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Comment by alexk307 | Hacker News Reader

Maybe people will finally get some sense and stop storing their wealth in digital currency that is backed by absolutely nothing. I think a lot of dominoes are about to fall in the crypto world

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At present no major currency is backed by anything material but trust. USD, for example, is only viable because, at the deepest level, trust in it is enforced by US army. There are three major class of people who need digital currency: (1) who are super rich and won't care about putting their 1% of wealth for "diversify and forget", (2) who need to transfer money eyes off from governments, (3) people who need alternative to be manipulated away from US fed. As long as there exist a group of people needing digital currency there is an intrinsic value assigned to that currency.

> trust in it is enforced by the US army

That's not exactly "absolutely nothing", to use the parent's phrase.

At it's deepest level the $ is viable because of the consent of the people of the USA. The US Army isn't either capable of enforcing law in the USA or exercising influence out of the USA without that consent.

Yeah but like, the US is a lot more likely to be around in 20 years, so this argument doesn't really make any sense.

Honestly I'm sick of hearing it; yes we know, all money is made up, that's not an interesting point anymore. Society is okay with that, but it doesn't mean you can just make up another currency, that's not how it works.

But what if you declare it? Like bankruptcy, but in reverse?

That's exactly how it works. When you issue IOU, you issue your own currency. When a company issues stock, they are in fact issuing their own currency. All contracts are in fact a currency that can be sold, bought, invested and transacted. World debt is far far larger than actually currency in circulation. How does that happen? Because we make up "currency" all the time.

No, that's not the same thing at all. For every other example of currency besides the government's currency, there's a tangible thing backing that unit.

Crypto still doesn't have that, and that matters. To what degree is up for debate, but it does matter. Only governments apparently can get away with the unbacked currency, because they otherwise back it with enforced societal rules (a.k.a. laws).

> No, that's not the same thing at all.

Per Mark Blyth

Money, to be useful is what Economists call three things; ♦ A Unit of Account ♦ A Unit of Exchange ♦ A Store of Value: A hedge against uncertainty Crypto is not money, so what is it? Is what the Chinese Central Bank characterized three years ago as Digital Gambling Asset

Since when does HN allow emoji!?

What other currencies are there in todays world other than fiat (government's currency back by nothing)? I was trying to think of something other than crypto and really came up blank.

Sure some corporations have things like CompanyX dollars that they could give out to employees who then redeem them for something. But in these situations those dollars are back by nothing.

Other things we're fed up of: people making up their own weird and arbitrary definitions of "currency".

Exactly how it works… but you left out the US Army part this time? You kind of need that to give it value. Nothing else will. USD.

No, contracts are not currencies. The whole point of distinguishing between currencies and other securities/debt is that a currency has the property of being a widely used medium of exchange.

The contract I have with my plumber to plumb my toilet is not something you can use to buy lunch.

> USD, for example, is only viable because, at the deepest level, trust in it is enforced by US army.

That's a very deep level. At the practical level, USD is viable because court judgements in the US can be settled in dollars (e.g. if somebody is held responsible for killing your goats, you can't demand to be paid back in goats), and US taxes are owed in dollars.

At the deepest level, taxes and courts are maintained by the US government, which I suppose you can say is protected by the US military?

Saying that the high dollar is protected by the US military makes more sense. But the dollar itself is protected by the magnitude and reach of the entire US government, which is only partially maintained and extended by killing people.

Chinese yuan is economically backed by state owned companies that routinely sell essential goods and services at below market prices when they otherwise would rise too fast.

If the crypto-bros had a militia as powerful as the US army then perhaps crypto would be worth something.

> At present no major currency is backed by anything material but trust.

While this is true in theory I trust the Swiss National Bank (in my case) significantly more than all those two bit shysters running crypto exchanges, while being extremely economical with the truth in all their communications.

The Bitcoin protocol and network continues to operate exactly as expected. Here, people trusted a "bank" (an exchange acting like a bank), and got burned when the bank gambled and lost.

