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Comment by blueflow | Hacker News Reader

This also applies to every other fiat currency like the euro or dollar.

The USD and the Euro are backed by the fact that the government will only accept payment in those currencies. That's why it says "for all debts, public and private."

The strength of a state-sponsored fiat currency is two-fold:

First, the amount of commerce done with the government.

And second, the government's ability to use force to prevent the use of other currencies in the licit domestic market, to stop the free movement of cash, and to detain those that do not comply.

Succinctly, fiat currencies are maintained by tanks and taxes.

Unless the people already accept the value of the official currency, it is not practical for the government to use force to compel people to exchange in a particular currency. If and/or when people lose faith in the dollar, they will trade with other currencies, regardless of the government's position on the matter.

Bitcoin has already proven a boon to Cypriots and Greeks as their countries' economic systems have collapsed and had their deposits placed on lockdown. It has value as a global means of exchange that can't be artificially suppressed.

My personal belief is that the credibility of the dollar will fall through the floor as contemporary social issues like access to health care remain unaddressed. People will need another currency to exchange and bitcoin or another cryptocurrency will be the most ready, the most pertinent.

They don't force anyone to do anything. They just refuse to accept currencies for taxes, other public debts, and government purchases. That's what creates the adopter base and the lock-in.

Bitcoin is a game changer. It is held up by pure faith alone. That makes it more of a commodity than a currency. For example, Gold made good currency simply because of pure faith.

I can't pretend I know I where the blockchain will lead us, but personally I'm fascinated to find out.

(Quick P.S. for any Brits or Aussies, us Yanks referring to the blockchain just means blockchain tech, not specifically the Bitcoin blockchain.)

Honest question (as a Brit): why call out nationality when talking about the blockchain in your PS... Have you noticed the meaning vary outside the US?

Yeah, in some countries "the blockchain" strongly implies Bitcoin itself, whereas in others, particularly the US, "the blockchain" could refer to a blockchain in any setting, e.g. an altcoin.

Interesting, thanks! I've not noticed that myself, but maybe that's because I'm in London and fintech is particularly strong here (I'm guessing fintech folks are more au fait with the difference between blockchain and bitcoin)

The currency can change quickly and the old stuff becomes quite worthless. Ask the Confederates.

They lost their force and power of taxation. It's actually a great example of how fiat currencies work.

No "tanks", no taxes, no currency.

And thus you may say that every Euro using nation effectively gave up sovereignty when they adopted said currency...

I would characterize it as more of a joint sovereignty pact, with all agreeing to accept a currency, and all in a mutual defense organization. It's not a pure federal government, but it's at least a confederacy.

But, to address the elephant in the room, as one can see from recent events divorcing fiscal union from monetary union can have some very detrimental effects.

You said it, we didn't.

Huh, I'd never thought of fiat currencies that way until now. One might say they're backed by your individual liberty (i.e. not paying your taxes with legal tender gets you thrown in jail).

You've reframed the concept in a very interesting way.

Another permutation: It's almost as if a government holds your liberty as collateral to ensure use of their currency domestically.

Zimbabwe had both tanks and taxes, but their currency still went to shit.

There's a limit to the ability of tanks and taxes to stabilize the currency. It provides a backstop but when there's large spending financed by printing money combined with instability and a lack of faith in the government the government can't provide that stability.

So we can narrow it down to the factor that DOES matter - trust. Zimbabwe currency lost its trust, and no amount of tanks or taxes would actually gain it back. That's what really backs a currency.

> The USD and the Euro are backed by the fact that the government will only accept payment in those currencies.

If you limit the use-case to "within the borders of a nation state" then its not easy to make a strong case for Bitcoin being anything other than a fringe currency.

If you consider that increasingly, the bulk of all commerce is international, a truly stateless, international currency starts to make more sense than a currency managed by any one state or group of states.

> The USD and the Euro are backed by the fact that the government will only accept payment in those currencies

But how much of it? This will stop the value from going to zero, but what's to enforce a specific exchange rate between dollars and other goods? Is it just the fixed price of postage stamps? (I'm actually inclined to agree with you but this is one detail I haven't worked out)

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