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Comment by XorNot | Hacker News Reader

If Bitcoin is not backed by government force, then why is it worth anything?

Because no one can be compelled to accept Bitcoin to extinguish my debts to them (i.e. by the courts) and I can't pay my taxes in Bitcoin to my local government (no, "just-in-time currency exchange doesn't count).

So given these problems, what is the exchange rate of Bitcoin into anything else supposed to be? Given, again, that eventually, everyone transacting in Bitcoin needs to transact out of Bitcoin in order to meet local obligations like taxes, or just to acquire goods someone actually wants to accept payment in.

Bitcoin is a lot like gold, in that people might find some cosmetic and novelty value in it which gives it more then 0 value. But unlike gold, it consumes a lot of real world resources (electricity, structured silicon) in order to continue existing.

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> If Bitcoin is not backed by government force, then why is it worth anything?

> Because no one can be compelled to accept Bitcoin to extinguish my debts to them (i.e. by the courts) and I can't pay my taxes in Bitcoin to my local government (no, "just-in-time currency exchange doesn't count).

Imagine that! People are willing to accept my bitcoin as a payment for their services voluntarily, and not because they are forced to?

Turns out that there are quite a large number of people who like the idea of economic freedom and dislike the idea of this big cartel telling them what they can or can't do, who they can or can't trade with. They might dislike it so much that they're willing to make the hurdles, and take risks, in order to exchange between currencies to meet their obligations under such repressive systems and achieve some level of financial sovereignty outside it.

People want the choice. They want the choice because the government who holds a monopoly over many businesses in the geographical region they reside often does a bloody awful job, and their prices are too high (a giant chunk of ones earnings, then another chunk of everything they buy). Private enterprises could offer far better service at lower costs and have them delivered on time. If they under-perform, people could pull out their money and pay someone else for the services.

The main obstacle for this kind of voluntary trade is the men with guns saying "That kind of business can't operate here because this is our turf."

Unless the electricity company accepts Bitcoin, then you've got a problem. In fact you have a problem even if they did - because the hard-cap on the number of Bitcoins means eventually, every Bitcoin will be held by the electricity company.

In fact it's worse then that - since the value of early Bitcoins is less then the value of later Bitcoins, but all Bitcoins are going up in buying power, the electricity company is eventually the richest entity in Bitcoin without even having to be malevolent.

Of course, this doesn't happen because none of them can pay their taxes (or their suppliers taxes) in Bitcoin. In fact no one using Bitcoin can - everyone eventually has to sell all their Bitcoins to someone to recover the currency they need to do that. But who's buying it then? There's a finite amount - if it stays in use it's worth more then you sold it for when you try to get it back - or, since everyone eventually has to sell it, it's worth less - and less again.

The electricity company has bills to pay. If some company can find a way to make unlimited energy without expending resources, then yes, they will become the richest entity in the world, regardless of the presence of Bitcoin or not.

Your assumptions are all resting on the idea that Bitcoin can't be used to pay taxes. This is already pretty flawed in a few places where it is possible. It will be flawed in many places fairly soon, because governments don't want to miss the boat either.

But Bitcoin maximalists don't actually care about this government thing. They would rather it collapse in on itself so that they can instead spend their money with businesses which make much better use of it than politicians.

For that reason, there is a demand for Bitcoin, and while the demand exists, people are willing to pay more to acquire it. At this point, they have to pay more because they're buying from a market with reduced liquidity, largely because existing hodlers would rather keep hold of it because they're pretty confident it will continue to appreciate in value over time.

And in the current world, where the government sanctioned financial services (paypal, mastercard etc) are actively unpersoning people for having unorthodox political views, there is clearly a growing market for an alternative financial instrument which this cartel does not control.

> The electricity company has bills to pay. If some company can find a way to make unlimited energy without expending resources, then yes, they will become the richest entity in the world, regardless of the presence of Bitcoin or not.

There is a finite amount of Bitcoin total by nature of the protocol. The electricity company is vital to Bitcoin being usable since it's a digital currency. The miners might be necessary too, but they need huge amounts of electricity - which if they had to pay in Bitcoin, means they are paying some portion of the dwindling number of Bitcoins to the electricity company. As is every Bitcoin user. And every bit of Bitcoin they get is worth slightly more after they get it then it was when it was paid, so their purchasing power is going up and up and up. You can't even found a new electricity company and try to compete on price, because beyond some point the original buyer can buy your new cheaper electricity without measurably reducing their spending power, and to capture the market they need to somehow not enrich you too much while doing it. And then of course, best case you just have 2 big electricity companies controlling all the wealth forever. Deflationary currencies are bad.

> Your assumptions are all resting on the idea that Bitcoin can't be used to pay taxes. This is already pretty flawed in a few places where it is possible.

"Just in time" Bitcoin -> currency conversions do not count. They don't count because they depend on an exchange rate (and are provided by a private company in all examples). The government's tax office is not accepting Bitcoin - it's letting someone act as a payment provider but the payment provider is still paying them in the local currency (and taxes are being assessed in local currency, not Bitcoin).

If the price of Bitcoin collapses, you'll owe more Bitcoins. If my local currency collapses, I'm still only taxed on the portion of my earnings in that currency.

> But Bitcoin maximalists don't actually care about this government thing.

However governments care a lot if you don't pay your taxes. And the utilities care a lot if you don't pay them.

You seem to think that utilities are monopolies (which is partly true in some cases, where they are granted such monopoly entitlements by a government), and they they don't have expenses. They're not at the bottom of the economy. They need to buy fuels, for example: so they spend money with the fuel companies. Well, the fuel company needs to buy ships, drills and whatnot, and pay its workers. They money comes back into the economy at some point.

