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> It's also not a fiat currency, because it's not possible to just print new money.

Fiat money is money that is in itself intrinsically valueless but that is accepted as money because the government says that it must be. It has nothing to do with whether or not it can be printed (or otherwise easily created).

If a government were to make a cryptocurrency like Bitcoin their legal tender and require that it be accepted as money, then that cryptocurrency would become fiat money.

Money has for the most part been a dichotomy: commodity money and fiat money. Bitcoin doesn't fit fully into either category, but it actually is closer to a non-government fiat currency than to commodity currency.

Commodity money was things that were valuable themselves, independent of their use as money. Gems and precious metals, for example, are useful for making jewelry and for other aesthetic purposes, and their rarity makes them useful as status symbols for upper classes.

In societies that do not use them for money, people still want them and use whatever is used for money to buy them.

Cryptocurrency doesn't really fit as commodity money because the demand for it is almost all for its use as money. If people did not accept cryptocurrency as money, I doubt many people would be interested in buying it.

As money, cryptocurrency is much more like fiat money: something worthless that has been declared to be money. The only difference from most other fiat money is that with cryptocurrency it is not a government declaring it to be money. It is a large group of people.

We probably need a new category, non-government fiat currency, to cover cryptocurrency as money.

> cryptocurrency is...something worthless

Cryptocurrencies aren't worthless though. Computationally expensive, cryptographically useful numbers are a valuable commodity. They are valuable in virtue of the computational work that they make possible, the same way that electricity or silicon are valuable in virtue of the computational work that they make possible, i.e. successfully, verifiably lengthening the blockchain.

> Fiat money is money that is in itself intrinsically valueless but that is accepted as money because the government says that it must be...require that it be accepted as money (emphasis added)

There's the part where you say it.

> The only difference from most other fiat money is that with cryptocurrency it is not a government declaring it to be money. It is a large group of people.

And there's the part where you take it back. As you started to say, declaration is a necessary but not sufficient condition for fiat; it also requires forcibly maintaining the declaration. If a large group of people have that power then they're effectively a government, making "non-government fiat currency" an oxymoron.

> 1. It's like gold, but it removes some of its technical shortcomings.

Bitcoin, or the technology of Proof-of-work and immutable history that is based on it, is not like gold:

One can take the entire history, change specific parameters, and create a new coin (bitcoin cash for instance) that has the same history. Hence people that had bitcoins have the same amount in this new currency.

This is like taking all gold in existence, magically duplicate its exact quantity into say another chemical element which never existed before, and distribute the amounts to all the people that owned gold before; in the same proportions.

Would this make the scarcity property of gold less interesting for using it as a medium of exchange? You bet so! One could magically do this ad-infinitum, possibly creating infinite other chemical elements - what would then set gold apart from the rest?

One only needs to try to send LTC to someone who wants BTC to discover that there is indeed a significant difference between a Bitcoin and a Litecoin.

Your argument would apply equally to any currency. What stops me printing jstanley dollars and claiming there is 1:1 parity with actual dollars? Nothing! And yet that doesn't devalue actual dollars.

I was specifically talking about gold... not other types of currency.

> What stops me printing jstanley dollars and claiming there is 1:1 parity with actual dollars? Nothing! And yet that doesn't devalue actual dollars.

If most people had legitimate reason to believe that your jstanley dollars would retain 1:1 parity with US dollars, and they would be able to be used interchangeably with US dollars for most financial interactions for the foreseeable future, then you might devalue the US dollar by printing enough jstanley dollars.

That is unlikely though - there is no reason to believe any of those things about your dollars.

Whereas if you believe in the model of bitcoin, why don’t you believe in the model of bitcoin2? The best answer I am aware of is “network effects”, but that isn’t a very good one.

The network effect is the only thing supporting a fiat currency like the USD - as evidenced by Krugman’s “men with guns” quote in the article.

Fractional reserve is really what makes a bank a bank instead of a gold/dollar holding company. The problem for banks in not so much debt defaults by people who they loan money to, but lots of people the bank owns money to wanting it back all at the same time.

