
Bitcoin is fiat money, too - davidw
https://www.economist.com/blogs/freeexchange/2017/09/not-so-novel
======
dnautics
Interestingly the economist misses the traditional definition of Fiat: a
currency whose value is determined by the _Fiat_ of a state. Whether or not
Bitcoin exhibits similar trends as currency that isn't backed by the state is
immaterial to the ethical appeal (to some) of a medium of exchange where
participation is voluntary and consensual.

~~~
Finnucane
Is Bitcoin actually a medium of exchange? It seems to be functioning more as
an investment to be hoarded rather than spent.

~~~
aviv
Right, the same people telling you it's going to $100K are the ones saying
this is a digital currency that should be spent. Well, I sure ain't about to
spend $100K to buy 2 MacBook Pros.

~~~
rblatz
And that’s why the fed ensures we have a mildly inflationary currency. If it
deflated spending would drop, cutting the velocity of money, and cutting out
economic growth.

~~~
0x445442
"If it deflated spending would drop"

That statements not a given. If it were so, people would not use credit cards.

~~~
rblatz
That’s interesting, I’ve never thought about credit cards as a sort of
deflationary virtual currency.

------
sonink
Fundamentally, Bitcoin is software eating the Fed-Bank-Retail ecosystem. The
Fed governance is replaced by code. The banking utility is replaced by miners.

I think the march of bitcoin is actually a better example of how AI is taking
over the world. People in AI are fascinated by AGI - but the bitcoin ecosystem
is actually a real world example of how AI will take over the world.

Specifically, the march of AI won't happen at 'edge' nodes, it won't be
incremental, it won't happen by replacing humans with machines. The march of
AI will start at the core, at a rethink of the fundamental infrastructure that
powers an industry making it more amenable to machines and 'hostile' to most
humans.

People underestimate the amount of resources required to articulate monetary
policy by a central bank. Bitcoin can already do that much better than maybe
70% of the worlds central banks. India, China and US can think about
banning/regulating bitcoin. But there are countries in Africa who can already
do better by simply leapfrogging to bitcoin and ditching their national
currencies.

Bitcoin is here to stay. And it cant be stopped.

~~~
ryan_j_naughton
>"People underestimate the amount of resources required to articulate monetary
policy by a central bank. Bitcoin can already do that much better than maybe
70% of the worlds central banks."

Bitcoin only has totally clear monetary policy because it's increase of the
money supply is entirely predetermined: It is created at an ever decreasing
rate approaching a limit.

The result of this certainty in monetary policy is a currency that is
naturally deflationary (literally by definition). This makes Bitcoin perfect
as digital gold but shit as a functional unit of currency. You don't want to
spend an asset that will naturally appreciate in value, discouraging using it.

You could have a cryptocurrency that generally trends at the same inflation
rate as regular currencies: 2-3% annual and use that to pay the miners (or
just give everyone a wealth endowment through giving any current owners a 1%
increase in their current wallets and use the other 1-3% for the miners) and
you would have a currency that could stay price stable with out Fiat
currencies instead of always increasing in price like BTC has (at least over a
sufficient moving average to reduce the volatility from speculation).

~~~
meric
That's like saying the decreasing price of hard disk space discourages people
from purchasing it.

~~~
ryan_j_naughton
Knowing that there will be better hard drives in the future for less money has
some effect on your willingness to purchase. Expectations of the future
matter. The US Treasury is getting considerably less revenue right now from
capital gains than usual because tons of financial entities are holding off on
realizing returns from their investments now and are holding them until
possible tax reform in the hopes of paying future taxes and thus getting
greater returns.

In your example, HDD space is purely a good to be consumed though and not a
currency (or an investment beyond an actual capital investment because it does
work for data storage). Thus, if you need to store data, you will buy storage
simply because you need it then. But you can't sell that storage in the future
for a positive return, so the incentive I'm talking about doesn't really exist
in the example you used.

~~~
meric
You can make a positive return in terms of hard disk space. Refrain from
swapping USD for hard disk space, and you can get more hard disk space in the
future. This applies to all sorts of goods, like TV's, music players, etc. The
value of USD is increasing against these goods, yet people still make the
trade of USD for goods. I suppose if we increase the inflation of USD such
that the price of hard disk space increases in USD terms, then people will be
more inclined to swap USD for hard disk space sooner, and it will be a boon
for the hard disk industry. But is that real economic growth? It smells more
like malinvestment to me. One could even make the argument deflation is good
for the environment, people are only inclined to consume that which is
necessary, and the structure of the economy's physical capital will be
realigned to support that pattern of consumption instead.

