It's not just the taxation (which is true), it's the fact that they are backed by a particular entity. In the case of USD, it's the United States government. Dollars may not be "backed" by anything tangible, but they are accepted because the US is (largely) a trusted entity. That's what makes USD useful to people internationally.

Bitcoin doesn't have the advantages of having a government backing it, but some would probably argue that that is an advantage.

Considering how many trillion definitions people may mean when they say a currency is "backed by" something, I don't think your explanation is an improvement.

For that reason, I recommend listing the specific things that make the USD valued: in this case, the need to pay USD in taxes, and a very wealthy entity (US government) prefers to trade in that currency, or whatever specific thing you mean with "backed by" in that statement.

The issuer of a fiat currency collects taxes in that same currency.

The issuer^H^H^H^H^H^H ledger algorithm of bitcoin collects taxes^H^H^H^H^H transaction fees in that same currency.

Intrinsic or not isn't really the question - it's not really a binary.

I'd rather have bitcoin than Zimbabwe's fiat currency.

Taxation definitely gives legitimacy, but so does the ability to pay for things anonymously. If enough people are willing to take a currency, than it gain value - period. The gov't wanting it in taxes is just a really big provider of liquidity providing those network effects.

It's not a question of legitimacy, isn't about demand. Currency is a token. You need tokens to play the game. The difference with taxes is that you don't choose to participate. You must play, so there is always demand for tokens.

Yea, but demand isn't all created equal right? I'm trying to capture more than raw demand - unless we're just defining terms differently (which I suspect)