If electricity providing is such a lucrative business, then there will be an extremely competitive market for providing that service, and no one company is going to be able to charge silly fees because they will make themselves obsolete. It is only through a government granted monopoly that such companies are able to exist.

Governments care that you pay your tax, but their ability to enforce their tax collection relies on violence, and ability to prove the taxes need paying. Bitcoin creates an economy where the latter is more difficult, perhaps impractical with more private technologies.

It might turn out that governments have to move to being more voluntary models of trade, else they might not be able to acquire enough taxes to fund their operations.

> And every bit of Bitcoin they get is worth slightly more after they get it then it was when it was paid, so their purchasing power is going up and up and up.

So you are saying that bitcoin would only ever become more and more valuable?

How can you similtaneously believe this statement, and that bitcoin is worthless?

They can't both be true. Either bitcoin is deflationary, IE, it goes up and up in value, and becomes more and more valuable, or it isn't.

Which is it? Is bitcoin worthless, or it is so extremely valuable and amazing, that it is going to take over the entire world with how deflationary it is?

Personally, I'd want to support something that you apparently believe is so useful that it is going to take over the world.

It's a fact about deflationary currency in general, and why it's a bad idea. It grants that for some reason we suppose Bitcoin is worth holding - i.e. some government or entity accepted Bitcoin (or another deflationary currency) as payment for taxes. Maybe someone builds a seasteading community and decides to try this.

The reality is, with nothing backing it (i.e. no government accepting it for taxes), it's not actually worth anything in the long run because eventually everyone has to cash out.

Which isn't to say it's not worth anything now - but the market is exploitative. The goal is to convince everyone to buy in, so those who are in can get out, hopefully taking a profit (not in Bitcoin) along the way.

My point, is that anyone looking at Bitcoin and wondering if they should enter it should absolutely not. Deflationary crypto is a rigged game in favor of those who got in first, and you can never catch up (barring their irrationality). Bitcoin's highs are not going to be repeated, and anyone asking you to buy in wants you to do so so they can get out.

> some government or entity accepted Bitcoin

But this is already happening. There are multiple places around the world that accept bitcoin to pay for their taxes.

> it's not actually worth anything in the long run because eventually everyone has to cash out.

Is gold worth nothing, because eventually people have to cash out? Gold is also deflationary.

What people need to understand is that deflationary currencies have existed for centuries. The idea of a federal reserve, constantly controlling inflation rates, is a new phenomenon.

People 200 years ago somehow survived with deflationary currencies.

I am in favor of free choice. And I see no reason why people shouldn't have the choice to own a deflationary currency. If you don't like deflationary currencies, all you have to do is simply not use it, and leave the rest of us who disagree alone.

> There are multiple places around the world that accept bitcoin to pay for their taxes. No there are not. There are jurisdictions which sign agreements with Bitcoin exchanges to integrate them into the tax payment process. The exchanges must always be able to source enough local currency to meet the payment. The government does not accept and hold Bitcoin - the value of your taxable obligations, once determined, can change in Bitcoin with the exchange rate - whereas my tax obligations in local currency don't, provided I hold local currency.

> Is gold worth nothing, because eventually people have to cash out? Gold is also deflationary.

Gold is not used as a currency today. Neither is Bitcoin. The argument over deflationary currency presumes a world in which Bitcoin fulfills the stated objective of it's adherents as a currency.

Bitcoin and gold are both commodities today. As a commodity Bitcoin has very little to recommend it. Strictly speaking this is true of gold as well, but gold is historically very complicated, and has the benefit of being a physical resource which displays some physical scarcity (of note: gold as a currency isn't strictly deflationary, your inflation rate it just pegged to the rate of mining and discovery).

On gold as a currency - Middle Ages economies routinely bankrupted themselves by making huge windfalls in gold, and failing to recognize that all they'd done was drive a lot of inflation (i.e. the Spanish after they found the Americas - they didn't raise taxes, so the royal treasury found itself in debt even though by simple thinking they should've been very wealthy). Bitcoin has all these problems, but unlike gold also consumes resources to retain it's value. A block of gold after 10 years is still just a block of gold.

> I am in favor of free choice.

And I'm not arguing anything should be illegal. I am arguing rational people should recognize what Bitcoin is, and think carefully about how they value it. It is not what it's advocates say, and it is mostly powered by the reality that your average person does not think carefully about the nature of money very often.

Not all commercial transactions involve debt.

Care to give any examples which aren't just examples of very short-lived debts? (i.e. when I buy something at the corner store, we immediately resolve the debt).

A fair enough terminological point, but in this case, I'm not sure it is much more than a play on words. The parent was clearly talking about longer-lived debt and debt financial instruments, where the debt changes hands so the debt-closing parties aren't necessarily the same as the parties that formed the debt.

To quote:

In the edge cases of (almost) immediately resolved debt, this is a non-problem, given that we can simply agree not to complete a transaction in case one of the parties involved doesn't want to accept Bitcoin. Hence, the fact that you cannot be compelled to accept Bitcoin is irrelevant in this situation.

As all commercial transactions are literally called either credits or debits and the definition for debit according to Webster's

debit noun Definition of debit (Entry 2 of 2) 1a : a record of an indebtedness specifically : an entry on the left-hand side of an account constituting an addition to an expense or asset account or a deduction from a revenue, net worth, or liability account

I would say yes all transactions involved debt.

See my response on a sibling comment: https://news.ycombinator.com/item?id=18805017

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