Topic: Crypto vs Fiat? (Read 3625 times)

Just bouncing ideas off you guys, feel free to chip in. So I'm talking to someone about bitcoins, and they stumped me with a question, bitcoins aren't backed up by gold. He rattles off that the US dollar is backed up by gold (which it's not, 1971 Nixon shock ended that) so they have intrinsic value. Since the dollar is backed by " the faith of the US government" or "In god we trust" that means it's no different than crypto besides the fact that crypto is digital? What do you guys think? Would love to know! Thanks!

They are back up with military.

Most governments currencies are back up by Minerals or something else. Gold, Silver, Water, Food, Fruits, ect, at least in theory.

This, and also the World's most Powerful Computer Network

Bitcoin is backed by mathematics and logic

Bitcoin is backed by mathematics and logic

can you explain what you mean by gold has no intristic value? Also, how is the terms backed up by federal reserve different? Are you saying the dollar is indeed backed up by something? Just would like some clarification please xD

You are right. The dollar is not backed by gold. Anyway, you need to be clear on what "backed by" means. The meaning of "backed by gold" is completely different than "backed by the full faith and credit ...", or "backed by the economy" or "backed by the Federal Reserve", or "backed by the taxing authority" or "backed by the military". In all these cases, "backed by" means something completely different.

Also, it can be helpful to remember that nothing backs the value of gold and there is no such thing as intrinsic value.

Myth: Bitcoins have no intrinsic value (unlike some other things)

This is simply not true. Each bitcoin gives the holder the ability to embed a large number of short in-transaction messages in a globally distributed and timestamped permanent data store, namely the bitcoin blockchain. There is no other similar datastore which is so widely distributed. There is a tradeoff between the exact number of messages and how quickly they can be embedded. But as of December 2013, it's fair to say that one bitcoin allows around 1000 such messages to be embedded, each within about 10 minutes of being sent, since a fee of 0.001 BTC is enough to get transactions confirmed quickly. This message embedding certainly has intrinsic value since it can be used to prove ownership of a document at a certain time, by including a one-way hash of that document in a transaction. Considering that electronic notarization services charge something like $10/document, this would give an intrinsic value of around $10,000 per bitcoin.

While some other tangible commodities do have intrinsic value, that value is generally much less than its trading price. Consider for example that gold, if it were not used as an inflation-proof store of value, but rather only for its industrial uses, would certainly not be worth what it is today, since the industrial requirements for gold are far smaller than the available supply thereof.

In any event, while historically intrinsic value, as well as other attributes like divisibility, fungibility, scarcity, durability, helped establish certain commodities as mediums of exchange, it is certainly not a prerequisite. While bitcoins are accused of lacking 'intrinsic value' in this sense, they make up for it in spades by possessing the other qualities necessary to make it a good medium of exchange, equal to or better than commodity money.

Another way to think about this is to consider the value of bitcoin the global network, rather than each bitcoin in isolation. The value of an individual telephone is derived from the network it is connected to. If there was no phone network, a telephone would be useless. Similarly the value of an individual bitcoin derives from the global network of bitcoin-enabled merchants, exchanges, wallets, etc... Just like a phone is necessary to transmit vocal information through the network, a bitcoin is necessary to transmit economic information through the network.

Value is ultimately determined by what people are willing to trade for - by supply and demand.