It is the only thing the government accepts for tax payments. Given that you can be arrested for not paying your taxes it is "backed" by the barrel of a gun, a threat to your very being. In one sense this is the only real thing there is.
My belief that it would go to zero. I’m curious whether “fiat is backed by nothing” proponents would disagree.
Now you might say "actually its authority rests on people with guns", but that's only to the extent that the people with the guns believe in the governments's authority to tell them who to point them at.
Underneath all is belief and sentiment.
Put another way, if people lost faith in gold as an investment tomorrow, and the value fell to the economic value of the industrial use cases, investors in gold would be ruined.
That's more than enough reason why we should try something else. It doesn't inspire a lot of confidence. By that reasoning, the USD has the same sort of backing as the Venezuelan Bolivar. So what's to stop the prior from becoming like the latter?
Bitcoin has no floor. You can only exchange bitcoin for taxes if someone wants the bitcoin.
People who repeat this don't understand that fiat money is based on trust...and that is not a bad thing.
This is why blockchain is fundamentally stunted: the global society is based on trust and cooperation. Trustless systems will never be able to compete in these arenas.
speaking of jumping the shark, have you seen what governments have been up to lately ?
interest rates at a 5,000 year low, moral hazard abound & global fiat collapse imminent in the best case and in the worst case we have banks/elites/governments who are going to be looking to further enslave those in debt and forced out of business/work with some dystopian debt forgiveness scheme involving a 'vaccine' schedule and travel restrictions or whatever else (use your imagination).
the truth is that everything mentioned in these comments was an argument that had already been had years ago - the markets reflect that - but i did enjoy reading the last sentence of your original comment and thinking to myself "am I reading Time Magazine ?"
2) you talk about fiat collapse being imminent...USDT is worth far less than any fiat (see: nothing) I don't get how these ardent fiat haters don't see their entire ecosystem has been coopted by something that has infinitely less value than the thing they so despise
"Escaping" that for something which literally is backed by nothing at all is a strange move.
Until that time, expansion of the USD (or other Fiat) supply impacts the "value" that BTC has.
I don't think so...
They used paper that symbolized "withdrawal rights to gold". USD (or any other piece of paper that people agree has a value) is a perfect currency for exchange, it's just not a great store of value.
USD is a fantastic store of value. Since 1982 (arguably the beginning of the modern inflation-targeting era), the USD has lost no more than 6.3% of its value year-over-year, nor gained more than 2% (CPI measured, source https://fred.stlouisfed.org/series/CPIAUCSL#0).
In contrast since 2016, Bitcoin has 60% of its value year-over-year (2018) and gained 1700% (also 2018).
A store of value is not a story of appreciation and hoping for a gain, it's a story about holding a stable and most importantly predictable value into the future. The USD more than satisfies this condition. Bitcoin does not, no matter its speculative merits.
Most importantly, society does not owe people a fictional store of value guaranteed to never lose purchasing power. People don't eat quarters, nor do they live under dollar bills. It strains credulity that a nominal token (however minted) should hold a guaranteed value, without taking capital-like risks required of any productive investment.
My point is that you can't "get away" from USD, while the BTC market is effectively tied to USD.
so if the USD supply is massively inflated, and people can use those USD to buy BTC, the tie is still there.
If and when people denominate their goods and services in BTC without any reference to a fiat amount, then they are decoupled and BTC loses the tie to USD.
No, but prices were denominated in gold, effectively, as the price of gold was fixed. That was the whole point.
Preventing debasement of currency via inflation via printing money, which a lot of people use as their go to argument against fiat money, is simply adding economy wide debt to the ledger. This is necessary from time to time especially during crises and especially in a services/financial services/ intellectual property heavy economy.
If no money existed, at all, how would you receive compensation for providing work of an IP nature to your neighbor. You would need either a perfect trade (you really want their chicken it’s just the right amount of chicken for you) or you take an iou. Which is a debt. Now have them write that iou down on a piece of paper and hand it to you. Your neighbor just printed money. Not so crazy.
