Hacker News Reader

Comment by madacol | Hacker News Reader

Then why other currencies don't dilute the US dollar? Or monopoly's (the game) money?, or just paper, or shells, or grains of sand?

View on HN

The value of a currency comes from it being backed by a government, and that government accepting taxes in that currency.

This puts a hard limit on the number of currencies, and how much they'll dillute the dollar (or any other country's currency). Since you'll normally only see a single currency per government.

Cryptocurrencies on the other hand, aren't tied to any country.

There's no hard limit on the amount of them. So every time a new one shows up, they'll they'll take a piece of the cake from the already existing ones, since the space is limited by the number of people willing to invest in them and how much these people have to invest.

USD is backed by nothing. Nothing.

https://www.treasury.gov/resource-center/faqs/Currency/Pages...

> Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything

There are no limits to currencies. No limits to how much money governments will print. No limits to how much the banks will inflate the money supply through loans.

They're backed by the fact that the IRS wants dollars from me to pay my taxes. I don't think the post you're responding to meant that they're redeemable for anything directly.

But it is backed by reputation, threat of litigation and physical violence (police/military) if you try to interfere with it, where as crypto doesn't yet have this.

Disclaimer: A significant part of my investment portfolio is in Defi.

Actually it is backed by US law and the strength of the US government in terms of enforcing those laws. In particular, the dollar is backed by US tax and debt laws; US taxes must be paid in dollars, debts in the US can be cleared with dollars, and US courts deal only in dollars when working out damages or in bankruptcy proceedings. As long as people doing business in the US follow those laws, which ultimately requires them to respect the government's ability to enforce the law, demand for dollars will exist and thus the dollar has value.

So it is not really about reputation or violence being used against those who would "interfere" with the dollar (whatever that means). I would argue that the value of the Yen is more influenced by reputation than that of the dollar, since people tend to treat Yen as a "safe haven" during economic crises (but ultimately the Yen's value primarily follows from the Japanese government's ability to enforce its laws).

> But it is backed by reputation, threat of litigation and physical violence (police/military) if you try to interfere with it, where as crypto doesn't yet have this.

Also by the fact that the companies of the S&P 500, who are generally based in the US, account for a large portion of global transactions, which they tend to do with USD. If anyone wants to participate in the global economy, the USD often provides the least amount of friction in transactions.

The other most popular/useful/"valuable" currencies, per forex trading volume, are: EUR, JPY, GBP, AUD, CHF, CAD.

* https://en.wikipedia.org/wiki/Foreign_exchange_market#Tradin...

* https://fxssi.com/the-most-traded-currency-pairs

As an American, I have to pay taxes and abide by US laws and the rulings of US courts, and all the above work exclusively with USD. So I cannot switch away from the dollar completely; whatever business I conduct in some other currency, I would still have to convert back to dollars at least some of the time. So you cannot crowd out the dollar with alternatives, because hundreds of millions of Americans are required to use the dollar regardless of the availability or popularity of the alternatives.

Keep in mind that even though you can create new cryptocurrencies/tokens you cannot disguise them as being "bitcoin", in fact, it is easier to draw a piece of paper and disguise it as a US dollar bill

Every kind of currency was born out of an idea and expectations, whether it is the idea of a standardize currency controlled by our own new free nation, or the joke that created dogecoin.

You seem to have a good graps of what US dollar's main idea is. But do you understand what is the main idea behind bitcoin or ethereum?

In the end, they are all just memes. Bitcoin's ideas that I like the most are:

- Immutability (strong and fast finality)

- Backwards compatibility (I can run old software and it will still work)

- Strong security

- Easier to verify (personal nodes require less resources than other cryptocurrencies)

I do not like at all the climate change impact of bitcoin, but as long as it remains a small global percentage I think it's worth it

Same reason Bitcoin isn’t a threat to the US government. You can’t store shells in a bank, you can’t pay your taxes in sand, etc.

I do think in our lifetimes we will see the US dollar cease or transform (such as the transition from gold backed to nothing backed). Maybe it’ll be Bitcoin backed hahaha

Shells do have actual value. In Hawaii all the good ones have been taken from near the shore by now. It's typical to find some pristine ones only a few inches in diameter being sold for thousands.

Anything can have value.

Reply on news.ycombinator.com