We could get rid of almost all the bank default risk by making banks match the maturity of their deposits with the maturity of the loans they make. But with less risk, the bank would not be as profitable most years.

Banks have existed long before fractional reserve though. You really don't need fraction reserve for banks to exist.

How would that work? You put money in a bank, the bank can only keep it in the vault, sitting there doing nothing waiting for you to take it back, unless it can lend part of it out. Thus fractional reserve. Loans existed before banks, but fractional reserve is the whole trick behind banks. Banks started out, I believe, as as goldsmiths[1]. They were places where people paid to keep there gold and and other valuables, and got a receipt for the deposit. These goldsmiths also loaned their own money to people at interest. Eventually some of the more risk taking ones decided that since not all depositors would come for their money at once, they could lend some of deposits out at interest. Modern banking was born.

[1]http://encyclopedia-of-money.blogspot.com/2010/03/goldsmith-...

Well not only would banks be far less profitable, but the entire modern economy would grind to halt. I think that's the real problem with 100% reserve banking--it's disingenuous to cast it as less profit for banks.

> Full disclosure: I have 200 GBP in Bitcoin.

Hey, I appreciate this. As someone that doesn't like bitcoin, it became clear that the people shilling bitcoin we're not honest about their investments.

Settlement system vs payment system is a false dilemma. Cryptocurrencies can be both.

To me digital trustless and permissionless transfers are the most important features of cryptocurrencies.

I think of Bitcoin as being a Gold 2.0.

That may be a bug, not a feature. See William Jennings Brian, "Cross of Gold" speech. Having a fixed currency and economic growth forces deflation, which is really tough on debtors.

Gold, like diamonds, is a promoted rarity. The gold industry's "World Gold Council" puts effort into into getting gold safely locked up in safe uses like jewelry and off the trading market.

The deflation problem with Bitcoin will keep getting worse because the mining reward decreases over time.

It’s exactly like gold except that you can’t do anything at all of practical use with it.

And you can create unlimited forks of it, which is kinda hard with gold.

For me this makes the real value zero, but I am already proven wrong for more then 10 years.

The value of Bitcoin comes from social consensus. You cannot fork that. You can only fork a code repository. End of the day, it is just a bunch of 1s and 0s without a social consensus of value.

You are begging the question. "Social consensus" is literally the same thing market value.

> The value of Bitcoin comes from social consensus. You cannot fork that.

Can’t? Perhaps it is difficult, but not impossible. I can think of some examples of forking social consensus: x11-wayland, Debian-Ubuntu, star office - open office - whatever office it is now.

Gold, based on its practical uses, should have a much lower value as well--but naysayers have been proven wrong since time immemorial. I think the market will continue to stay irrational much longer than we will be alive.

Few consumptive uses is actually a positive for a monetary system.

Apart from:

- Its usage in black markets, like drugs and weapons.

- Its usage as a speculative commodity.

- Its usage as a hedge against hyperinflation.

Those are current uses - and any one of them could grow much bigger. Conceivably, a government may end up creating a new black market traded in bitcoin, which might then propel it to mainstream adoption.

Footnotes: Drugs are bad; don't do drugs. Guns kill people. Don't sell your house for Bitcoins. Etc.

* - Its usage as a speculative commodity.

- Its usage as a hedge against hyperinflation.*

FYI - those are both features that gold currently possesses.

Yes, but to secure the gold requires physical security. To secure bitcoins or other cryptocurrency requires digital security. It requires different types of knowledge, but in theory, digital security is highly efficient and I'd argue orders of magnitude just plain better.

The Winklevoss twins would like to speak to you about that then. Care to explain to them what they're doing wrong?

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&...

I am not convinced that Bitcoin is all that, but the usefulness of gold is also rather limited. Silver and platinum are much more important for technical applications, as opposed to looking nice. If it was about usefulness, platinum would have long replaced gold for the purpose of storing value.

This is also a great feature that makes it exactly like gold. But unlike gold, you don't need to dig a hole in the ground, put it there and have people guard it. You just need enough electricity to run it.

2013 called, it wants its hot take on "digital gold" back.