Stock in a shell company also has zero inherent value. This is simply a localised critique of the "most valueless asset" accusation - many assets share that characteristic.
That's funny it seems that this economist thinks fiat money can't never be valueless. Well, look Cyprus, and look Ukraine now. I am not saying Bitcoin won't never be valueless, but apparently fiat money is not completely invulnerable.
The examples you give, are not examples where just fiat money fails. They're examples of the entire architecture of a society falling apart (the government is being overthrown in the Ukraine, post WW1 Germany was in the midst of a massive recession). These are all situations where no currency retains a stable value since no currency allows you to eat, fuel vehicles or defend yourself. In those situations, Bitcoin is as valueless as anything else (more so, by virtue of being unusable without the internet).
These are all situations where no currency retains a
stable value since no currency allows you to eat, fuel
vehicles or defend yourself.
Seems to me there's nothing stopping Bitcoin fulfilling that requirement.
The currency in use in Cyprus is the Euro - the problem with Cyprus was their dodgy banks not the currency itself.
Government-backed fiat has some intrinsic value - it can cancel tax obligations and thereby has a captive source of demand (taxpayers). But practically speaking, yes, most of any fiat currency's value is in its seignorage, not tax-cancelling intrinsic value.
Fiat, both from the original Latin, and in practice, means "it shall be".
In the case of money, it means that the token has no intrinsic value, and is not directly convertible into a backing resource with value. Its only value is that given to it by decree of the issuer. There is no component of government compulsion in the definition.
In practice, some fiat monies are the only accepted legal tender currencies for some purposes (e.g. taxes) but it is not a requirement.
A successful fiat currency implies that there is acceptance among users in its fiat value, and some of the most historically effective ways to get people to go along with your assertions boil down to making ultimatums backed up with sharp sticks.
How "protected" did their money turn out to be?
http://en.wikipedia.org/wiki/2012%E2%80%9313_Cypriot_financi...
And weren't a lot of the people who were hit by the levy on deposits actually non-Cypriots using Cypriot banks as tax havens?
Re. non-Cypriots, I'm sure that you're right - but the subject was the state's management of its currency, regardless of who owns it. One thing that your example does flush out though is that fiat currency can be crippled by speculation too - and at least Bitcoin does not conflate a currency and a tax regime.
I'm not a cheerleader for Bitcoin specifically, I'm just really, really sceptical about the robustness of traditional currency.
Details and semantics aside, my point was that the security that governments allegedly bring to currency, and which Bitcoin allegedly lacks, is often much less concrete than we would wish.
[1] http://www.theguardian.com/commentisfree/2014/feb/24/christi...
Value is a human invention, there's really no objective value for something other than what other people demand. The only real difference between bitcoin, fiat currency, and other assets, is that some assets have multiple demand uses -- they supply value for things other than as a currency, and US government assets simply have the way of a much larger, mature, 200 year old institution, with hundreds of millions of people backing it.
Here's the thing: If you are wronged by a crook on the stock market, or by the US government, there is a non-zero chance you can get justice through the courts. But if Mt Gox or Silk Road 2.0 runs off with your money, who has jurisdiction? Who you gonna sue?
The original article makes a lot of mistakes with regards to how bitcoins work, but that's counterbalanced by the hyperinflation/currency debasement hysteria of gold nuts and anarcho-libertarians who think BitCoin is somehow going to end the Fed and restore a pre-1920's Nirvana that never existed.
And as for Mt Gox: Well, what if Toyota runs off with your money, who has jurisdiction? Who you gonna sue? May I suggest Japan's courts and Toyota? What does that even have to do with bitcoin? If you do business with someone you don't know, that may be risky, whether you give them dollar bills or bitcoin, and if you do business with someone you can identify in real life, some country will probably have jurisdiction over them and you can sue them there, no matter whether they stole your dollars, your bitcoins, or your car.
I can't redeem my fiat currency for gold bars, but I can and must pay taxes for it, and that creates a demand floor. It means there will always be someone willing to trade dollars for something so that they can pay their taxes.
As for needing dollars to pay taxes: That doesn't really make much sense, does it? If people didn't want to use it for anything but for paying taxes, how much taxes would they have to pay? If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero, and any percentage of that would still be zero, and so you would not have to pay any taxes at all, and thus would not need any dollars at all in order to pay them (and the government wouldn't even care, as dollars that noone wants to exchange for goods and services are completely useless for the government to have, so why collect them). The only way for the government to actually force the creation of a demand floor would be to force people to sell certain goods and services at government-mandated prices - in which case what you need in order to pay your taxes ultimately are those goods and services and not dollars.
As long as taxes are collected other than based on just income in the form of dollars, just as much (or possibly, quite a bit more in real terms) as if they wanted dollars for everything else as well as paying taxes.
> If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero
Wrong, if the market value of dollars was near zero, and you have a tax system that has taxes other than on cash income (e.g., ad valorem property taxes, income taxes that include as income the cash value of non-cash goods and services received in place of cash income, etc.) but demands taxes in dollars, than the tax in dollars will be very large numbers, which will require you to acquire very large numbers of dollars to pay. (If the value of dollars was actually zero, the tax would be infinite, but then, the value of dollars won't actually be zero, because as the value of dollars declines, the number of them needed to meet tax obligations increases, which shores up the value.)
edit: forget that, you are right, of course - I guess it's not a good idea to treat infinity as a number ;-)
It means the government will do it's best to ensure the value of its currency, the failure of which would be an existential threat to its existence. I believe many people consider this low risk, that they consider the likelihood of the government failing as much less likely than a particular company or commodity failing. (Of course that depends on the government.)
Perhaps nearly as importantly than considering it low risk in an absolute sense, they consider the risk of it with particular government currencies as being strongly correlated to the risk of money, regardless of its type, losing its utility.
If the US government loses the ability to protect the dollar so rapidly that holders don't have a viable exit to alternative currencies, that probably involves a pretty fundamental breakdown in society (particularly for people located in and around the US.)
Really, I think what you are saying boils down to "stuff that can have a big impact on society tends to be watched more closely by the government, and it's more likely that the government will interfere to maintain the status quo" - which is a valid point, but it's neither a particularly special thing with money, nor is there any guarantee that it's always to the benefit of the governed.
Just like BTC.
Bitcoin on the other hand, by design, has NO backing, if the system tank, you wont be able to get anything out of it.
Thus she's correct on that point, whether or not it's important.
As far as I know (and I'm aware I don't that much), a bankruptcy means zero value left for the (ante-bankruptcy) owners. Whoever steps in has to (only) put in some value, like the government paying/writing off unsolvable debts, or the next owner that has to effectively buy the bankrupt entity from the government. Am I wrong?