Topic: Semantics of "fiat" (Read 3977 times)

Fiat : fake idiots are torn

War is not peace. Noone have "simply declared bitcoin to be money". It is not fiat.

The technical definition of a fiat currency is a currency with no intrinsic value, is it simply declared to be money (like US Dollars after Nixon's 1971 executive order, like bitcoin)   The use of fiat to mean "evil gubmit money" is a colloquialism used by some libertarians with roots in the US Dollar transition from a commodity-backed currency to a fiat currency.

"War is Peace" is a snarky example from the novel "1984" of what happens when words are redefined to further political rhetoric.

No, the technical definition is what I wrote above. And war is certainly not peace, why would you say that?

Then you do realize that this is an informal and highly inaccurate use of the term, and not the technical definition used by economists.

War is peace, my friend.

That's right. I am also aware that the word is used nowadays to describe paper money.

Fiat paper money and bitcoin both have no value for direct use, that is probably the connection, but bitcoin is not fiat.

You're astute.  Bitcoin is still a fiat currency: it has value by User fiat rather than by Government fiat. 

While we're on the topic of semantics here what is this thing "government" you guys are talking about?  Just another corporation right?  A bunch of people working together in their own interests and trying to hide behind a name?  Or is there a lot of other important stuff hidden in that word relating to specific business interests?   

That is an odd way to redefine fiat.   Under that definition, a commodity-backed currency becomes fiat if the government proclaims it so.

 

The concept is from the days of the classical gold standard.

Suppose you had gold marks and paper marks circulating. Since the two types had different properties, it was basically two types of money, with one paper mark worth approximately the same as a gold mark. The money printers tried to expand the paper marks as much as possible. If they printed too much, the value would diverge. That could be fixed with removing paper money for instance. But when the value diverged too much, the central bank just decided to proclaim that they were the same: A mark is a mark is a mark. In practice, they said (wrote in law) contracts specifying gold marks, could be paid with paper. This is the fiat part. Those laws exist still, but are now irrelevant as the paper money is circulating, and eventual remaining gold money is hoarded.

The point for governments is that their paper money is used, meaning held (which is the source of the value). Their  problem with gold is the same as with foreign paper money. So in addition there are restrictions of other forms of money, for instance you can not hold them, there are taxes on them, cost to create deposit accounts in foreign money and so on. The original fiat (proclamation) is now irrelevant, but replaced with forced cost of transactions in all other money types than the local paper money. (These days of course extended with bank deposits).

So as long as no government has declared that bitcoin is the money that should be used in the land, bitcoin is not fiat.

I disagree that it's better than govt fiat.  One, the supply can only increase.  Two, the increase is arbitrary and not based on any economic conditions.  Three, its extremely difficult to build a banking system around it

The reason that libertarian bitcoiners like to use the word fiat as a dirty word is that they feel that taking the dollar off the gold standard was an egregious act by government.    In my opinion, it was inevitable, because at a moment of crisis, a government would always choose to steal the gold rather than let the economy crash.  There was no way they would have let dollar holders run the bank and redeem their dollars for gold.   This is a flaw of centralized banking.

Representative commodity currencies also have a flaw in that the commodity must be guarded, and eventually, the commodity ends up in the hands of the guards or is stolen.   The gold backing Liberty Dollars was stolen by the government, thus it failed as a money system.

I think bitcoin can prove itself to be a superior form of money to either a government-issued fiat currency or a representative commodity currency, since it will be immune to direct government manipulation, and immune to theft from government or otherwise, if properly handled, because it is a better form of fiat currency.

I don't think it is necessary for money to have intrinsic value for it to work.  Obviously, US dollars currently dominate the global economy, and bitcoin is slowing gaining acceptance as a means of payment.

I just find it colloquial for libertarians to continue using the term "fiat" to differentiate bitcoin from government-issued fiat, when the original use was to differentiate gold-backed dollars from fiat dollars.

Good points Amspir, I mostly agree. 