~~~
smallnamespace
If you believe that we should have UBI (and it seems like many here do),
deflation is the exact opposite of it -- it slowly concentrates wealth with
those who already have it, and all they have to do is hold the currency.

Whereas inflation at least basically forces the wealthy to invest in real
assets or else slowly transfer the value of the cash towards debtors.

~~~
meric
Currency isn't wealth - wealth is real estate, stock, furniture, computers.
Deflation makes it easier for wage earner savers to increase their tangible
wealth. The economic data matches this - economy was a lot more equal on the
gold standard until 1971, and have become a lot less equal once a policy of
inflation is implemented. Are we going to act on theories that match the data
or does not match the data? With deflation, UBI income will increase in value
over time, the deflation occurring from technological change accruing to UBI
receivers.

~~~
smallnamespace
> Currency isn't wealth - wealth is real estate, stock, furniture, computers.
> Deflation makes it easier for wage earner savers to increase their tangible
> wealth.

Yes, we agree on that. However, I think we need to also acknowledge that 1) a
large proportion of wage earners have very few, or negative net assets, so
deflation actually hurts them and 2) even though deflation helps savers, the
biggest savers in the economy are actually the rich. Deflation helps savers,
but the people with 80%+ of nominal assets are the already-wealthy.

In fact, the most common form of household wealth is a house, where you own a
real asset and owe a nominal debt.

Under inflation, your house value grows at inflation while your debt remains
constant, so this even benefits the saver. Under deflation the opposite
happens.

> Are we going to act on theories that match the data or does not match the
> data?

You need more data. The developed world has been on the gold standard since
the late 19th century through to the 1970s. During that time the US has seen:

\- the Robber Baron age and the Long Depression (where the rich got much
richer)

\- the roaring 20s, when wealth was more distributed

\- the subsequent crash and the Great Depression, where the entire world was
in misery (but inequality was very high)

\- WW2 and the post-war era, which saw large decreases in wealth inequality

Seems a bit silly to say that 'the gold standard was responsible for lowering
wealth inequality', given the _huge swings back and forth in inequality while
we were on the gold standard_ over 100+ years.

------
retrogradeorbit
Bitcoin is not fiat.

Fiat means "by decree" or "by authority". Fiat money is money that is decreed
into existence by some authority, that is, the government. This is done
through legal tender laws.

Bitcoin is not created by the enactment of some law by some authority. Fiat
does not mean "by consensus", or "by mathematics". Saying code is decree, and
therefor fiat, is sloppy thinking.

Bitcoin may have much in common with fiat, but that does not mean that it is
fiat. It is, by definition, not fiat.

What gives Bitcoin value is not government decree, but its utility [1]. And
that is somewhat paradoxical, because the more people hoard it the less
utility it has. And the more its used to buy and sell goods, the more utility
it has, and the more value it has.

[1] [https://fee.org/articles/what-gave-bitcoin-its-
value/](https://fee.org/articles/what-gave-bitcoin-its-value/)

~~~
codewithcheese
I agree in regards to not fiat. How about the apparent utility it has as a
store of wealth? If I was ultra rich I would store maybe 1% of my wealth in
Bitcoin as a way to diversify my portfolio. Similar to gold, except for more
wildly unpredicatable future financial scenarios.

------
noddy1
Had a chat with a high ranking public tax official last week who said that the
age of secret offshore bank accounts is over - mass leaks resulting from
bounties mean that any rogue employee with a USB of account information can
get a 7 figure payout from major goverments. So where to now for high net
worth people/families? I would absolutely be piling my wealth into anonymous
cryptocurrencies - zcash, monero, and well tumbled bitcoin. People will always
want to hide assets, and this is the most reliable way in an age of mass hacks
and leaks. I'm really keen to hear any pushback on this, because I can't think
of any.

~~~
KGIII
They can renounce their citizenship to the United States and then use any one
of a number of different countries to do their banking. Citizens of other
countries aren't subjected to the same laws and banks aren't pressured to
report on them due to US influence.

An example would be Lebanon. Everyone except US citizens gets pretty good
banking privacy protections. Due to US pressure, Lebanon carved out an
exception to those protections, just for US citizens. There aren't exceptions
for any other countries, as far as I know.

