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Comment by slg | Hacker News Reader

>Bitcoin's value is given by the trust people put in it. Just like with the fiat currencies as a matter of fact

Except fiat currencies also have that fiat behind them that gives them value. If you want to do business with the US government, you do it in USD. If you are one of the millions employed by the US government, you are paid in USD. If you manipulate USD, you have to answer to the US government. Those things add tremendous value and they are something that Bitcoin does not have.

With Bitcoin you only have trust in value of Bitcoin. Fiat currency is given added value by having trust in the power, reach, and stability of the nation that issued it.

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> With Bitcoin you only have trust in value of Bitcoin.

More specifically, you have trust in the continued trust that others have in it. It's a self-fulfilling prophesy: as long as people continue to trust it, it continues to be valuable, but as soon as people start to doubt that others will continue to trust it, it's instantly worthless. There's no real value backing it up. This makes it very vulnerable to hype and hysteria.

What currency doesn't operate this way?

Some currencies are pegged to other currencies or values.

So you have to have trust that others will have continued trust in the currencies or values that your example currency is pegged to.

Ultimately it seems that any material you treat as a store of value, rather than as a commodity or material that is valuable to you for its own properties, includes this trust that others will value it. If others do not value it, it is not a store of value, its usefulness to you is reduced to its own intrinsic properties rather than the value others place on it.

The USD, in effect, does not. It's a reason I'm somewhat bearish on it.

In the 70s we made a number of agreements with a variety of Mideastern nations. We gave them what seemed like the world and asked that simply require payments of oil to be transacted on the dollar, and that they invest their excess revenues into US securities. In fewer words, the petro dollar.

And those agreements, for the most part, persist to this very day. A US dollar guarantees you access to oil. And so long as oil is the most in demand commodity in the world, the US dollar will remain the most in demand currency in the world - guaranteeing access to the goods and services of any country.

This is why the US dollar is the world reserve currency, or the money most countries keep under their bed in case of a rainy day. However, if this changes (renewables, Saudi Arabia deciding to switch allegiance to Russia/China, etc) what happens? We've a lot of debt that's only increasing and it's unclear to me how tall the USD would stand without its crutch.

Interesting, thanks.

Every currency that's backed by an actual government. Whatever else happens, you can always pay your taxes with it. It is the currency of the economy the currency is native to. As long as that economy is running, you can use that currency to purchase goods in that economy, and the currency has value. People doubting whether enough people will start using it in the future is irrelevant, because enough people are already using it in the present. A country will have to work really hard to sabotage its currency, and that's extremely rare (though it has happened in Zimbabwe and Weimar Germany).

Bitcoin, by comparison, isn't used for everyday transactions by a lot of people (though there are some). There's no real economy it's native to (unless you count Silk-Road-style markets), and there's no guarantee that you'll be able to use it there in the future.

It might not be just the trust in value. BTC started at less than 1$ in value. The trust built over the last almost 9 years.

It might be trust that you can't double spend BTCs, trust in the issuing algorithm, trust that you can only lose your bitcoins if you do something stupid with your wallet, etc.

Of course, we can't compare right now bitcoin's ecosystem with the ecosystem of the fiat currency, but who knows what will happen in the future if more and more people and businesses choose to adopt it.

I think that’s what is meant by “trust in value.” The “real” value of Bitcoin is as a trustworthy ledger.

The nation backing of fiat also is its downfall. Look at our monetary base [1] for an example. The US adjusted monetary base in in 1984 was about $183 billion. In the 24 years to 2008 it increased at a roughly linear rate to $874 billion. Just from 2008 to 2015 it increased to more than $4 trillion.

The Fed themselves wrote an article [2] expressing some concern about the "nontraditional monetary policy" that instigated this sharp change in the monetary base. In their closing words, "Recent increases in the monetary base are far greater than any previously in American history (even adjusted for the size of the economy), surely a "noble experiment" in policymaking. Will these policies be successful without accelerating inflation? The epitaph to this curious case of monetary base expansion is yet to be written."

And really I think that final line quite succinctly sums up the state of modern economics. We've entered into an age of currency growing, inflation chasing, debt drive economics. And it's been working great for the briefest glimpse of time that we've been carrying out this experiment. Does that mean we've finally 'solved' economics, or does an epitaph that looks back somewhat less fondly on our decisions await? I don't know, but I do think the inherent stability of the fundamentals of bitcoin (e.g. - everything except the exchange rate) and the lack of trust it requires makes it a nice balance to our fiat experiments.

[1] - https://fred.stlouisfed.org/series/BASE

[2] - https://www.stlouisfed.org/Publications/Regional-Economist/J...

It's funny how monetary base expansions are STILL used as arguments against fiat money. People like you were predicting doom because of it since 2010. Nothing happened. Except economies recovering, which was the design goal. The FED will also start to reduce its expansion soon, and catastrophe is still not anywhere to be seen. You were simply wrong, get over it.

I think it’s a bit of a stretch to attribute much of USD’s value to business deals with the US government. That must be a tiny effect. I’d say most of the value comes from the fact that US workers have to pay taxes in USD even if they earned income in some other currency or asset.

> pay taxes in USD

basically, citizens dealing with the US government. I think it's the same category.

No, not "dealing" with the US government: actually compelled by force of law to render a portion of your assets. I don't mean this to sound as ominous as it does, but rather as stabilizing a force as Bitcoin can never be.

If you define that so broadly, then sure. I got the impression that sgl was referring to directly doing deals with the US government where the US government pays in USD, which I suspect is a much less significant phenomenon.

> pay taxes in USD

bingo

>If you want to do business with the US government, you do it in USD.

If you want to do business with drug vendors over the internet, you do it in BTC.

(Altnerately: If you want to donate to Wikileaks...)

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