Indeed. A thought experiment: say the US government created a USD-prime currency that floated freely from USD. You could still use the USD in private transactions, but the US government would only transact and tax in USD-prime. What would be the fate of the original USD?

My belief that it would go to zero. I’m curious whether “fiat is backed by nothing” proponents would disagree.

Gold and silver became money for similar reasons (probably). Kings and Emperors found that supplying their armies was much easier (especially in peace time) if they used the method of taxing the population in gold and/or silver and then using that to pay their soldiers who would supply themselves on the open market. That way you did not have the standard problems of a planned economy. The peasants have now need for gold, so they would not need/want to trade stuff for it unless they were forced to have some to give to the tax man. It's much more complicated than that, of course, but like fiat money, gold and silver do not have much intrinsic value besides using it to show off your wealth.

>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.

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?

Ok are you saying that is a good reason to invest in it? I always hear this and it seems like if force or military force is your only bastion of reason left to invest in a currency you should have left it long ago.

This argument doesn't really refute the argument for bitcoin as digital gold. It's not as though you can't exchange bitcoin to pay your taxes.