As they are high net worth families, getting citizenship in a new country
won't be difficult.

~~~
noddy1
Can you spend most of your time in USA if you are not a citizen? Who wants to
live in lebanon?

~~~
KGIII
Visas are usually easy to get and there are counties other than the US and
aren't Lebanon. Also, Lebanon isn't really all that terrible and you don't
need to live there. You can be a citizen of Zimbabwe, if you want. The point
is to not have the US government forcing disclosure, per the OP's question.

~~~
foepys
Roger Ver, who ironically for this thread is a crypto currency investor,
renounced his US citizenship to avoid paying taxes and was repeatedly denied
entry into the US afterwards. He will most likely never be able to visit his
family in the US again.

~~~
kijin
If you're rich enough, you can fly your family and friends out to any tropical
paradise whenever you want. No need for you to visit the US unless you have a
strong emotional attachment to some specific location.

~~~
rtpg
if you are rich enough you can also just pay taxes and keep a passport that
allows visafree travel mostly anywhere and not have to force people to fly to
a different country to see you.

Its a fun thought experiment for sure but ultimately if you're at the level of
wealth that running from the taxman gets you huge gains, either you have other
problems (like being some sort of druglord) or you have enough money to also
just pay taxes

~~~
kijin
Sure, if I had to choose between maintaining a complicated tax avoidance
scheme for the rest of my life and just paying taxes, I would probably just
pay my taxes and sleep easy.

But it seems that a lot of people disagree. Either you and I are massively
underestimating the benefits of tax avoidance, or these people have some sort
of knee-jerk reaction to the very concept of taxation that makes them try to
avoid taxes even if it involves a lot of hassle. The latter would not be
surprising for a diehard libertarian.

~~~
glenneroo
If you have enough money to pay a tax-hiding-specialist, then it's no longer a
hassle, it's just another person you pay to take care of your stuff - perhaps
analogous to a nanny or butler.

------
notadoc
ICOs are the hyper speculative .com penny stocks of this particular economic
cycle/bubble. A few may rise from the ashes of an eventual burst, and the
general idea may be have some validity to it, but most cryptocurrencies are a
sham and are going nowhere.

~~~
dnautics
That's true for startups too (admittedly the ratio is probably less stark)

~~~
aversafe
The ratio is probably identical from the time we've spent with startups. Comes
down to your measure of success.

------
TazeTSchnitzel
Bitcoin and other cryptocurrencies seem to be embraced by libertarians who are
very idealistic and have quite a shallow understanding of economics, software,
and the world at large. But I repeat myself.

~~~
patryn20
I think the distinct holders can be classified as such: 1) Libertarian
idealists who don't recognize they've already lost control. 2) Money
launderers and their developing world mining networks. 3) Speculators
(including VC backed firms) 4) Hype followers 5) The few, poor, misguided
fools who think it's money.

~~~
mrb
« _The few, poor, misguided fools who think it 's money._»

I find the opposite: people who don't "get" Bitcoin tend to not know what
makes money actually money, and don't know how the current monetary system
works (eg. still believe dollars are backed by gold).

~~~
patryn20
Unless Bitcoin has a fundamental evolution, it cannot be a replacement for
fiat currency.

I'm super excited about the crypto currency space but I firmly believe we're
in the "Diamond Rio" phase of a new technology and not yet to the "iPhone" and
"Android" phases.

~~~
mrb
Bitcoin does not need to, will probably not, and was never intended to
completely replace fiat currency. As a cryptocurrency aficionado I think it
can achieve great success and high adoption while coexisting with fiat
currency.

I don't need to pay my cup of coffee in bitcoins, but Bitcoin is very useful
for plenty of other use cases.

~~~
rblatz
Like buying drugs, money laundering, and hoarding. So far only one of those is
legal.

~~~
mrb
Bitcoin has a lot of legit use cases:
[https://news.ycombinator.com/item?id=15228983](https://news.ycombinator.com/item?id=15228983)

~~~
rblatz
I find the claim of being able to cheaply and quickly transfer large amounts
of money to be comical. The argument breaks down to, traditional transfer
methods take too long, so let’s add two layers of traditional transfer methods
on top of a bitcoin transfer. Then we just ignore the bid/ask spread and the
transfer time on either side.

~~~
mrb
You are not thinking outside of the box: the advantages of Bitcoin multiply
when you stay in bitcoins without converting to/from fiat currency.

For example my brother in France owns some bitcoins. One day he sent me, who
live in the US, some bitcoins. I was able to spend them instantly (~10
minutes) on NewEgg to buy computer hardware. None of us had to convert to/from
fiat. The fees were small and the transfer was incredibly fast compared to a
regular bank wire.

------
SubiculumCode
_" Bankers talk about “governance”, ways to ensure private banks and central
bankers make sound decisions—so they create just enough money make commerce
easier, but not so much that the system collapses through inflation or
panics."_

Many people don't know that central bankers literally, not figuratively, mean
CREATE money out of nothing.

