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It is accepted because it is needed. Everybody needs it to pay taxes, other than that it has no value.

by berns 11y ago

mrb 11y ago
No, plenty of things have value even though you can't use them to pay taxes. The kiwi fruit has value. Why? Because people want them, yet kiwis are not strictly speaking NEEDED. Again, what gives value to things is that people want them, no matter what the reason.
- berns 11y ago
  We were talking about fiat currency.
  - mrb 11y ago
    But there is no difference between kiwi fruits or fiat currencies: people wanting them is what gives them value. In the case of bitcoins, people want them not to pay taxes, but because cryptocurrencies offer benefits that only them can provide, so people see value in that.
    - dllthomas 11y ago
      A difference in the case of any currency, fiat or otherwise, is that a huge part of the reason people want them is an expectation that others will want them tomorrow.
    - berns 11y ago
      Fiat currency is just a number. Who would want a number? It's taxes that create demand. The problem with the supposed usefulness of bitcoins is that the interesting part is the technology, but the numbers are irrelevant. You can make a transaction for 1 bitcoin just the same that you can make it for 0.0001 bitcoin. Now matter how you dice it, ultimately the number has no real value.
      - mrb 11y ago
        Taxes are just one small part of the demand. The economy makes up the rest of the demand, and it accounts for a much larger share. Even companies that are not US-based and do not pay US taxes can and do demand US dollars, eg. a Chinese company exporting goods to the US and receiving payments in dollars. The US government income (federal, state and local taxes) was $1 trillion in 1988 [1]. I picked this year because it is hard to find up-to-date data for the next number: the amount of dollar transactions was estimated at $1.7 trillion per day in 1988 [2]; this is $620 trillion per year. So taxes represented only 0.16% of all dollar transactions. At most you can argue that 0.16% of the value of the dollar comes from its use to pay taxes, but the bulk of its value comes from the economy using 99.84% of it. Still not convinced? Here is a thought experiment. What if for every dollar owed in taxes, the government asked to be paid instead 1 grain of rice? Would it suddenly make the dollar worthless? No! People would continue using it because many other people already use it to transact trillion of dollars every year. They know it is a liquid asset that can be exchanged for anything, and this is what gives it value. [1] https://books.google.com/books?id=POjfDvabbpwC&pg=PA1&lpg=PA1&dq=US+Government+Taxes+and+Revenue+1988&source=bl&ots=QK8_45uKQ9&sig=j8IOEh5HbZj-90GtsRcgeulbbl0&hl=en&sa=X&redir_esc=y#v=onepage&q=US%20Government%20Taxes%20and%20Revenue%201988&f=false https://books.google.com/books?id=POjfDvabbpwC&pg=PA1&lpg=PA... [2] https://books.google.com/books?id=F8DSBwAAQBAJ&pg=PA144&lpg=PA144&dq=us+stock+market+billion+transacted+per+day&source=bl&ots=bCLF2zW5o9&sig=bhBryUkreD_3-5oIMdZyFtTJoJ8&hl=en&sa=X&ved=0CDcQ6AEwBWoVChMIrvDR-Nz6yAIVATCmCh0ayw2S#v=onepage&q=us%20stock%20market%20billion%20transacted%20per%20day&f=false https://books.google.com/books?id=F8DSBwAAQBAJ&pg=PA144&lpg=...
        berns 11y ago
        Comparing the sum of economic transactions to government income is not relevant. Just as with anything in economy you have to think in the margins (marginal demand, marginal tax rate, etc.) I'm not saying that taxes are the only demand. USD has value! It doesn't matter if you are Chinese! I have another thought experiment: imagine that the US (or any other country, you can think of a small country as it will be more evident) decides to issue a second currency, but you can't pay federal taxes with it and there is no fixed exchange rate to the USD (notice that it's not a bond, it has no maturity). In any case, there is no need for thought experiments with bitcoin. Reality will show you and me if bitcoin has any sustenance. I think it's an amazing technology, but bitcoins themselves have no value (in the long term).

