Hacker News Reader

Comment by olalonde | Hacker News Reader

It's true but it's also true of fiat currencies (more or less).

Creating a valuable fiat currency is easy. If you pay your kids in your own currency for chores, it will initially be worthless. If you however declare that hours spent on YouTube must be paid for in chore dollars, you'll suddenly see that it has some value. Note that it would not be so easy for your kids to create a valuable currency.

The value will be proportional to the effort the kid must provide. If you says that a chore dollar is worth 1 human hour, that's a very strong and valuable currency. But FIAT currencies are from defined as such. As a single example, their value partially depends on the amount in circulation, which might change anytime without notice nor democratic consultation.

Fiat currencies are created by sovereign entities which control fundamental things like land and people (they can even draft their population and send them into war).

If you own land in the United States, you pay property tax in USD. That's just one of myriad ways that the dollar is backed by the physical assets of the nation.

In Romania, the M3 monetary mass has gone up by at least 9% each year since 2016, while monetary velocity went down.

Now that velocity is picking back up, we are seeing astronomical inflation.

Just because a govenrnment controls the currency doesn't mean it's in your interest to save long-term in it.

To many cryptocurrency enthusiasts, the fact that such an entity does not govern cryptocurrency is one of its main appeals. They're indeed different beasts but both lack an "intrinsic value": their value is entirely derived from the belief that they can be traded for something else eventually.

The US Government has an absolute monopoly on taxing every single American person and business indefinitely. That's, uh, substantially different.

Still, what determines the actual value of one USD?

not trying to be 100% tongue in cheek because this is basically true. The link below is what determines value in USD

https://en.wikipedia.org/wiki/United_States_Strategic_Comman...

Taxation makes up $4T, which is less than a fifth of GDP ($23T).

That still ensures a certain price for, which i personally believe does not exist in btc.

I believe its supply-side economics attract a certain demand.

But sadly the price increases also attract a different kind of demand, much more volatile (80% crashes now and then).

Real currencies are backed by the goods and services people offer for a predetermined quantity of that currency. In a gold-backed currency, one of these goods happens to be gold, but the same also applies to fiat. The Chipotle in my area is "backing" the dollar by allowing you to exchange $10 for a chicken burrito. When sign an offer letter to your employer, you are also essentially "backing" the US dollar with your labor. Meanwhile, when goods or services exchanged with bitcoin, they still priced in fiat currency, so you're still backing your local fiat. The only thing Bitcoin is backed by is speculators who want to well Bitcoin to someone else in the future for more fiat.

Fiat currency has intrinsic value. You need it to pay taxes, don't have enough and you go to jail.

That's why I said more or less. Taxes probably only account for a small portion of this value and it is now possible to pay taxes in crypto (in some countries and cities).

Even in those jurisdictions, taxes are still assessed in the local currency. Cryptocurrency is just a medium of exchange, so it has value in the same way that Visa the company has value.

Assessing taxes in currency X does not give it value if those taxes can be paid in currency Y. It does not create any demand for it, unlike in the scenario where the taxes must be paid in it.

Let's go back to the three basic roles of currency. A currency is a medium of exchange, a medium of account, and a store of value.

Bitcoin certainly has value as a medium of exchange because it can be (and is) exchanged between people. A government that accepts bitcoin for payment of taxes adds to the exchange-value of the currency, certainly.

Bitcoin also has some merit as a store of value, in that people observably hold bitcoin with the expectation that it will remain valuable. Ultimately, however, this role of currency is speculative: it requires belief that people will want the currency in the future at a reasonable price. This is also where crypto bulls and bears most disagree.

Bitcoin has a much more ephemeral status as a medium of account, however. Stores aren't pricing their wares primarily in bitcoin; when they accept the currency they price primarily in local currency and perform a spot conversion. This is also what I was referring to above with jurisdictions not assessing taxes in bitcoin even if they accept it.

The medium of account is the least flashy but perhaps most fundamental role of a currency; it provides a backstop of price stability. Repricing goods and services is hard. It obsoletes marketing campaigns, it confuses contractual expectations, and it can require literal printing costs re: price tags and the like. That stability, however, lets people think of one currency-unit as worth something real, not just some amount of another, more important currency.

Bitcoin does not yet have this status, and this is where lack of tax assessment in bitcoin matters. I can't say that (e.g.) 0.1BTC will definitely pay my property taxes for a year, no matter what else happens to the currency in the meantime.

I agree with this criticism. But it seems more like a practical obstacle than a fundamental one, which is important to distinguish. A practical obstacle can be overcome while a fundamental one cannot. While it's unknown whether Bitcoin will ever become a unit of account, it is in the realm of possibility. It's also possible that Bitcoin will just remain a store of value, similar to gold. And yes, gold has some intrinsic value but it is negligible compared to its actual value.

More like less. You cannot pay your taxes in Bitcoin. And the U.S. dollar is backed with petroleum.

Reply on news.ycombinator.com