~~~
alexasmyths
"mean CREATE money out of nothing."

No, this is not true.

Central banks do 'create' money, but they trade it on the market for real
assets.

The Fed creates dollars and exchanges them for an equal amount of US Tbills
(bought at market rates). $1 created = $1 in Tbills on their balance sheet.

They're not just creating money and keeping it, or giving it away.

The practice of 'fractional lending' by retail/commercial banks amplifies
this, but as far as central banks go - every dollar they 'create' is
essentially backed by an asset that they keep on the books for that dollar.

The idea is to manage how much currency is in circulation at any given time,
so that inflation (and employment) hover at certain target.

If politicians were 'printing money' to pay national debts, or buy stuff or
whatever - that would be straight forward dilution.

What the Fed does is not dilution, and it's not a bad thing, it's a good
thing.

Same for ECB.

~~~
mrb
« _The Fed creates dollars_ »

Exactly what the parent said.

The fact it is used to buy TBills is irrelevant: the Fed creates money out of
thin air. Period.

~~~
nikcub
Replace TBills with gold - is it still being created out of thin air?

The point is it’s backed by an asset

~~~
dmichulke
Did the fed dig out the gold nugget? If not, there is now more dollars chasing
the same amount of goods.

Yes it's still backed but less than before, i.e., devalued.

~~~
alexasmyths
"Yes it's still backed but less than before, i.e., devalued."

No.

1 Trillion in Assets = 1 Trillion in Currency.

1 Trillion + 1 dollar in Assets = 1 Trillion + 1 Dollar in currency.

No dilution by the Fed.

(Fractional lending notwithstanding - that's another can of worms)

~~~
dmichulke
You do realize that you are backing a dollar with a dollar?

But you cannot eat a dollar or play games on a dollar or drive with it. In and
of itself a dollar is just a piece of paper and has an intrinsic value of say
1ct.

So adding a paper note to the economy increases the backing by 1ct and the
currency by 1$. Adding an iPhone increases the assets by say 100$ (just made
that up by taking 500$ cost - 400$ used materials) and leaves the currency as
it is.

Hmm, now that I think of it: Are you maybe talking about accounting?

------
grizzles
Fiat has a feudal age connotation to it. The USD is not fiat as you are able
to do FX trading easily and more importantly, it's backed by the goods and
services available in the United States or denominated in USD (eg. oil).

So it's value is very much perception based. Being the world's premier
currency it's pretty damn safe, but if there was a widespread loss of
confidence in the U.S. for whatever reason, the wealth of the U.S. relative to
other countries could crater as a result.

This is why a couple years ago when the Republicans were messing with not
extending the debt ceiling was playing with fire. In my opinion it was the
dumbest thing I've ever seen in modern politics, and think of the competition
for that statement. I imagine that the root cause of that foolishness is that
some of the Republican politicians think of a country's debt like it's a
household debt, when they are nothing alike.

------
velodrome
How does Bitcoin work offline? Let's say the world goes to hell (assume
internet has been taken offline) and we need to trade using a form of trusted
currency.

Just curious...

~~~
vit05
How does Dollar work offline? How much do you have in your pants? Because if
the world goes offline, Banks would not have all the "money" necessary to give
it back to people.

~~~
betterunix2
No different from the situation 500 years ago where a fire could destroy
important records and leave countries in chaos. All banks need to do is keep
track of how much money is in everyone's accounts and allow people to transfer
money somehow. They do not need to be able to "give it back to people." Fiat
money could exist on pen-and-paper ledgers too; in fact that was exactly what
the earliest known money was (well, stylus-and-clay as neither pens nor paper
had been invented yet).

If for some reason all our computers simultaneously failed without any
warning, it would obviously be chaos, but at the end of the day the banks
would be in a much better position to recover than anything like Bitcoin.
Banks only use computer networks because they are more efficient than the
alternatives; Bitcoin requires everyone to be online and does not have any
alternatives. The worst thing that would happen if all computers failed
simultaneously is that the banks would lose track of everyone's accounts -- a
general amnesty for debtors and a big loss for people without debts -- and in
the aftermath the banks would just start from scratch using older
technologies.

