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.

You could argue Bitcoin is run by miners, or "regulated". Using regulated very loosely. But fiat currency has a value provided by the government. Bitcoin has no set value. It's value of course is determined by the users who trade and use it, but it's far from governmental regulation.

You win. I've been defeated.

I hereby declare that, according to amspir, “fiat” will no longer have the meaning “government” related to it.

Or at least, that's what you seem to expect me to say.

My concern is the pluralistic ignorance regarding the term "fiat" among some bitcoiners, as in claiming bitcoin is not a fiat currency.
You could also ask me to explain the difference between water and heavy water without using the word "isotope".   


You couldn't even explain your cut and paste research yourself, don't ask me to do it for you.

Forget for a moment the meaning of “intrinsic value”. It's irrelevant to your initial concern that Bitcoin is a fiat currency.

And you still haven't refuted my sources I gave some posts back.

I've got no problem with that statement.   That does not mean that bitcoin has an intrinsic value.

The US Government could go down and stay down, and if it does, the value of the US Dollar will go to zero since it has no intrinsic value.
The Internet could go down and stay down, and if it does, the value of bitcoin will go to zero since it has no intrinsic value.
This is the weakness of a fiat currency.  It doesn't mean that a fiat currency has no value, it will have value as money as long as people are willing to trade it for something else of value.

If I physically possess a gold coin, it will still have a non-trivial value even if the government that minted it no longer exists, because there is demand for it beyond its purpose as currency.

See:
It means that  :
Intrinsic value doesn't make the market value.

I speechless because you simply do not understand what the phrase "intrinsic value" means.   When defining what intrinsic value is, gold is the most widely used example to support the definition, because people both use it as a form of currency, and for other non-monetary purposes: it can be made into pretty shiny jewelry, or used in electronics as non-corrosive conductor.  If you don't understand, then you just don't understand.

Declaring that gold holds no intrinsic value is a rather unique viewpoint.

We value gold because we value gold. I don't understand your speechlessness.

You really just said that gold does not have intrinsic value.  Gold is the widely used example of a commodity currency that has intrinsic value.  I am speechless.

Gold does not have “intrinsic value”. Whatever gold can be useful as a periodic element has nothing to do with gold being used as money throughout human history. People have gold in vaults not because they are planning to build circuits with it, I can assure you.

I have read biographies on Turing in things called "books" because of his contributions to the field of computer science, long before a dramatized version of his story came out as a movie in 2014. 

I suppose.  I make a living using and writing with my non-existent skills.  I sure fooled 'em.


Apparently I like to argue with crazy people.  I also use bitcoin, and I think it's a revolutionary invention.


PHYSICAL gold has intrinsic value because it can be used for other purposes in the real world other than as a currency.
You cannot make the same statement about a crypto-currency.
 

  Bitcoin has value because other people perceive it as having value.   You can trade it for something for something else of value, but you can't do anything useful with it other than to spend it.  The same thing can be said for any fiat currency that people use in trade.

A commodity currency has the additional property it can be used for something other than money.

Read your last statement.  If you are trying to say that a fiat currency is a commodity because it has value as a fiat currency, then you fundamentally do not understand the difference between a fiat and a commodity currency.

I personally think the bitcoin eventually become a better form of money than other fiat currencies (once it has a history of price stability), but I'm not going to pretend that it is a physical commodity.

Book suggestion:  "The Emperor's New Clothes" by Hans Christian Anderson.

The value of any money or commodity is affected by offer/demand. The use of a commodity is just a parameter in offer/demand among many others.

Both USD and BTC are backed by the economy around it (=people using it to exchange things).

The supply of USD is strongly affected by a group of people (government) but not in Bitcoin. The number of miners doesn't affect the emission curve, no miner can change the max number of units.

Miners do not create Bitcoin, they work for the network and get a reward.

Sorry but you have been fooled.  Virtual and physical USD are both issued by fiat.  You will never get your work, which is why nobody holds large quantities of either physical or virtual USD unless absolutely forced to.   

Paper never can be "backed" by anything other than promises which will eventually be broken.   

LOL, you seem to have a 19th century mindset, difficult to say where to start explaining the world but it would take a long time and need a paradigm shift to get the 21st century.
You remind me of the recent movie about Turing: The imitation game - they also laughed at his worthless machine.
Apparently your math, engineering and programming background is nonexistent.
How did you end up on bitcointalk and WHY?
Btw, mining physical gold is also virtual because machines are used in the process?
Mining WoW gold takes resources of a tiny computer cluster running the application - HW worth of thousands and electricity costs of peanuts.
Bitcoin mining work creates a worldwide decentralized payment platform. This is the value you are missing.

