The fundamental source of demand is the requirement that US Taxes must be paid in dollars. The utility of using dollars to trade with the US economy is simply a consequence of this fact.
(1) the infaliabilty of its public ledger (which means it is especially useful where trust is low and where trust is needed).
(2) The ease of making a transaction.*
*Aside: since the bitcoin transaction volume currently exceeds the limits it was specifically designed to handle, that means that transactions currently either cost a lot of money or take a long time to be confirmed. But those are issues that could be resolved either with lightning network (or other off-chain solutions), side-chains, forks (soft and hard), or even by a whole new variation of the blockchain concept. Although bitcoin transactions admittedly currently aren't cheap or fast doesn't mean blockchain necessarily will always be like that.
Except when they roll it back because people with more money than you demanded it after they got screwed somehow.
The downside is the US government's outlay is larger than it's income, but in practice that's less important than you might think.
Let's say I think dollars are worthless, and my whole community works off something with real value, like shiny rocks. I'll still have to pay the IRS next April. They may take shiny rocks, but instead I could trade just one or two rocks for a big pile of worthless dollars and get Uncle Sam of my back for next to nothing. Unfortunately for me, every other shiny rock user in town is going to have the same idea, so they'll bid up the price of dollars until trading rocks for dollars doesn't feel any better than just paying my taxes in rocks directly.
The only faith that "full faith and credit" requires is faith that I'll have to keep paying taxes.
Taxes are why I think a piece of paper with a bad portrait of George Washington has some intrinsic value to me, whether or not there's a secondary market for them. It's why I think the purchasing power of that piece of paper is anchored to a real phenomenon in the real world, and why I don't expect that purchasing power to move around much.
Think of it like this. If the dollar lost 20% of it's purchasing power overnight, I would be pretty damn sure something important has happened in American governance. Bitcoin just moved 20% because...?
The last time the dollar was backed by any asset was when it was under the gold standard. Boy was that a mistake.
No, the petrodollar system effectively ended with the 2008 financial crisis[1]. The US dollar is just backed by debt now.
EDIT(wrong URL): https://uk.reuters.com/article/uk-usa-bonds-petrodollars/com...
I don't see how this is justifiable at this point. With rampant speculation, $30+ transaction fees, the slow nature of the network, devs who keep putting off dealing with the slow nature, forking, etc...
People do transactions in USD specifically because they need to pay taxes in USD not the other way around. Thus, these transactions are simply a multiplayer on top of the Tax demand.
And similarly if a European company is paid in dollars they still need to pay taxes in Euros. Why is this relevant?
>"As owning land creates a liability, but land in no way creates money from thin air." Owning land creates money out of thin air by appreciating in value. People have gotten fantastically wealthy by doing nothing except letting time pass.
>"People do transactions in USD specifically because they need to pay taxes in USD not the other way around."
This is not unique to the US. Where else can you pay local taxes in a foreign currency?
Sure, and Euros are also backed by the EU economy. The point is 'national' currency's are actually backed up by enforced demand unlike say Ethereum.
People talk about hyper inflation as if it can actually happen without the backing government printing money. The reality is taxes limit inflation as long as the currency is not printed endlessly and the government does not over spend you can't sustain hyperinflation.
I agree with this but that's also the main differentiator is that the "legal tender" of a country backed up by enforced demand while Bitcoin and backed up purely by supply and demand. I think I misunderstood your point with regards to the tax examples.
However I don't agree that inflation can not be controlled exclusively through taxes. That is but one component the much bigger lever being the monetary policy of the central bank.
But, even if it's value is stable in the long term that's arguably less important than month to month and year to year stability because you need to make loan payments today or buy food today etc.
I personally see cryptocurrencies as a decentralized way to transact money. Yes, bitcoin is failing in this area currently, and while they have plans on how to fix it, they are not going to get here soon enough to keep this valuation up in my mind. If you ask a friend of mine, he will tell you that he has always thought of cryptocurrencies as a way of storing value, since the inability to do chargebacks means he doesn't want to use it as his daily currency ever.
Both of us can be right, because it's an opinion.
And there hasn't been an 80% price drop at this time, and coinbase doesn't have "hundreds of cryptocurrencies", they have 4 (3 up until a day or 2 ago).
Can you elaborate on this? What exactly is the plan?
Whats the connection between the transaction fee and time and the "store of value" justification. I didn't follow that.
Its not a commodity it's a currency. Why does it need to be "rare"? The US dollar is also not backed by anything "rare" and hasn't been since Nixon abandoned the gold standard in 1973.
>"didn't have any government backing or big institutional backing in case the price dropped from 19,000 to 11,000"
You realize this is the exact reason it was created right? That's the whole point. It's not coincidence that bitcoin was released on the heels of the 2008 financial crisis.