Topic: 2013-01-08 forbes.com - All Money Is Fiat Money (Read 1292 times)

I would go a step further and entertain the idea that Bitcoin is sufficiently unique that it requires a redefinition of the word "money".

Awesome, a must read.

We knew that to be useful as money something had to be durable, scarce, tradable, and fungible. Bitcoin is showing that those are pretty much all of the requirements. No agreement is needed. No rule is needed. If it's useful, people will use it.

Wow, great article evoorhees 

I had to respond to that terrible article...

http://blog.bitinstant.com/blog/2013/1/9/all-money-is-not-fiat-money.html

Before crytpo-currencies, the distinction was pretty clear. If the scarcity was natural, like gold's, it's not fiat. If the scarcity was artificial, like unbacked paper money, then it's fiat. Currencies that were redeemable for commodities by their issuers, even if there was a fractional reserve, were not considered fiat.

This made definitions of "fiat money" like "money without intrinsic value" and "money whose value is not fixed to an objective standard" equivalent. However, when you bring crypto-currencies into the mix, things get interesting. Bitcoin's scarcity comes from mathematical rules, but the choice of those rules and the ability to change them comes from an agreement, but that agreement cannot be as easily changed as a government can print more money.

Now, there are two ways you can react to this. There's the irrational way and the rational way. The irrational way is to parse dictionary definitions of "fiat" to see if Bitcoin qualifies. But this is irrational. If a company makes a three wheeled vehicle that acts just like a car, we don't look at dictionaries to decide whether it's a "car" or whether we must call it a "tricycle". We look at how it acts. If it works just like a car, we call it a car. And, if it becomes really popular, then we remove "typically with four wheels" from the definition of "car".

So the right question is whether Bitcoin *behaves* like fiat currencies. If it does, then we should consider it one. If not, then we shouldn't. Either way, if needed, we should adjust the definition of "fiat" if we want the distinction between fiat and non-fiat currencies to remain useful.

The second definition isn't really meaningful. Gold coins, for example, aren't "backed" by something tangible; they are something tangible. Physical Federal Reserve Notes are exactly the same: they aren't backed by something tangible, but they are, in fact, something tangible in their own right.

What people really mean when they talk about whether a currency is "backed" is whether the price of the currency is determined by voluntary supply and demand, like gold, or by coercion (legal tender & anti-counterfeiting laws), like FRNs--which brings us back to the first definition.

A major problem with the term "fiat money" is that it can have one of two different meanings.

1. Money whose value is manipulated by government.
2. Money that not backed by something tangible, like gold.

Both are in widespread use, so there is no point in saying that your definition is correct and the other one is wrong.

My reply hasn't shown on the article responses yet, but there are two major distinctions - no matter how you define 'fiat'.

Bitcoin can't be duplicated at will, either through deceit or implicitly by policies. (No, hacks at edge-exchanges aren't the same thing.)

Bitcoin has a finite number of units, which can't be changed on a whim. (I suppose you could make an argument that if a majority of the clients agreed to new 'rules', it would, but that scenario seems unlikely given the divisibility.)

It will take time for people to "get" these two points, but they're central to bitcoin's success, among other reasons.

If we take the definition made here https://en.wikipedia.org/wiki/Fiat_money then Bitcoin is only fiat money if program code is interpreted as being "law". Do you agree or disagree or have an opinion on:
"Fiat money is money that derives its value from government regulation or law."

Now if it only means law made by a government, then by that definition Bitcoin is not a fiat currency. by the Wikipedia article's definition that I quoted.

You're absolutely right, of course. It doesn't take much to be writing for the press these days. If it ever did.

It's nice to see a reference to Bitcoin, but the premise of the article is nonsense. A currency is not a fiat currency merely because most or all of its value is in its marketability rather than direct use. All currencies have that property. The "fiat" in "fiat currency" refers to the source of scarcity (e.g. anti-counterfeiting laws; scarcity by fiat) and/or the reason the good is used as a currency (e.g. legal tender laws; acceptable payment by fiat).

Currencies which are naturally scarce, like gold and Bitcoin, and which are traded as currencies voluntarily, are not fiat currencies. How can they be, when there is no "fiat" involved?

A non-Matonis Forbes mention. (just 1 bitcoin mention)