It seems to me that either you the amount of currency in circulation needs to increase or the value of the existing currency needs to increase.
Taking into account the gold standard was used for possibly centuries (not sure) was this problem encountered before and how was it solved?
https://en.wikipedia.org/wiki/Great_Bullion_Famine
https://en.wikipedia.org/wiki/Price_revolution
Both under- and over-supply had negative effects on the economies of Europe.
The gold standard really was a primitive fiat currency anyway, governments would debase coins so they contained less gold in order to expand the money supply for instance. And only a small fraction of coins would be gold anyway, silver was far more common - the Pound Sterling takes it's name from a pound of silver from the easterlings (Germans). Paper money just made it obvious that physical currency was only a representation of wealth and not a fixed unit of wealth itself.
The gold standard is basically a political myth about a system that never really existed. Money is a very abstract concept, and reducing it to physical tokens and easily intuitive rules is appealing to many.
This was posted to HN and it was quite eye-opening. For those that don’t know, 1971 was when the gold standard was abandoned by Nixon. I don’t know if the graphs are cherry-picked and I hope they were honestly since the US is never going back to the gold standard and it seems to have far-reaching negative effects in every aspect of human life.
To answer your .25 cent milk question it seems to have not been a problem in history and health of the country before 1971. The profits and benefits of the rapidly growing economy have pretty much all gone to the ultra wealthy that are nearest to and in control of the money printer.
1. A lot of these graphs start at 1940 or 1950, showing a change in the trend in the early 1970s. But that was the end of WW2, where Europe was in ruins and rebuilding and America saw a massive increase in prosperity and economic output. That was a pretty unique period, it's only natural for that trend to diminish or change over time.
2. A hell of a lot happened in the late 60s and early 70s, not just abandoning the gold standard. One of these graphs is of the incarceration rate. Do you think we started seeing mass incarceration at that time because we abandoned the gold standard, or do you think it was because of the war on drugs?
3. Some of these graphs are deliberately misleading. One is of the cumulative inflation rate, and seems to show the inflation accelerate in the early 1970s. Except a healthy economy should have a steady inflation rate each year (of around 2% I believe), so this graph is supposed to be exponential! They just picked the right window so that 1971 is the inflection point.
A much more relevant development in the 70s was the switch in economic policy priorities from demand-side to supply-side. Nixon was the first president who prioritized tax cuts, union busting, subsidies, and legalizing outsourcing to cheaper labor markets in China and SEA. Every government since has given corporations a blank check to cut labor costs by any means necessary to prioritize profit.
Nixon ended gold convertability, but the USD was not on a true gold standard and was in danger of not being able to fulfill this obligation. The standard was Bretton Woods, it was an international framework for finance, and it was the failure of the framework together with the OPEC oil crisis that caused the mess documented in those graphs.
adjustable, with a benign regulator > fixed > adjustable, with a corrupt regulator
So, the aim shouldn't be a return to the gold standard or a switch to BTC, but to make sure that central banks can do their job without interference from politicians.
Hayek argued that a system of competitive privately-issued currencies would achieve that. I'm not qualified to say whether he was correct, but an economy built on cryptocurrencies would be exactly that.
Good at mining would have meant spending good part of our economic output to mine gold and then just storing it somewhere or moving it around...
Backed by $750B in annual military spending
It would be really nice for people to spend even a few minutes thinking about how money works, or open a textbook even just to learn what you disagree with.
It's tiresome to explain over and over and over again to people how the "full faith and credit of the United States" is not "nothing at all" but in fact a guarantee of great value, at least as good as any on any other security, and one that is quite measurable (by for example comparing the prices of full faith and credit securities with other almost identical securities without this guarantee).
On the contrary, I'd say that it's the cryptocurrencies that _by design_ are based on nothing at all.
https://fred.stlouisfed.org/series/M1
Ironically (or not) Bitcoin was created in 2009 right when that graph gets really crazy.