Without exchanges like FTX or Coinbase, how should general public acquire crypto?

There’s a big peer to peer market, fwiw

Bisq, of course.

https://bisq.network

With a bit more manpower, they could make the UI more usable to the general public. I wish there was an iOS/Android version too.

Use an exchange that publishes proof of reserves, and take custody of your crypto immediately.

What was the point of decentralizing then?

Crypto? Who knows (or cares), but Bitcoin on the other hand has a robust P2P marketplace:

Bisq https://bisq.network/

Hodl Hodl https://hodlhodl.com/

Robosats https://learn.robosats.com/

In a practical note, you can just use FTX and Binance to convert between USD and BTC. Withdraw them as soon as possible so your funds safe (as long as the BTC network)

> continues to operate exactly as expected

Yep: as a set of primitives on which to build sorting mechanisms for fools and money.

Tell me more about the rock solidness of the housing market, or government bonds.

"The lack of mathematically perfect guarantees in this life means nothing means anything."

Do you typically invest all of your wealth in one thing? Because for most of us I imagine that is not the case.

Storing wealth means that you can get your wealth out later. In this case, people are just giving it away.

An exchange explodes almost every year. I doubt anything substantial has changed. In fact, binance looks better than ever.

Well, absent the implosion of general confidence in crypto and the likely hawkish reaction of regulators - I agree.

Looking like I am wrong on this one, as the media coverage grows.

What backs this?

https://fred.stlouisfed.org/series/M2SL

Might of USA and all that? Yes I’ve heard all that before. Rome, France, England…

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

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

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

History is more on the side of it happening than not.

“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” -Satoshi Nakamoto

> History is more on the side of it happening than not.

Is this true? Of all the years that various countries have used traditional fiat currency, has debasement happened more years than it hasn't? I don't think so but I'm not certain.

Obviously, nobody can predict the future here, and history tells us that all empires come to an end at some point. But we're watching crypto speed-run through all of the issues that the American banking system had in the Free Banking era leading up to the creation of the Fed. Operating in this trustless crypto system still makes it possible for people in control to do stupid things which threaten the viability of the entire system.

Personally, I think cases like this prove that wealth concentration in the hands of the few leads to these situations. It's a not a government problem, it's a concentration of wealth and power problem. Individuals shouldn't have this much money or power to act so recklessly, but we accept the outcome as a consequence of our winner-take-all culture.

>Is this true? Of all the years that various countries have used traditional fiat currency, has debasement happened more years than it hasn't? I don't think so but I'm not certain.

Do you know of any currency over the past 200 years that has suffered deflation throughout that period?

I don't mean "occasionally has one year with deflation", I mean, the real value of 1 unit of that currency 200 years ago was less than what it is today.

Certainly major currencies have experienced periods of deflation (i.e. the Great Depression, the Great Recession, etc.). But deflation is a sign of weakening economy as well. There's an obsession with inflation, but the reality is that some inflation is inevitable in a growing economy as demand outpaces supply. Economists agree pretty consistently on that.

I want to be very clear here, because I believe you're saying what you are saying because you have been taught that way, and because the mainstream media and general economic literature seem to hold that view, and so you, in good faith, are merely repeating it.

You are wrong.

The economist that agree with that view are also wrong, or they are biased by conflicts of interest.

The central banks that support and propagate that view, have a significant conflict of interest as well.

I heavily recommend you consider the incentives of the people teaching that view, and that you re-think from the most elementary of economic principles how exactly that would work.

There is no long term benefit to monetary inflation.

I cannot repeat this enough, monetary inflation, just like monetary deflation, is a distortion on the market, and like any other distortions on the market, it has a net negative expected value.

Of course this negative expected value is distributed throughout the entire economy, whereas the benefits are concentrated on one entity, the issuer of the currency, which is the central bank and the state by association.

A chart showing the lifecycle of world reserve currencies:

https://pbs.twimg.com/media/EkUHjO9XkAgKB57.jpg

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