Here is the problem.   If someone is unable to separate reality from a virtual reality, they can't make the distinction between a virtual commodity and a real commodity.   I believe this is an actual documented psychiatric disorder.  There is no point in debating further, It would be as pointless as continuing to argue with a delusional religious fanatic.

It depends on which math problem it is solving.

So do World of Warcraft gold miners.  The point is that "work" hold little value to majority of people.  Who freaking cares if some computer can solve a math problem faster than another computer.

A Bitcoin miner does real work.  Real resources are consumed in the process.

You can't just say that while ignoring the evidence I've presented you. Where's your evidence that I'm wrong? You need to cite sources.

I'm the long run USD is based on work.  Its backed by bonds which are debt to be paid by future earnings of the tax base.

The only way the issuer (US govt) can make good is if the USA has an adequate GDP when the bonds are due.  That's real work!

However, work in itself doesn't define whether something is fiat or not.  You have to look for intrinsic value.

  

The meaning of the latin word "fiat" in no way implies government control.  Some bitcoiners seem to use the word "fiat" as shorthand to mean "government-issued fiat currency", which is my point.   Bitcoin is novel in that it creates a fiat currency without a conventional government.


You realize that you just called the act of plugging in a bitcoin miner into an electrical outlet and turning it on "actual work".  That must be one of those hyper-ironic millennial figures of speech, like using the word "literal" in an exaggeration.   

The process of bitcoin mining involves having a machine to do virtual work.  The whole point of doing virtual work is to regulate the issuance of bitcoin's fiat currency and to cryptographically secure the block chain.


A commodity is something with intrinsic value.  You can treat something like a commodity, that really is not, which would be called virtual commodity.  That doesn't make it a real commodity. 


I think you meant to say "I am" instead of "we are", unless you actually meant to be condescending, or believe yourself to be royalty.

bitcoin is not issued by government/not legal tender by government order (thinking government can be equated with mining consensus is laughable)
+
bitcoin cannot be created out of thin air and requires actual work (creating floating point numbers in bank computers is not work)

i think regulators are already thinking about bitcoin as a commodity so... i think we are more or less done here

You are right that both public coins and fiat currencies only have value as exchange commodities, nothing else.  The difference is that the latter has zero cost of production while the former takes energy to produce.  Fiat currencies can be issued "by fiat" in any quantity.  Public coins are issued through an energy intensive and publcly monitored manner. 

Personally I call everything a commodity that is traded for, but I'm not sure on the etymology of that word. 

Cheers! 

Exactly. That's how language evolution works, We can't hang on to the definitions of the past, which nobody uses anymore in the present.

It is, and I think the definition should derive from the translation of the word, not what is currently listed in Wikipedia.   I think that millennials have like, completely changed the meanings of LITERALLY MILLIONS of words.

Wikipedia is the encyclopedia where anyone can edit. So, if you're sure that your definition is correct, you shuold fix it for the benefit of the community. But, remember the [citation needed].


I don't know. I only show the sources. If you think this definition doesn't make sense, then you should contact Merriam Webster.


You think?


As a matter of fact, you can. It's called “selling a product or service”.


OK, from the site of the Federal Reserve (emphasis mine):


As far as I understand, the Federal Reserve is subject to the government, and so, by transitivity, the money they create is also subject to the government.

As for the EU, a “cartel” of governments, as you call it, also means that the Euro is government-controlled. I don't understand what's your confusion here.

I agree with you.  I find it especially annoying that these bitcoiners just learned the word "fiat" and they keep using it all the time.  Nobody goes around calling modern money fiat unless they're a conspiratard.  We just call it "money"

The word fiat is just Latin for "let it be done", "it shall be" aka created from thin air.  Which is Bitcoin.  Created from thin air.  Big difference is USD derive the price from Treasury bonds (future debt of USA).  Bitcoin price derived from millennial speculators

Completely wrong.   Governments can regulate commodities and tell you how much they are worth, but it doesn't make it a fiat currency.


Legal tender, meaning that you can pay a government debit with it.   A generally accepted definition of fiat currency, in that it is not backed by a commodity.


That makes no sense.  Misquote?


Sounds close.



