Comment by lettergram | Hacker News Reader

Comment by lettergram | Hacker News Reader

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For one, all currency is based on faith. We have faith the government can control the currency and will back the currency.

Take Venezuela, their currency is/has collapsed because the people no longer have faith that it is valuable.

Typically, people just blindly trust authority, and that's why we believe green paper made from cotton to be valuable. We all agree it's valuable (except people who want a gold standard).

Similarly, we all agree Bitcoin is worth X. It's no different, except no one is telling us it's worth X. The market is saying it's worth X.

It's not really the first time a society agreed to use something arbitrary as valuable either. There are cultures that used salt, gold, silver, white stones, etc. as currency. The point is, once we agree something is worth X, we can trade for other goods at value X.

The advantage to Bitcoin is it's not centrally controlled so it's harder to mess up (see great depression, federal reserve basically made it 100x worse), or Germany post WWI. Further, you have an auditable history, some privacy (better than credit cards), and a truly global currency (similar to gold, without the need to lug it around).

For most currencies, governments act as huge buyers and stabilize the value over the entire year by calculating taxes in that currency. It's not just faith in the currency itself. Bitcoin doesn't have any institutional buyers like that.

> Take Venezuela, their currency is/has collapsed because the people no longer have faith that it is valuable.

Almost all the devaluing there is because they keep making so much, not because of a lack of faith.

They make a lot less than the US government.

Proportional to how much existed a couple years ago they have created insane amounts of new currency. US government can't touch that rate.

>For one, all currency is based on faith

You forget all the pointy sticks that the government has! For example the government can compel you to pay taxes in the currency of their choice. If failure to pay results in imprisonment or death the value proposition can be fairly compelling.

Btw, The Midas Paradox is a good introduction in some background on the great depression and the Federal Reserve Bank's and federal government's role in it (http://www.themoneyillusion.com/?p=31341).

I am waiting for someone to come up with a good solution for how to do fractional reserve banking with bitcoin (without relying on trust via eg government-sponsored courts to enforce human-readable contracts---because what would be the point of bitcoin then).

i reckon fractional reserve cannot be done with bitcoins (unless you, as you precluded in your conditions, trust a third party).

Just like fractional reserves cannot be done with gold, unless you trust a third party (and thus, receive "bank notes" for your gold deposit!).

Yes, people have been doing fractional reserve with gold and reputation for a long, long time.

I wonder whether bitcoin fractional reserve can live off reputation alone, or whether smart-contracts can / have to help?

The idea of apolitical money is a fantasy. Read sociology studies on the origins of money, ie Debt the first 10 000 years has a good counter narrative to the the idea that markets self generate (with plenty of historical evidence).

Markets, and money, have always been consequences of state power.

> For one, all currency is based on faith.

But that rings like nonsense to me. (No offense intended.)

A .gov is, at a basic level, the warrantor of property rights. It can confiscate at will. And it did so in the US itself, for all practical intents and of all places, when households were asked to hand over their gold holdings (during the Great Depression if memory serves?).

At any rate this ability of .gov to tax and confiscate wealth on demand to protect a currency (or for that matter, its ability to limit capital inflows and outflows like Iceland did in the aftermath of the 2007 crisis) is a much stronger guarantee than any crypto currency can offer.

Or maybe I'm entirely out something for assuming as much?

But your faith is based on 'math is hard for we of faith and so it will always be hard for everyone'

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