.
Because of these massive support purchase by central banks, we already live partly in centrally controlled planned economy, without free markets.
So, how will the layered money pyramid look in the future? Gold’s main feature was Store of Value without counter-party risk. However, physical gold doesn’t fit well to the digital economy of modern times. Heavy and difficult to transport
In the future, Bitcoin might take the place of top of the pyramid as the hardest Store of Value asset. Just like gold, Bitcoin is the counter-party free neutral money. However, it works in the digital space and can be send with few clicks in seconds. Its throughput doesn’t scale well, though, and layer-2 solutions such as stable-coins and CBDCs of some sort are needed.
See this link for photos: https://twitter.com/mikkoikola/status...
January 17, 2024
Nik Bhatia takes the reader through the history of money and various monetary systems through the lens of his Layered Money System. He takes you from Gold and Silver coins to Bonds, Loans, and eventually US Treasuries all as first layers of money. At each evolution, he explains how abstractions away from these sources of money come to be through the use of promissory notes, bonds, and issuing debt. These “2nd Layers” of money carry increased risk as there is now a counterparty involved to redeem these products for the source money. As the book goes on, it extrapolates this analogy with the creation of the Federal Reserve while adding additional layers of the “Layered Money” System. He explains how this system, with all its layers built upon counterparty trust, can collapse and gives examples (I.e. the collapse of 07-08’).
The author then presents a future money system which is essentially a digital transformation on the existing banking system. He describes a world where almost all money is digital and layers up to the most sound money that does not rely on counterparty trust, Bitcoin. The unit of account and medium of exchange is perpetuated through Central Bank Digital Currencies and Stablecoins while the store of value is mainly measured against the limited supply, Bitcoin.
I would encourage anyone trying to grasp the financial system better to pick up this book. It tied up a lot of loose ends for me in terms of how banking and money creation works and came to be. It does seem like it could use a bit more detail, particularly in the latter half of the book, as I felt it may have been rushed through to finish up. That’s just my opinion and does not take away from the excellence of what Nik has done.
The author then presents a future money system which is essentially a digital transformation on the existing banking system. He describes a world where almost all money is digital and layers up to the most sound money that does not rely on counterparty trust, Bitcoin. The unit of account and medium of exchange is perpetuated through Central Bank Digital Currencies and Stablecoins while the store of value is mainly measured against the limited supply, Bitcoin.
I would encourage anyone trying to grasp the financial system better to pick up this book. It tied up a lot of loose ends for me in terms of how banking and money creation works and came to be. It does seem like it could use a bit more detail, particularly in the latter half of the book, as I felt it may have been rushed through to finish up. That’s just my opinion and does not take away from the excellence of what Nik has done.
June 7, 2021
Nik does a great job going through the history of money and how it layers upon itself. He does a great job explaining how banks and exchanges were created and how they fit into the layers. As he progresses through history, he shows how the base layer (Layer 1) converted from Gold to Loans to Bonds to US Treasuries. Additionally, he does a great job explaining how the current system with Layers 2 & 3 are created and interact with one another.
As he moves into explaining Bitcoin, again he does a nice job explaining the history of Bitcoin and what it's layers will look like.
Unfortunately, I don't think enough time was spent explaining how the current complex dollar system will convert to a Bitcoin based system. He spent about 2 pages on Atomic Swaps. Atomic Swaps seem logical in the progression, but there has to be more to it. The pyramid graphic used throughout the book to illustrate layered money doesn't show the intermediate conversion from dollar to Bitcoin. Because I was curious and had the hardcover version of the book, I could flip back and forth to try and piece it together. I would have enjoyed the book more if it was a bit more detailed in the last 3 chapters.
I would definitely recommend this book to those looking to understand our monetary system and how history can teach us.
As he moves into explaining Bitcoin, again he does a nice job explaining the history of Bitcoin and what it's layers will look like.
Unfortunately, I don't think enough time was spent explaining how the current complex dollar system will convert to a Bitcoin based system. He spent about 2 pages on Atomic Swaps. Atomic Swaps seem logical in the progression, but there has to be more to it. The pyramid graphic used throughout the book to illustrate layered money doesn't show the intermediate conversion from dollar to Bitcoin. Because I was curious and had the hardcover version of the book, I could flip back and forth to try and piece it together. I would have enjoyed the book more if it was a bit more detailed in the last 3 chapters.
I would definitely recommend this book to those looking to understand our monetary system and how history can teach us.
February 21, 2022
It's a great book to understand the monetary system and figure out from the author's point of view where digital currency has a place. For me something like Bitcoin is a way to maintain the value of my money or at least have others around me agree on the value of what we are exchanging as opposed to artificial or corrupt forces controlling the value of the currency. This book was great to get an understanding for currency and it's a wonderfully researched book about money and all the layers the author addresses. It's short and doesn't read like a textbook so it's easy to get through it. I think it's a basic primer however and you'll need to reference plenty of other books but I think the author does a nice job of guiding you as to what questions are worth asking yourself next. Very insightful.
April 25, 2022
This book is an overall solid intro if you don't know anything about Bitcoin, central banking, or the Federal Reserve system and want a (he actually did give a nice concise overview of what Jeff Snider, Danielle DiMartino Booth, and others have expounded at length). But the analysis of each point is very shallow.
I would still recommend this with the caveat that it's only a starting point and the author doesn't really give much of an argument for any of his opinions. The assertions in the last chapter in particular were something of a logical jump that I wish he would have spent a lot more time defending. Don't expect many deep arguments from first principles. At a factual level where the author is not merely stating his opinion (not always clearly demarcated), this book is short an sweet. The "layered money" core concept could have just been a blog post.
I would still recommend this with the caveat that it's only a starting point and the author doesn't really give much of an argument for any of his opinions. The assertions in the last chapter in particular were something of a logical jump that I wish he would have spent a lot more time defending. Don't expect many deep arguments from first principles. At a factual level where the author is not merely stating his opinion (not always clearly demarcated), this book is short an sweet. The "layered money" core concept could have just been a blog post.
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