However while we are talking semantics I will point out that the idea of "intrinsic value" is inherently flawed.  There is no such thing.  Value always depends on context, it's definition is in what you can get for it from another person. 

For an extreme example:  When dying of thirst, I will give you all I own for a cup of water.  When drowning, I will give you all I own to take some water away. 

Another nice quote of relevance I came across today:  "The only true form of wealth is that produced by the soil"  - Frederick the Great

 



 

New coins "come into existence" according to a mathematical protocol invented by humans, rather than by decisions by a government of humans.

When classifying the types of currency there is:

commodity currency:  eg.  gold coins, which have an intrinsic value, that is, they have a use outside of a medium of exchange
representative currency: eg. casino chips, convertible by the issuing authority into government fiat currency at a fixed rate, or gold certificates, convertible by the issuing authority into a specified amount of physical gold.
fiat currency:  an object or record that is declared to be money with no intrinsic value.

Unless you add a new classification to the types of currency there are, bitcoin clearly is a fiat currency.  "Government" is closely associated with fiat currency, because before the invention of a decentralized currency like bitcoin, it was hard to imagine how a fiat currency would work without a central government to regulate or issue it.

I think the problem is that some people think that bitcoin mining, while requiring real resources to do, is creating something with an intrinsic value.  It may model mining of a scarce physical resource, but mining bitcoins makes you a commodity miner like playing "Call of Duty" makes you an experienced combat war veteran.

Again, I think bitcoin is a great invention, but pretending it is not something that it is does it a disservice.

When discussing semantics, I believe the etymology is often more important than quoting modern authorities. 

...from Latin, fiat "let it be done" (used in the opening of Medieval Latin proclamations and commands), third person singular present subjunctive of fieri be done, become, come into existence," used as passive of facere "to make, do"

One could certainly argue that the 50 coins in the genesis block were created by fiat.  Indeed, "fiat lux" is a famous phrase from Genesis, the name alone suggests such a comparison.  It is harder however to make that argument for coins mined today.  Nobody has the power to issue new coins by fiat, they come according to schedule.

 

I believe bitcoiners can't accept that Bitcoin is a fiat because they think there's something inherently bad about fiat.

In many ways fiat is superior to commodity money

From the wikipedia entry for "Fiat money":
In monetary economics, fiat money is an intrinsically useless object or record, that is widely accepted as a means of payment. [Walsh, Carl E. (2003). Monetary Theory and Policy. The MIT Press. ISBN 978-0-262-23231-9]  In some micro-founded models of money, fiat money is created internally in a community making feasible trades that would not otherwise be possible, either because producers and consumers may not anonymously write IOUs, or because of physical constraints. [Kiyotaki, Nobuhiro & Wright, Randall (1989). "On Money as a Medium of Exchange". Journal of Political Economy 97 (4): 927–954. doi:10.1086/261634][Lagos, Ricardo & Wright, Randall (2005). "A Unified Framework for Monetary Theory and Policy Analysis". Journal of Political Economy 113 (3): 463–484. doi:10.1086/429804]

Not alone in my perspective among academia.  Perhaps I'm alone in the pluralistic ignorance environment of bitcointalk.

And economists debate the issue because of the low intrinsic value, but shell money had its roots as a commodity. 

Nobody agrees with you that bitcoin is fiat. You cannot make it true just by ignoring everyone and their arguments.
Shell money was also not fiat even when it had no intrinsic value and was also "mined" from the sea and the emission was regulated by nature.

Those are all good arguments as to why bitcoin can become a better fiat currency than government-issued fiat currency, but it does not give bitcoin an non-trivial intrinsic value (a value that comes from a purpose other than its use as money) or make it a commodity currency.

FIAT is also affected by offer/demand between other FIAT currencies.

Bitcoin is not run or regulated by miners, they work for the network and get a reward from it. They have no power over it. The emission curve and rules of BTC was decided by Satoshi and no one can change it, no even him.