The Gift of Bitcoin: Chapter 4 – Bitcoin and Time Preference

This is the fourth chapter of “The Gift of Bitcoin” – a world-class bitcoin education sent to recipients of bitcoin gifts sent with GiveBitcoin.

Congratulations on receiving your GiveBitcoin gift! Someone who cares about you gifted you some Bitcoin (BTC) and it’s our job to help you learn about it.

Here are the chapters currently available:

Chapter 1: Introduction to Bitcoin
Chapter 2: The Problems with Money
Chapter 3: Bitcoin, the Best Money Ever

Quick summary:

  • The marshmallow test teaches us that delayed gratification yields greater rewards.
  • High time preference behavior focuses on immediate gratification. Low time preference behavior foregoes immediate benefits for increased returns in the future.
  • The most important decisions for your well-being are the tradeoffs you make with your future self.
  • A society filled with people exercising low time preference will save for tomorrow, engage in large scale projects, and plan far in advance.
  • The higher the inflation rate, the more it steers people toward high time preference thinking. Bitcoin is deflationary so it steers people and businesses toward low time preference thinking.

In the previous chapter, you learned why Bitcoin is the best money we’ve ever seen. In this chapter, we’ll explain how Bitcoin is related to a concept called Time Preference.

The lesson only takes ~15 minutes to read. You can also listen to the lesson if you prefer audio content.

Chapter 4:  Bitcoin and Time Preference

Bitcoin sounds like it involves a lot of long term thinking. I’m not great at that.

You’re not alone. Our entire culture these days revolves around short term thinking. It’s all about time preference. 

What’s time preference? 

The best way to examine that is via marshmallows.


Yes. Well, the marshmallow test. In this famous experiment, children were left in a room with a marshmallow. They were told they were free to eat it, but if they waited 15 minutes and didn’t eat it, they would receive a second marshmallow as a reward. Basically, the children had the choice between immediate gratification (one marshmallow) or delayed gratification that yields a great reward (two marshmallows). 

What does this have to do with time preference? 

Everything. This experiment is basically a simple way of testing children’s time preference: students with a lower time preference could wait for the second piece of candy, whereas students with higher time preference could not. 

The results of the test were revealing. After checking in on the students decades later, the researchers found that students with low time preference (the ones who were able to delay gratification) wound up with better grades, higher SAT scores, lower body mass index, and were less likely to wind up addicted to drugs. Their willingness to wait was a huge, lifelong advantage.

Define: Time preference
High time preference behavior focuses on immediate gratification. Focusing on receiving benefits immediately has a cost though. A person who exercises high time preference discounts these future returns to enjoy benefits right away.

Low time preference is the opposite. An individual who is willing to forgo immediate benefits for the potential of increased returns in the future is exercising low time preference.


Why is time preference important to society?

These individual choices add up over time. If society is filled with people using high time preference thinking who want everything right away, they won’t care much about the future. Instead of saving, they’ll spend any money they make immediately and consume everything as soon as they can.

We see this all around us today. There’s cheap credit and abundant currency-printing and the result is a society that incentivizes people toward profligate spending and immediate gratification.

What happens when money loses its value
“The move from money that holds its value or appreciates to money that loses its value is very significant in the long run: society saves less, accumulates less capital, and possibly begins to consume its capital; worker productivity stays constant or declines, resulting in the stagnation of real wages, even if nominal wages can be made to increase through the magical power of printing ever more depreciating pieces of paper money. As people start spending more and saving less, they become more present‐oriented in all their decision making, resulting in moral failings and a likelihood to engage in conflict and destructive and self‐destructive behavior.”

-Saifedean Ammous, author of The Bitcoin Standard

A society filled with low time preference people, on the other hand, will take the long view. They will save for tomorrow, engage in large scale projects, and plan far in advance.

The most important decisions for your well-being are the tradeoffs you make with yourself. It’s true for individuals and it’s true for societies too. The time preference path we choose determines our societal health. Low time preference behavior spurred the process of civilization and improves economic conditions over time.


If I’m being honest, I tend to spend money as soon as I get it. How bad is that?

You’re not alone. This kind of short term thinking is directly related to our financial system and the way we print currency. In our current system, you’re better off spending money before it inflates away. The higher the inflation rate, the more it steers us toward high time preference thinking. In hyper-inflationary economies, people rush to spend money immediately knowing that it’ll be worth less soon. The attitude is “I should spend my money now, while I can.”

This extends to the business arena too. Inflationary monetary policies encourage businesses to engage in high time preference thinking; they chase quarterly profits, borrow “cheap” money, and seek constant growth.


How does Bitcoin fit into this time preference framework?

Bitcoin steers people and businesses toward low time preference thinking; they build for the future and take a long-term life view.

Unlike fiat currency, Bitcoin is deflationary. It’s digitally scarce (capped at 21 million) and can’t be counterfeited. If you know your money will hold onto its value (or increase in value), you’re less likely to want to spend it right away.

Since Bitcoin increases low time preference thinking, people who hold it start saving more which, in turn, makes Bitcoin more scarce. This, in effect, makes Bitcoin more valuable and more desirable. That makes people want to hold onto it even more. This cycle is a big reason why Bitcoin’s value has gone up so much over the past decade.

Don’t stop thinking about tomorrow
“A lot of Bitcoiners will tell you how they became more low time preference and started thinking more about their future. It’s made me more cognizant about my future and what I’m trying to aim for over the longer term. And for me, it’s just been great to watch a lot of people come along on that journey as well.”

Stephan Livera, Bitcoin podcast host

Assuming Bitcoin becomes a standard currency, what will the future look like?

For society, the adoption of Bitcoin will bring back sound money, which allows for capital accumulation and more investment. That benefits all of civilization as we are able to start planning for the future and engage in long-term thinking.


Bitcoin has already proven itself an effective store of value and, even if it doesn’t become the sole global currency, it will operate alongside markets like gold and serve as a tool for global transactions and currency exchanges. It’s going to impact how we interact with our government, how we plan for the future, and create radical changes in the financial system.

The Golden Era
“Look at the era of the classical gold standard, from 1871 until the beginning of World War I. There’s a reason why this is known as the Gilded Age…What the gold standard allowed people to do is to have a store of value that would maintain its value in the future. And that gave people a low time preference, that gave people the incentive to think of the long term, and that made people want to invest in things that would pay off over the long term.”

-Saifedean Ammous, author of The Bitcoin Standard (source)


Related links


Bitcoin as Digital Gold (The Epoch Times)

Time preference and money supply by Noel Jones

Why Bitcoin Works by Jimmy Song

High Time Preference, Low Time Preference and Bitcoin (HODL Hard)

How Central Banking Increased Inequality (Mises Institute)


The Bitcoin Standard by Saifedean Ammous


The Marshmallow Test | Igniter Media


Saifedean Ammous on time preference (The Bitcoin Knowledge Podcast)

Tales from the Crypt #60: Misir Mahmudov

Robert Breedlove: Understanding Time, Money and Bitcoin from First Principles (Citizen Bitcoin Podcast)

Let’s wrap up

That concludes Chapter 4: Bitcoin and Time Preference,

In Chapter 5 we’ll discuss how Bitcoin turns you into an optimist.

Comment below with ONE thing you learned from today’s lesson or one question you’d like answered. We’d love to hear from you!

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