Here is the rub:  If you classify currency as EITHER fiat OR a commodity or commodity-backed currency (USD before Nixon),  then I think bitcoin is a fiat, with the "government" being the consensus of miners regulating the issuance of bitcoin.   You just can't go back to the miner and ask for some electricity and hardware in exchange for the bitcoin they mined that you currently hold.

The term "government" in relation to fiat currency is vague.   US dollars are issued by a private bank AKA the Federal Reserve that is not really controlled by the US government.   Euros are not issued by one government, but rather a cartel of governments.

Because money printing doesn't affect the value at all.

Als, you seem to disregad my last comment, about the multiple definitions of fiat money online.

That definition would be wrong.   The value of a currency is determined by what other people are willing to trade for it.   The government may try to regulate the value by pegging a currency to another government fiat currency, forbidding non-government exchanges, or fixing prices on goods, but inevitable black markets and black market currency exchanges will give you the true value.

I'm not arguing that bitcoin is not modeled after a commodity, but the "value" is virtual.  If I hand you a paper wallet with an address and a private key on it, you can't use it for anything else other than scanning the key and spending it on something with a seller that will give you something for it in trade.   With gold you can use it in building electronics that need non-corrosive conductors, oil can be used to run your car, rice can be eaten.  Bitcoin's only value is that it can be traded for something of value which started when the first person ordered someone else a pizza for bitcoin.

You seem to be saying that there is no difference between a fiat currency and a commodity.  That is one way to look at things, because you could argue that a post-Nixon US dollar has value as a commodity because the US government accepts it to pay your taxes and keep you out of jail.

But how is fiat zero cost production? The paper, ink, machines that do the printing, the artists that decorate the cash... who pays these then?

Let's see what the Internet says about it:





To be fair, from my quick search, there's one site (Merriam Webster) that mentions nothing about the government; but others do. So, you can't just say “That's not the definition of fiat” when most people disagree with you.

The defining characteristic of fiat is zero (or effectively zero) cost of production.  Hence, bitcoin is not fiat.  "Commodity money" is a redundancy, as any tradeable good, including money, and yes proof of hash work, is a commodity.  In particular, money is an exchange commodity.  

    

That's not the definition of fiat.   The only "value" that the US government can control on your US dollars is the amount of US Dollars needed to pay your taxes and keep you out of jail for tax evasion.   Everything else is determined by how many US dollars a seller will take from a buyer for something else of value.

If you meant to say the meaning  of fiat is "currency issued by a government not backed by a commodity" --

then replace "government" with a "a consensus of bitcoin miners" and you have Bitcoin.   

Yes, but you can't arbitrarily redefine words. People need to understand each other, and that's why there are words with agreed meaning.

And the agreed meaning of “fiat currency” is “a currency which value is regulated by a government”.

No, I am saying there is a problem with the definition.   Currency is either fiat currency or a commodity currency.   A representative currency represents either fiat currency or a commodity.

Since bitcoin represents no commodity, I conclude that it is a fiat currency.   Before cryptocurrency, there was no way to create a fiat currency without a government.   That doesn't mean bitcoin is not a fiat currency, but rather the ultimate in a fiat currency, since it requires no conventional government to issue it. 

So, are you disregarding the definition altogether?

My problem is with the semantics, and just because the great oracle of wikipedia qualifies the definition of fiat with the descriptor "government", doesn't mean bitcoin is not a fiat currency as opposed to a commodity currency.     My point is that bitcoin is a rather novel way of creating a fiat currency without a government, or at least what is considered a government.


The issue is why people consider Bitcoin not to be a fiat currency.

And the root of the value is?   Without a network of computers and people and businesses willing to trade it for something of value, what exactly is that value?

definition by wikipedia
Fiat money is currency which derives its value from government regulation or law.

how is it related to bitcoin?

The term "fiat" in this context describes the root of the value of a currency, not its issuance.

It seems to me that many bitcoin proponents use the word "fiat" to describe central bank issued fiat currency, but don't use the word to describe Bitcoin.

In my opinion, Bitcoin is the ultimate fiat currency, since it has no inherent value (you can can't use it for anything other than paying someone else bitcoin).  It is a currency issued by "decree" through a protocol enforcing a consensus of users and miners.

If bitcoin is not fiat, can you really call it a commodity currency?   If the argument is that is a commodity in the sense that it valuable a currency, one could also say that USD has commodity value in that its only guaranteed value is that it can be used to pay taxes and keep an American taxpayer out of jail for failure to do so.