This is a long text, but I think it contains some interesting arguments. To understand if Bitcoin can replace the dollar (or what is needed mentally for this to happen) we have to understand how we price things, why the dollar is used and how gold was established as a media of exchange.
1) Pricing Something in Something.
What is a Price?
"In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services." WIKI
I can price something in something.
Example 1: A ocean front villa costs 10 Ferrari.
This statement has meaning and everybody will have an opinion on whether this price is to high or to low as the good (villa) and the price (10 ferrari) have value (to society, not necessarily the individual). A Ferrari has value because it is pretty, a form of transport and fast.
Exampe 2: A ocean front villa costs 1000 ounces of gold.
This statement also has meaning and everybody will have an opinion on whether this price is to high or to low as the good (villa) and the price (1000 gold) have value (to society, no necessarily the individual). Golds value is that it is pretty and rare. Everybody can understand the concept of pretty.
Example 3: A ocean front villa costs 1000 dollar (backed by gold, aka gold standard)
Now the dollar once was pegged to gold thus the dollar had value.
2) Pricing Something in Nothing
Now what happens if we price something (value) in nothing (no value). Well that is impossible if we only look at the nothing and the something.
Example 1: 1 loaf of bread costs 1/1000 Bitcoin.
This price is devoid of meaning as 1/1000 Bitcoin has no value. Yes we can transfer 1/1000 Bitcoin cheaply but that does not give Bitcoin itself value. "dafadfas" has no value. Being able to transfer "dafadfas" of no value cheaply, does not give it value.
Example 2: 1 house costs 1 million dollars (fiat).
Now we again have priced something in nothing. Yes I can burn dollars and receive energy. However we often transact in digital dollars not actually backed by physical dollars.
So why does a dollar price have meaning?
Well the government a) forces us to use dollars and b) guarantees implicitly that the dollar supply will expand at a predictable and slow rate. With both of these data points we can start making prices which have meaning! Now we can price these goods in relation to each other and then assign each good a theoretical dollar value. The goods with the most value get the highest percentage of the dollar supply
For example: We have 30 dollars (dollar supply) and in the american economy for example 6 houses and 12 ferrari. The value judgement of Society (result of thousands of individual value judgements) is that 1 house is worth 2 ferrari. Now we can express that value judgement in dollar by giving the house a dollar price which is twice as high as the ferrari dollar price (house is worth 2 dollar and ferrari 1 dollar).
Now if we look at the price in isolation (ferrari costs 1 dollar) it has no meaning. But if we look at the dollar price in context with other dollar prices we can see that it expresses a value judgement (2 ferrari are worth 1 house).
3) Can Bitcoin take the role of the dollar (fiat)?
Now obviously theoretically Bitcoin could take the role of the dollar (fiat). It is possible to express our value judgements of the worth of somethings (houses and ferrari in last example) in nothing (bitcoin, dollar fiat), as explained above.
But just like the with fiat dollar americans would need to know a) how many bitcoins will be created b) a guarantee that people will use it (number of goods, services backing bitcoin).
Now what has to be understood about gold is that even gold gains above its initial value as soon as it is used as money. In this case the price in gold not only reflects gold pretty value but also golds now new found money use (acceptance). In this regard it is similar to bitcoin and dollar. However we can price in gold without the need for a theoretical construct/ additional information like with dollar/ bitcoin as it has a value (it looks pretty) to us. We are pricing something in something not something in nothing like we do when we price in bitcoin.
With bitcoin we have to assume a certain backing by goods, bitcoins quantity (solved) and then assume that bitcoin will continue to be used (theoretical construct needed to price something in nothing). If we assume this we can make a price. If we do not assume this, we can not, as bitcoin itself has no value. This "assumption" problem is leapfrogged/eliminated by governments through the use of force.
4) Can bitcoiners get people to accept nothing for something?
We have seen that in order to price things in bitcoin people need to know 1) that a certain pool of people will (always) accept bitcoin and back it up with goods and services 2) bitcoin supply stays the same. Now 2) has been solved by the bitcoin code.
How can you convince a certain number of people to hold onto bitcoin and use it (for ever preferably).
Methods employed:
Now what bitcoiners argue is that if we should all accept bitcoin as transaction costs will be cheaper. This argument is basically the following: Yes you exchange your something for nothing but if everybody accepts nothing you can buy something with the nothing I gave you and we save costs because exchanging nothing is cheaper than exchanging something (gold, silver).
Now this argument would probably fail if your nothing could not immediately be converted to dollars. As we can see merchants are not accepting nothing for something unless they can dump for dollars (so they are not accepting bitcoin).
From the perspective of the merchant he takes the risk of nothing not being accepted for something. That he safes transaction costs is not going to soothe him as he is effectively holding nothing unless the rest of us agree to exchange nothing for something. Again it is a mind twist that might work (however I believe government will not allow it). We all agree to change something for nothing because its cheaper to exchange nothing for something is what bitcoiners argue.
Now before this acceptance was only possible by governments because nothing is normally plentiful. Only through the use of force could you convince somebody to accept nothing for something especially because nothing could back in the day be created out of thin air (printing more dollar). Now we know that nothing will remain scarce (bitcoin 21 million) but it is still nothing that only has value if we all agree to exchange something for it. Its a mind twist that takes a first step, that gold does not need to take.
