He misses the obvious analogy: to a Ponzi scheme.
What if, now hear me out, we just stop redeeming those notes for gold. Those suckers will be holding nothing but paper.
Money is whatever people agree to exchange.
What value does money have? If you say that money has value because some one accepts it as payment then Bitcoin has value because there are companies that accept it as payment. If the world goes to shit, what can I do with Bitcoin?, Nothing. What can I do with Money?, Nothing.
Does this mean that a 'Tin of Beans' or a 'Tracker Bar' is valuable because we will always be able to use it? No matter what happens to the economy?
One needs to pay taxes only because the government enforces tax law. Fiat (in latin) means "by decree", as in "this money has value by government decree." Its value is backed by the government's ability to enforce legal code. (or on a meta-level, by people's belief/faith that law enforcement officers & public employees will succeed in working as agents & beneficiaries of their government). Money by government decree should be called government-fiat.
But the fiat definition of money actually works well for bitcoin too. Except instead of being decreed by government's legal code, bitcoin is decreed by cryptographers' computer code (Lawrence Lessig's slogan that "code is law" was prescient indeed). Its value is backed by the ability of computer code to enforce the information-theoretic laws of cryptography. (or on a meta-level, by people's belief/faith that financiers & tech users will succeed in working to further their interest & investment in a p2p crypto network). Bitcoin is crypto-fiat.
IMNSHO there are two types of fiat money: gov-fiat and crypto-fiat (bitcoin an instance of the latter).
> Bitcoins are only valuable as long as you can convince someone else that they are valuable.
Well it turns out that this is surprisingly easy: you just put your money where your mouth is. Its a simple strategy which has worked exceedingly well for bitcoin, in quite a short time.
That will only happen when everyone uses Bitcoin or something better.
A pyramid scheme is where each person who buys in sells parts of their own share to the next mark, usually kicking up a fee to the person who sold their share to them. The returns at the top come from the exponential growth of fees from the bottom.
Bitcoin is only really superficially like either of them, mostly because there is no direct kickback aspect of it. If it's any kind of scam it's an asset price bubble.
Surely that's only true if you're trying to use BTC as an investment to make capital gains in USD with? If your BTC stays within the BTC community and is traded directly for goods/services without conversion to USD then there's no such requirement.
Now, as it stands the vast majority of transactions are actually basing BTC's value on USD. I think this is a misstep, but perhaps a necessary one.
What I'm saying is: you're right as long as people see BTC as a vehicle for USD gains. But the grand idea is to replace USD entirely. When we start seeing people routinely selling things for fixed BTC amounts, regardless of the 'exchange rate', then bitcoin will have succeeded.
At present it's largely just a proxy for USD, as Warren Buffet has noted. But this is just the first stage.