~~~
aserafini
I'm not sure banks would have an easier time recovering. Bitcoin's entire
blockchain history, and therefore the balance of every wallet is replicated on
thousands of hard disks in every country of the world. It's the ultimate
backup strategy. We could make transactions by hand, based on this
information, if we needed to.

------
jpttsn
Mostly great article. There’s probably a lot of economic history that applies
to cryptocurrency.

The fiat part of the title is just FUD. With the same argument, gold bullion
would be fiat because a majority of humans could decide they don’t like its
shine. Silly Economist.

------
tim333
>it has always been tempting for private finance to create too much money.
There is no evidence that money born on a distributed ledger will be clean of
this sin.

That's not true for Bitcoin, disregarding the various other coins. The supply
is effectively capped and it is economically much more similar to gold where
in the long term the price roughly equals the mining cost to fiat money where
that doesn't apply.

For use as a normal currency bitcoin is probably creating too little money.
For normal currency you want the value to be roughly constant not to double
quite often.

------
jraines
Nowhere in the article does it really support the title. I guess they're
referring mainly to the Ethereum fork?

Even if you accept the proposition, it's still an improvement in that if you
don't like the governance (feels too "fiat" for you, or whatever), you can
instantly convert to any number of other cryptocurrencies, including many that
define themselves essentially in opposition to the reasoning behind the
Ethereum fork.

The author kind of addresses this:

 _You could argue that markets are already deciding which new currencies
provide sound money. And in doing so you would join the banking school of
19th-century England, or the people who loosened financial regulation in the
late 1990s in America._

I don't know about 19th century English banking, but I don't see how anything
in the late 90s or what followed constitutes "the market deciding what
provides sound money". The Asian currency crisis maybe? But that was caused by
bad "fiat" policies, especially pegs, and lack of transparency (SK banks
holding assets rendered bad by the crisis in other countries, for example, and
speculators exploiting this yet-to-be-widespread knowledge).

~~~
stanleydrew
> you can instantly convert to any number of other cryptocurrencies

Assuming someone has built an "instant" method of exchange, and that it is
always available, then I guess this is true.

~~~
jraines
If you mean you don't count existing exchanges, which is fair, there are
decentralized exchanges coming very soon (0xproject.com among others) as well
as atomic swaps:
[https://twitter.com/SatoshiLite/status/910534107058233344](https://twitter.com/SatoshiLite/status/910534107058233344)

~~~
stormbrew
I mean, even if good exchanges exist they can never really guarantee
instantaneous transfer from one to another because there's really no way to
guarantee demand for a cryptocurrency. Hundreds of them have cropped up that
you probably couldn't pay someone to take now, and a rush on one of the big
ones isn't even inconceivable.

~~~
jraines
The failure of, say, the Bolivar does not disprove the value of some other
currency.

But yeah, I guess if you're the last guy trying to get out of e-Bolivars
you're pretty screwed.

------
ptc
Can you actually spend Bitcoin in physical stores outside of the Bay Area?
Bitcoin just seems like an investment vehicle/security rather than a currency.
How many people actually use Bitcoin for buying toilet paper?

~~~
_eht
I can speak for Seattle/WA state-- it is very common to find BTC ATM's in
recreational weed shops. The main driver of this seems to be that the stores
have a near impossible chance of being banked and deal in cash only.

The crypto ATM's allow you to purchase with a CC and in turn pay the store for
product, all while avoiding cash. To the store this is a much safer
alternative.

For the crypto anarchists watching the big banks/fed opening up about their
feelings and fears about crypto, it seems like they are pushing a near billion
dollar industry to find ways to accept payment outside of the beloved USD.

------
gtrubetskoy
Incidentally I just wrote up some thoughts today on what Bitcoin is:
[https://grisha.org/blog/2017/09/22/bitcoin-
value/](https://grisha.org/blog/2017/09/22/bitcoin-value/)

In some way it is fiat, Satoshi's fiat, but that's not the same as USD. The
most puzzling thing is how things like Bitcoin get priced, since it's just a
number, but I haven't finished my research on it yet.

