Well, no, its not; the purest form of fiat currency is a currency backed purely by government fiat (hence the name).
Bitcoin is one of the purest forms of speculative "currency".
It's backed by the tremendous amount of electricity required to run the transaction processing network (ie. "mining"). Remember this is the world's largest distributed supercomputer.
BTC is a proxy for electricity, that's why mining equipment ended up at ASICs so quickly- in mining, less W = more $$. By a lot.
The USD is currently backed by absolutely nothing. There is no way we could print the $2000 trillion dollars[1] of derivatives now in existence. You couldn't cash out all of it or even too much of it.
The USD is "fake". And high finance is not ignorant to this fact, at all.
[1] Or more, no one actually knows. Goldman Sachs would have the best idea of this.
The USD (and usually most other currencies) aims to be indirectly backed by the corresponding amount of goods they represent within the currency zone and their legal status.
BTC isn't even indirectly backed. It just exists. And that's okay for its purpose.
"Store of exchange-value" != currency, and BTC is currently behaving best in that role. Admirably, really- see how it's spreading like hotcakes in China. That's as a store of exchange value, not a currency.
You can't turn your gold "back into" ore or your diamonds "back into" carbon. The cost of an airline ticket is mostly determined by the current price of fuel.
When BTC starts to be used as a currency in earnest we can revisit the issue. Although at that point, you will be able to exchange your BTC back into electricity or other commodities through speculation or arbitrage. Which you can actually do directly right now if you know the right people, anyway. Profitably.
How?
Please explain?
It makes mining more expensive, and some people may be switched off mining as a result, but the same number of BTC will be made.
Nope, the rate of bitcoin generation is fixed, it's nothing to do with how many people mine or what the hash rate is.
Huh? Why not? Surely you could just buy some solar panels with bitcoins, or convert them to another currency and then buy electricity from the grid.
With BTC you can't go to some miner (=issuer) and exchange it back into the electricity that was used to produce it.
I can buy gold with the US dollar, but it doesn't mean the US dollar is backed by gold.
Obviously our debts exceed this, but that's a different issue. Say everyone cashed in at once - they'd get a percentage of our debts, not zero, since there's still material value.
You can't "undo" Bitcoin's power -> money exchange, though. There's no gold sitting in vaults providing some real, physical insurance. If I lift this brick, I've done work (but nobody cares) but even that has intrinsic value as it can be "redeemed" by lowering it, powering something. Bitcoin is different.
They barely exceed 1 year's economic productivity from the US (~15.58 trillion USD).
And since the US is not going to stop being a country any time soon (and such a thing would be a calamity which makes national debt completely irrelevant anyway) it has a very long-term ability to make repayments.
And this is ignoring the fact that each year the US basically reinvests heavily, since GDP grows while the debt does not (necessarily). For example, current GDP growth of 2.2% means the US GDP increases by ~$344 billion per year. Conversely the value of all US debt per year decreases due to inflation - currently about 1.2% meaning the US debt effectively decreases by about $188 billion USD per year.
This is all somewhat beside the point, but it pains me to see people proposing the US has debts exceeding its capital and productive value as an entire country.
And anyway, I'm talking absolute worst value, not any sane measure.
It is backed by the stability of the U.S. government though.
That's not a backing, that's gone.
>> Remember this is the world's largest distributed supercomputer.
Doing make-work to protect itself against other supercomputers.
BTC is no different from anything else.
This is a red herring. You also couldn't print the money to pay for all the patents now in existence. Or all the copyrights in existence. Or even all the software now in existence. These things still get bought and sold in USD on a regular basis.
>> The USD is currently backed by absolutely nothing.
At the base, USD are backed by the fact that one can only pay taxes to the US in USD and US bonds are denominated in USD.
HDTV's have had strong deflation for years, but I still have one.
If however you hold your currency and everyday its worth more, besides the bare essentials there is barely an incentive to spend it. Also there is no guarantee that the HDTV will become cheaper, however it is guaranteed that a deflationary currency will gain value the more you hold on to it.
Inflation and deflation pertain only to currency not products.
Growth deflation: an enduring decrease in the real cost of
goods and services as the result of technological progress,
accompanied by competitive price cuts, resulting in an
increase in aggregate demand. A structural deflation existed
from 1870s until the cycle upswing that started in 1895. The
deflation was caused by the decrease in the production and
distribution costs of goods. It resulted in competitive price
cuts when markets were oversupplied. The mild inflation after
1895 was attributed to the increase in gold supply that had
been occurring for decades.The point is that the more-for-your-money effect does not stop even discretionary purchases like TV's from happening.
Also, why bother to invest money if you can just sit on the cash and benefit from everyone else's economic activity?
Deflation bad.
The lack-of-guaranteed-taxability risk is a larger one, imo. But I know it's possible to build a kind of wrapping/middleman service on top of Bitcoin, to give one example, if a government wanted to, and legally require citizens to use it in order to ensure their income/sales are tracked and automatically taxed (with fees taken out automatically to act as tax inflows to that gov). It's physically possible, anyway, without requiring any physical change to the protocol or blockchain. Just the Ages Old solution governments everywhere have used: the threat of violent force for non-compliance.
Also Bitcoin can already be split into 10e8 subunits (Satoshis)
2. they can be split further, if ever needed. which is what I just said. if enough people agree to it and enough people migrate forward, via cooperation and "this-will-only-hurt-briefly" actions
It's not simply the quantity of available currency that is the problem with deflation, it's the appreciating value of currency compared to goods and labour.
There is also a second problem in that BTC is deflationary by design. Deflation leads to hoarding of currency units while reducing the velocity of money and suffocating the economy. Most people will agree that deflation is the worst thing that can happen to an economy which is why central banks will do everything in their power to avert it. It is hard to imagine how a stable Bitcoin economy could develop under these inherently flawed circumstances.