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Comment by koonsolo | Hacker News Reader

> it's relying on "people thinking X has value"

Where do dollars or euro's get their value from? Let me give you the wikipedia definition:

"Fiat money is a currency without intrinsic value established as money by government regulation or law."

What do you think happens to fiat money when people stop believing it has value? Look back to 19th century France, were fiat money collapsed.

Bitcoins have no intrinsic value, which is bad. But the good part is that it only has to compete with fiat money, which also doesn't have intrinsic value. And if you ask me, I put more trust and faith into an algorithm distributed over lots of people, versus trust in banks and governments.

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I agree with what you are saying to an extent (it is just paper), however at a minimum the value of government backed money could possibly be expressed by the mobilisation of resources a government would rally to give it value.

Lets say everyone declares USD is worthless, the government could 1) sell things of value demanding explicitly USD in return. 2) Impede movement or other activities, use of public goods using force and demand a toll explicitly in USD. I.e. this much $ is worth 100km of highway travel. Like calculating the value of a person's life to the government in free health coverage countries based on where they draw the line on spending to keep them alive, I think the value is the inverse of the cost the government would go to to prop it up.

You could argue without money how would they be able to enforce, however enforcement of a government order has not always required money, and that's one hypothetical too deep for me.

You should look into Zimbabwean dollars, Russian ruble, Venezuelan bolivar history. No amount of government intervention will help to keep the value once the population loses faith in the currency. Even if you start giving away gold bars for each unit of currency, you will quickly end up with no gold bars and lots of worthless paper. If you restrict the supply of currency, people quickly invent their own money, which you don't control.

EDIT:

And people will happily pay for goods and tolls with worthless paper, but your demand to accept dollars and fix the prices has one outcome: empty shelves and lots of people in prison (because how else do you enforce dumb demands?). Both were tried in Venezuela and USSR with the same result.

I think with Zim dollars and the like the problem is too much money chasing too few goods. Without that they would behave normally. I can't think of practical instances of restricting the currency supply leading to people inventing money getting far. Sometimes if the local currency is not taken abroad people will try using USD or similar instead but inventing some new money doesn't help much for that.

bitcoin or creating a new token helps for that

I've heard it mentioned various times that a fiat currency's value in any organized society comes from its ability to pay off the controlling state (i.e. taxes).

Whether it is dollars to the IRS, colored beads to the local chieftains, or copper coins to the Lord of the manor, it doesn't make a difference. The ability to 'pay off' the state in power, with legal permission and ability to use violence, gives that currency value.

So by that token, the ability to pay off ransomware authors gives bitcoin value?

I think you're right in this case. The ransomware authors functioning similarly to the state. If i couldn't access my computer I would have to buy bitcoins with my other assets.

Interesting how this works once you go back to currency. This extortion money being "legally" worthless, being the proceeds of crime.

(Illegally obviously worth the picture on the front.)

Why would you trust a novel currency over the collective interests that stand behind the USD or Euro? Currencies backed by powerful democratic governments, huge corporations, advanced military industrial complex, research, educational, and financial institutions, and basically all the people that live in those countries aside from a miniscule fraction that prefer cryptocurrency, a currency that must be converted into USD/Euro if you want to do things like buy milk or put gas in your car.

Do you reasonably think that if those currencies collapse, you will be just fine with a stockpile of bitcoin? If bitcoin collapses though, the USD will not even notice a ripple.

I'm not saying that bitcoin or other cryptocurrencies are not currently a lucrative investment, but I am far from convinced that crypto offers more stability and is a safer bet that dollars or euros

I think bitcoin is best understood as a countercyclical bet. Like gold, it is highly volatile but trouble in mainstream markets will always lead to an increase in its value.

So one would trust a novel currency over the collective interests that stand behind the USD or Euro if one expects a prolonged downturn in those economies or a divergence of the interests behind them.

I consider Bitcoin more of a "collective interest" than money produced by governments. History is full hyperinflation horror stories.

Do you trust professional encyclopedia writers more than a bunch of anonymous volunteers collectively writing articles? But Wikipedia is a fact no? It works. Distributed things seem to work, in practice.

I agree that Bitcoin still has to prove itself. But if such a thing as Wikipedia can work, why not Bitcoin?

But I get your point. Although the world is bigger than US and Europe alone. What about current unstable states?

One thing will never happen to Bitoin: hyperinflation.

You can get the equivalent crash in currency value from people choosing to exit their BTC en masse without emitting new coins. Ultimately hyperinflation is a massive imbalance of supply and demand, and whilst the supply side is much more fixed with BTC than a floating, fractional reserve currency, the demand side is much less fixed because there really aren't that many future obligations to pay things in BTC.

And I was under the (possibly incorrect?) impression that with the support of enough of the hashing power, core Bitcoin could hypothetically be forked in a way which massively increased the rate at which new BTC were emitted. (Something which would be highly unlikely as miners have strong incentives not to do this under normal circumstances, but the same applies to governments having no incentives to rapidly debase their currency under normal circumstances)

I do like the idea of distributed efforts, and I think Bitcoin has some really positive aspects. Still regarding Bitcoin as the stable alternative to USD is a major stretch, and I think that is partially due to it being decentralized.

For one, with no state backing, what does a country risk in simply banning Bitcoin? China has already proven they are paying attention to crypto exchange, and their willingness to institute bans. Do you not fret the US could do the same at any moment? What options are there if the US put a ban on bitcoin exchange? Do you think it would still retain its value?

The key words are "by regulation or law." Bitcoins are completely unregulated right now. Coinbase can do whatever they want with people's crytocurrency and the government won't bat an eye, which is basically what happened with Mt Gox. At least your bank account is FDIC insured.

Isn't Bitcoin considered a liquid asset by most jurisdictions? So even though it's not money, you can't do just anything without culpability whatsoever.

Ok. Anything is an exaggeration, but they can definitely get away with insider trading or market manipulation. For example, litecoin rose suspiciously right before Coinbase announced they were letting people buy litecoin.

My argument is that you can't detect a bubble by the logic "people thinking X has value" - because that's true for a bubble, and for a non-bubble. I don't understand how your response applies to my argument.

> What do you think happens to fiat money when people stop believing it has value?

That's precisely the source of your misconception regarding the intrinsic value of fiat currency.

Fiat currency always has value as they are the basic unit used by the state to determine how much taxes you owe them, which is linked to a percentage of everyone's gross income.

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