~~~
psyc
In my opinion, you got it exactly right, simply by sticking to "it is a
ledger." The value (not price) of BTC is wholly in the authenticity of who has
what, _and_ that this is backed by distributed consensus rather than states.
BTC demonstrates that the _truth_ about "who has what" is more important than
what the "what" actually is. I think the "what" is simply currency, or the
debt-based value you wrote about. People buy into it by converting other
valued currency, or by doing work, same as ever.

As to the USD price, I am less sure. My weak working hypothesis is that it is
driven by adoption + projected future adoption. That is, how much people value
it means how much they value being in on this particular ledger.

~~~
betterunix2
Personally I would argue that the price of Bitcoin is driven by the same
supply-demand relationship as anything else. Supply is obvious. I personally
think the demand for Bitcoin is driven by its use to make payments in fiat
currencies; most of the people who "accept Bitcoin" do so through a service
that immediately converts it to a fiat currency, and more people are paying
with Bitcoin than are participating in mining (i.e. they just buy the
Bitcoin). Even on the black market this is how people are using Bitcoin: drug
dealers still need to pay their rent, and their landlords almost certainly do
not accept Bitcoin; drug users need to have the money to buy their drugs and
whoever is paying them is almost certainly not doing so with Bitcoin.

(Why are those things almost certain? Consider the scale at which Bitcoin
operates; then take a look at ACH, Swift, Visa, Mastercard, etc. We are
talking about orders of magnitude in difference. For all its gains over the
past few years Bitcoin remains a tiny niche.)

In other words, don't view Bitcoin as money; view it as a system for
transferring money and converting between different countries' money.

------
subroutine
This isnt directly related to the article, but I have two questions about ICO
coins I was hoping someone here could answer. I read that recently a group
raised millions of dollars in less than a minute to fund the creation of a new
web browser.

1\. How are coins valued when the underlying company is building a product it
will never be able to, or never intends to monetize (eg if Wikipedia had an
ICO).

2\. If another company acquires this browser company, what happens to the
coins?

~~~
AlphaWeaver
The coins themselves are valued based on what people are willing to pay for
them. In contrast, when a story claims "a company raised millions of dollars"
it is typically talking about the currency Ether that was PAID to the company
in exchange for the tokens. That is also worth what people are willing to pay
for it, but because Ether has been around longer it has more of an established
value.

If the company is acquired, a number of things could happen. It's important to
note that for the most part, the company doesn't control the coins. They
simply publish a contract that provides for the tokens to function, but
normally the administrative capacities of such a contract are limited once the
sale is over. When administrative capacities do exist, they are typically
controlled by one or more people controlling a particular private key. The
owner of that private key will have control of the contract, so in order for a
company transfer to transfer control, that private key would have to also
transfer. (they'd probably want to redeploy the contract under a different key
anyways since there would be no guarantee the old owner didn't still have a
copy of the old key.)

~~~
subroutine
Ok thanks for the responses.

Say people paid a company called Microhard $30 million in Ether during their
ICO for Microhard coins. Can Ether be readily be exchanged for $30 million
USD?

Assuming it can, and Microsoft acquires Microhard, and has no interest in
crypto doesnt this leave a coin on the market with a name of a business that
doesn’t even exist?

~~~
AgentME
>Say people paid a company called Microhard $30 million in Ether during their
ICO for Microhard coins. Can Ether be readily be exchanged for $30 million
USD?

The trade volume of Ethereum was about $400,000,000 in the last 24 hours[1],
so likely yes. Bitcoin and Ethereum are the two most popular cryptocurrencies.

>Assuming it can, and Microsoft acquires Microhard, and has no interest in
crypto doesnt this leave a coin on the market with a name of a business that
doesn’t even exist?

Yeah. That coin's value will probably drop fast given that its value was
probably based on the anticipated value of it once its supporting product
existed.

[1] [https://coinmarketcap.com/](https://coinmarketcap.com/)

------
ojr
Fiat money with better programming apis and permissions

~~~
SubiculumCode
Bitcoin has no flexibility as a currency. It cannot be manipulated to
stimulate or slow an economy. The growth rate of bitcoin is so slow that it
ensures that the population growth will probably always outstrip bitcoin
growth, severely lowering the number of bitcoins available per capita, leading
to permanent rentiers of the money supply. Also, as lost bitcoin are not
replaced, the supply dwindles further. At some point the pace of losing
bitcoins will out strip the rate of bitcoin creation.

This is not a how a society's currency should work.

