Comment by KLexpat | Hacker News Reader

Comment by KLexpat | Hacker News Reader

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The idea of fiat currency only works when people are forced to participate in it. The petro-dollar was fairly obvious in the late 20th century, but now things are more subtle.

The key thing is ensuring that all exchanges of wealth only occur within a currency controlled by the authorities. They are not really concerned about minor instances of tax avoidance; the primary concern is that large scale economic activity could start occuring outside of a government controlled credit market place.

The goal here is to ensure that Bitcoin is financed in USD, and that the finance of this asset remains in government controlled credit. You can borrow bitcoin sure, but its in USD credit markets.

You can't at this stage get a bitcoin-mortgage, or a bitcoin credit card that never references USD. Imagine if you could transact in bitcoin all the time, and post assets as collateral to get bitcoin loans with interest pay-able in bitcoin. This would be a point where people stop measuring bitcoin in USD and start measuring things in bitcoin, and is something the US regulators seek to avoid at absolutely all costs.

> The key thing is ensuring that all exchanges of wealth only occur within a currency controlled by the authorities.

I don’t think even this is a requirement. Really all you need is all large transfers of wealth to be reported to central governments so they can collect tax, and enforce money laundering prevention rules.

Don’t think a government really cares what currency you use, fiat or crypto, as long as they get their cut in a currency of their choice.

They care a lot about control over credit markets. The entire premise of central banks controlling inflation via the money supply becomes precarious when people are able to issue and access credit outside of the controlled money supply.

You're entirely right that they want their cut, but they also don't want to end up like a country such as Indonesia or Vietnam where all the financing has to be organised in the USA. The US FED can print money during a recession to ease credit conditions; many non-western countries have no such luxury because while they might have a sovereign currency, all the serious enterprise in their country is financed in New York and cities in Western Europe.

I'm way behind on my news and weak on understanding. I thought I had read that the total number of bitcoin has an upper bound. How can you have interest when there's an upper bound?

One can determine their own rate of interest.

I mean, I could lend you 500 sheep and request 500 sheep + 10% per annum for each year you hold my flock. If you held for 1 year, it would be 550 owed. 2 years, 605. 3 years, 665.

With sheep, you might approach this by breeding them with the aim to produce more sheep than are owed, or selling the wool to buy more sheep or whatever.

However, we could also do this with a scarce and inorganic resource such as palladium ingots. In this case there can still be interest but you would have to exchange other resources in order to acquire more palladium to pay back the loan. It is still functional provided the market for palladium has good liquidity.

EDIT: for more clarity, you could borrow bitcoin with a bitcoin-interest component in order to acquire an asset. Then if you could get paid a salary in bitcoin as well, you would be able to pay the loan back.

Some people will inevitably default on their bitcoin loans.

What you're describing isn't Bitcoin, but Ethereum, and you can already do a lot of this on Ethereum with stablecoins/ether.

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