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Comment by Tichy | Hacker News Reader

I don't understand what he is saying. Aren't dollars just worthless pieces of paper? They are only worth something because people accept them as payment. Obviously at the moment investing in BitCoins is rather speculative, but so is investing in other currencies (and dollars don't have the best reputation anymore, either).

If he converts everything into dollars and dollars are being devalued, he loses. Is he saying that dollars are the only solid currency in the world, and everybody should convert all their assets into dollars as fast as possible?

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Aren't dollars just worthless pieces of paper?

Apparently not. Try spending dollars in a store (both in the U.S. and many places besides) and see if it works.

They are only worth something because people accept them as payment.

Including the U.S. government as payment for debt. If the most powerful government in the world says dollars have value, it's not so easy to lose all of that value, even without it being a backed currency.

Is he saying that dollars are the only solid currency in the world, and everybody should convert all their assets into dollars as fast as possible?

Most of the world uses non-backed fiat currency now, not just the U.S. People do convert their assets into and out of dollars (and other currencies) all the time.

"Including the U.S. government as payment for debt."

So what exactly can I get from the US government in exchange for dollars? (I am not a US citizen).

If you're not a US citizen dollars are not meant to be held as a store of value and trade (although some outside the US actually do use them this way).

However, to answer your question directly you can get interest from the US government in exchange for dollars by buying US Treasury bonds.

Aren't dollars just worthless pieces of paper? They are only worth something because people accept them as payment.

Some of those people are the IRS, who will throw you in prison if you don't turn over a sufficient quantity of said paper. That guarantees a minimum level of demand for dollars.

I suppose they only charge you taxes if you actually earn dollars, so if you wouldn't earn anything, you wouldn't have to pay taxes? What I mean: you pay taxes with the dollars you earned, you don't have to buy dollars on some market to pay taxes.

IANATL, but my understanding is that you owe taxes whether your earnings are in dollars or euros or bitcoins.

From the Russ Roberts podcast (goo.gl/mNcQW), they discuss the tax issue. Apparently you're not taxed on bitcoins.

Not right now, but that is simply because the volume isn't large enough to have attracted government attention yet.

There was a case some years ago in Germany where something similar happened. A local initiative introduced a local fiat currency, and initially people did not pay taxes on sales etc. in that currency. At some point, this got the government's attention, and soon after that, the tax advantage was gone. People had to pay their taxes in Euros.

Something similar will happen to BitCoin if it takes off. It may be somewhat harder to enforce for the government, but then again, paper cash transactions are anonymous, too. You still pay sales tax when you purchase something with paper money. There is no truly fundamental difference here to how BitCoin works.

I think the same happened to Linden Dollars (Second Life). However, I don't see a problem, as presumably they can only tax you on the corresponding dollar value of the currency. Like if you earn 1000 BTC and they are worth 1000$ at current rates, you are taxed for 1000$, if they are worth 0$, you are taxed for 0$.

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