~~~
ojr
this is false, Bitcoin has 8 decimal places and could be moved to 16 decimal
places if needed, it is hard to predict how the math will work out in the
future

------
davesque
Doesn't a decentralized ledger have intrinsic value though? The fact that
Bitcoin's value is not based on trust in a third party (a government), but
essentially on the laws of nature (mathematics) seems to give it _actual_
value.

------
veidelis
Bitcoin is fiat money too, but it doesn't make other fiat currencies look
better.

------
ThomPete
And since fiat money at the end of the day is a question of trust thats
exactly right. It just doesn't mean what the economist want it to mean. It
just means, hey there is now another trusted currency.

------
sumedh
> The currency survived a crisis of credibility after a bug was discovered in
> 2016

This is my primary worry with cryptocurrency, what if there is a bug in the
code which do unexpected things and destroy the value completely.

~~~
snappyTertle
This actually happened to Ethereum. They ended up forking the blockchain to
Ethereum and Ethereum Classic.

~~~
lojack
its worth noting that the fork wasn't actually because of a bug in Ethereum,
but because of a bug in a smart contract (the DAO). Ethereum itself worked
perfectly. Bugs do exist in Ethereum and Bitcoin all the time, but they can
almost always be fixed without changing the underlying protocol, so the
clients just need updated.

The fork happened because the community decided the smart contract in question
was important enough to the survival of Ethereum that it'd be worth
essentially backing out the contract (in a roundabout way)

~~~
nebabyte
Correct, with the exception of a few diehards who decided beating the 'blind
adherence to contracts' drum was worth trying to stay on the initial fork and
buy up the useless 'original' fork.

It's* also worth noting that currencies like Ethereum actually fork all the
time. The only worthwhile ones are the forks with mass support, which in Eth's
case is usually the latest one supported by the foundation/Vitalik and in
Bitcoin's case are Core and Cash (the forks supported by Blockstream and the
community fork centered around scaling the block limit, respectively)

Agree with the article title, but the 'fiat' in question is community fiat.

------
simo7
Bitcoin is fiat money with (almost) _constant supply_.

This is the real problem, not it being fiat money. This is what makes it a
terrible currency for trade and a great one for speculation!

------
api
I think we're approaching a trough of disillusionment with cryptocurrency.
There's been a flurry of critical articles, crackdowns, and widespread
disillusionment with crummy ICOs.

~~~
imustbeevil
I don't know if it's a trough or if it's a conclusion.

It's been 8 years now and the use cases for Bitcoin / CC haven't changed. You
can buy illegal things and an incredibly small number of real things you can
also buy with real money. There is nothing you can do with Bitcoin / CC that
you can't do with real money. Nothing you can do that you couldn't do 5 years
ago. Nothing new on the horizon. The only reason Bitcoin exists is because if
you google "bitcoin price" it says a big number. There is nothing in the
ecosystem except that number, and anyone whose entire ego isn't directly tied
to that number has no interest in it.

~~~
lostmsu
Sure it doesn't. Except you can use it to transfer value without first
consulting your potentially totalitarian government without much effort for
the first time in the entire history.

~~~
zzalpha
ROFL, "the first time in the entire history".

Gold would like to have a word with you... And seashells. And giant stone
coins. And on and on and on.

In fact, as far as history goes, government backed fiat currency is a very
recent invention.

~~~
tootie
Government-backed fiat currency is also by far the most successful and most
useful. People object on abstract principle but it's been nothing short of
miraculous for human development.

------
chenster
What is fiat?

~~~
grzm
A _fiat_ is an arbitrary order.

> _Fiat money is a currency without intrinsic value established as money by
> government regulation or law._ [0]

[0]:
[https://en.wikipedia.org/wiki/Fiat_money](https://en.wikipedia.org/wiki/Fiat_money)

------
fiatjaf
How? Bitcoin is a commodity, how can you deny that?

------
SubiculumCode
Bitcoin is a commodity for efficient bartering that has a governance structure
to ensure that the commodity doesn't flood the market and crash prices.

It will become a currency when it can be directly used to satisfy a tax debt,
to avoid the punitive threat of the law.

~~~
drcode
Transaction fees on Bitcoin are essentially a tax, and they can be paid for
with Bitcoin.

