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.
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.
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.
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.
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)
It is a difficult situation because it appears that when people take the time to learn about it, they become big fans of bitcoin but also start worrying about the total collapse of the fed and the USD. I am trying to understand the argument, but I remain skeptical.
It is very interesting to watch and play with though.
Nothing lasts forever - and if anyone argues otherwise, I've got some Roman Denarius to sell them (At twice the price of their gold content).
Whether or not this happens in my lifetime, and whether BTC is worth speculating on is another question altogether.
(Denarii was a silver currency.)
Once things begin to be priced in bitcoin, proponents hope its value will stabilize. This might happen. It did with fiat, but fiat had the advantage of a stable start and slow detachment from gold.
The real funny thing to me is, I believe the currency could do its job just as well no matter what the value per bitcoin. And I don't think volatility matters at all, because companies like BitPay assume the volatility risk for you (both the merchant and the consumer)
I don't know that bitcoin can be used as a store of value, especially for future adopters. But it is definitely a great method for real transactions of wealth.
All else being equal, it seems to be designed to be a perfect store of value because it is deflationary by design. Obviously it is far more volatile and risky than something backed by major world governments at this stage, however it does come with certain guarantees that no central bank could credibly make (if the crypto holds). For people who have had their wealth stolen by governments this could prove a very attractive pull.
If somebody sues me, and I offer to pay my debt in bitcoins, the court may refuse to recognise this payment. But if I pay in the national currency, the court is required to recognise this payment.
This is part of the legal system in every country. It's one of the mechanisms governments use to force citizens to use the national currency.