It is accepted because it is needed. Everybody needs it to pay taxes, other than that it has no value.

by berns 11y ago

It is accepted because it is needed. Everybody needs it to pay taxes, other than that it has no value.

mrb 11y ago

No, plenty of things have value even though you can't use them to pay taxes. The kiwi fruit has value. Why? Because people want them, yet kiwis are not strictly speaking NEEDED. Again, what gives value to things is that people want them, no matter what the reason.

berns 11y ago
We were talking about fiat currency.
- mrb 11y ago
  But there is no difference between kiwi fruits or fiat currencies: people wanting them is what gives them value. In the case of bitcoins, people want them not to pay taxes, but because cryptocurrencies offer benefits that only them can provide, so people see value in that.
  - dllthomas 11y ago
    A difference in the case of any currency, fiat or otherwise, is that a huge part of the reason people want them is an expectation that others will want them tomorrow.
  - berns 11y ago
    Fiat currency is just a number. Who would want a number? It's taxes that create demand. The problem with the supposed usefulness of bitcoins is that the interesting part is the technology, but the numbers are irrelevant. You can make a transaction for 1 bitcoin just the same that you can make it for 0.0001 bitcoin. Now matter how you dice it, ultimately the number has no real value.
    - mrb 11y ago
      Taxes are just one small part of the demand. The economy makes up the rest of the demand, and it accounts for a much larger share. Even companies that are not US-based and do not pay US taxes can and do demand US dollars, eg. a Chinese company exporting goods to the US and receiving payments in dollars. The US government income (federal, state and local taxes) was $1 trillion in 1988 [1]. I picked this year because it is hard to find up-to-date data for the next number: the amount of dollar transactions was estimated at $1.7 trillion per day in 1988 [2]; this is $620 trillion per year. So taxes represented only 0.16% of all dollar transactions. At most you can argue that 0.16% of the value of the dollar comes from its use to pay taxes, but the bulk of its value comes from the economy using 99.84% of it. Still not convinced? Here is a thought experiment. What if for every dollar owed in taxes, the government asked to be paid instead 1 grain of rice? Would it suddenly make the dollar worthless? No! People would continue using it because many other people already use it to transact trillion of dollars every year. They know it is a liquid asset that can be exchanged for anything, and this is what gives it value. [1] https://books.google.com/books?id=POjfDvabbpwC&pg=PA1&lpg=PA1&dq=US+Government+Taxes+and+Revenue+1988&source=bl&ots=QK8_45uKQ9&sig=j8IOEh5HbZj-90GtsRcgeulbbl0&hl=en&sa=X&redir_esc=y#v=onepage&q=US%20Government%20Taxes%20and%20Revenue%201988&f=false https://books.google.com/books?id=POjfDvabbpwC&pg=PA1&lpg=PA... [2] https://books.google.com/books?id=F8DSBwAAQBAJ&pg=PA144&lpg=PA144&dq=us+stock+market+billion+transacted+per+day&source=bl&ots=bCLF2zW5o9&sig=bhBryUkreD_3-5oIMdZyFtTJoJ8&hl=en&sa=X&ved=0CDcQ6AEwBWoVChMIrvDR-Nz6yAIVATCmCh0ayw2S#v=onepage&q=us%20stock%20market%20billion%20transacted%20per%20day&f=false https://books.google.com/books?id=F8DSBwAAQBAJ&pg=PA144&lpg=...
      - berns 11y ago
        Comparing the sum of economic transactions to government income is not relevant. Just as with anything in economy you have to think in the margins (marginal demand, marginal tax rate, etc.) I'm not saying that taxes are the only demand. USD has value! It doesn't matter if you are Chinese! I have another thought experiment: imagine that the US (or any other country, you can think of a small country as it will be more evident) decides to issue a second currency, but you can't pay federal taxes with it and there is no fixed exchange rate to the USD (notice that it's not a bond, it has no maturity). In any case, there is no need for thought experiments with bitcoin. Reality will show you and me if bitcoin has any sustenance. I think it's an amazing technology, but bitcoins themselves have no value (in the long term).