~~~
SubiculumCode
A cost, yes, but not a tax. A tax is a debt owed to a state, under threat of
imprisonment for failing to pay.

If you owned only property, but no dollars, you would need to convert some of
your property into dollars to pay the tax, or go to jail.

If you owned only property, but no bitcoins, you would need to convert some of
your property into bitcoins, to use bitcoins.

------
runeks
> They made transactions easier, and in the process created new deposits and
> bills that increased the supply of money.

This is the fundamental misunderstanding that the whole article is based on,
in my opinion. Let me clarify.

Gold and silver were money in this time period. Deposits receipts and bills of
exchange are neither gold nor silver. They are derivatives, because they
derive their value from allegedly being redeemable in gold/silver. Now,
someone issuing either of these derivatives may very well be tempted to issue
fraudulent notes (where “fraudulent” is defined as “no means or intent to
repay in gold/silver), which is where the wonderful idea of “default” comes
in.

When a company is unable to honor its liabilities, it’s in default, and its
assets are distributed amongst its creditors. So a private company (e.g.
certificate of deposit-issuer, bill of exchange-issuer), and therefore its
assets, is forcefully liquidated when it can’t live up to its promises. This
is the solution to the problem. As long as we allow the process of default,
and forced liquidation, the. if a company makes promises it can’t hold, it
dies and disappears from the market.

So, treating issuers of money-derivatives as regular private companies gives
its creditors the ability to force it into liquidation, in case it’s unable to
honor its promises. Except when government grants special privilege to private
companies called “banks”, and make them exempt from living up to their
promises. It’s an understandable reaction from government: short term gain (no
turmoil from default), but a long term pain (private companies with
government-granted freedom to issue fraudulent derivatives).

Capitalism doesn’t work without recognizing the essential function of the
death of a private company. This is the killer feature of capitalism: let
unproductive/downright fraudulent companies die, and hand over their assets to
its stakeholders.

As long as we recognize deposit receipts, bills of exchange, etc. as simply a
promise, and are willing to keep issuers honest, by being able to force
default on the company if it can’t live up to its promises, derivatives and
money are clearly separated. And no one can “increase the supply of money” by
producing derivatives that are allegedly redeemable in this monetary unit, any
more than someone can “increase the supply of oil” by issuing and selling oil
futures contracts.

~~~
erikb
Total misunderstanding imo. A company doesn't default, when it can't uphold
its promises. In fact most companies can't uphold their promises most of the
time. If that would be true 99% of the companies you know would be dead.

A company defaults when a creditor decides to force the company into default,
or a company defaults as punishment to a creditor who really needed the
fulfillment of what they are owed but somehow screwed with the company owner.

And companies aren't there to keep it honest. They are there to keep it
dishonest. In fact it's not myCorp making a promise to yourCorp. It's me
making a promise to you. But piping it through our corps means you can't harm
me for not fulfilling the promise. You can only harm my corp. It's taking the
punishment part out of deal making. I can promise you anything you want to
hear. You can promise me anything I want to hear. And then let's see when our
own goals force us to actually deliver on something.

------
cs702
Yes, of course.

So what?

Just because Bitcoin is fiat money doesn't mean it will fail (or succeed), and
it doesn't mean that it's "good" or "bad" either.

By many measures, fiat money has been a success so far. For example, the
aggregate market cap of fiat money today exceeds Bitcoin's by quite a few
orders of magnitude.[1]

Calling Bitcoin "fiat" ≠ arguing against it.

[1] [http://money.visualcapitalist.com/all-of-the-worlds-money-
an...](http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-
in-one-visualization/)

~~~
burnte
I agree that calling it fiat is not arguing against it, but it's important
because there are a large number of people who are deep in the bitcoin world,
and get infected with a little bit of the Libertarian/gold-standard mentality
that thinks fiat is a bad word. In the end, everything that isn't a direct
barter exchange of usable goods is a fiat currency, because that's the POINT
of an exchange medium; something that everyone agrees is worth something in
order to facilitate trade, it makes life easier. Pointing out that bitcoin is
just as much a fiat currency as the dollar or the euro or gold helps dispel
the misconceptions about currency and helps people learn more about bitcoin
and currency as a whole.

------
smmessner
Definition of fiat

1 :a command or act of will that creates something without or as if without
further effort According to the Bible, the world was created by fiat. 2 :an
authoritative determination :dictate a fiat of conscience 3 :an authoritative
or arbitrary order :decree government by fiat

