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The reason why fiat currencies are stable is because they are backed by governments. Governments who can collect taxes, set monetary policy through central bank

The reason why fiat currencies are stable is because they are backed by governments. Governments who can collect taxes, set monetary policy through central banks and mints, control inflation through various means, and so on. Recoveries from periods of instability usually involve massive efforts from governments to do all of those things better. Virtual currencies generally lack all of those mechanisms, so transitioning from "trust the protocol" to "trust the people in charge" is a huge and risky step.

mdasen 10y ago
Going off this, let's say I'm paid in Bitcoin and think the US Dollar is dumb. I still owe taxes in US Dollars and if taxes are 20-50% of what I spend money on in the world, then I'm going to have to use the US Dollar whether I want to or not. That gives the fiat currency weight - someone that is a third of my budget will only accept payment in it. That's what a virtual currency lacks - someone that is a large portion of your spending that won't accept any other currency as payment. The US government is a large portion of my spending and won't accept non-USD payments. The fact that you need to pay the government money in the currency they mandate means you'll use their currency. That guarantees users. For a virtual currency, there's no one demanding that I use it - at least no one that's a significant portion of my life that I can't avoid. So, I can easily leave and never come back. But if I lose faith in the US Dollar, I still need a significant portion of my income in dollars to give to the government.
- russell_h 10y ago
  I'm not sure that paying (US) taxes is a good example. The effort required to buy some virtual currency is insignificant compared to the effort required to file a tax return.
  - FatalLogic 10y ago
    Yes, but US citizens are also legally compelled to file a tax return if their income is above about $10,000 to $15,000. So that effort is a sunk cost for many people.
- hkjgkjy 10y ago
  > That's what a virtual currency lacks - someone that is a large portion of your spending that won't accept any other currency as payment. Not if you're addicted to mail-order drugs that is!

mdasen 10y ago

Going off this, let's say I'm paid in Bitcoin and think the US Dollar is dumb. I still owe taxes in US Dollars and if taxes are 20-50% of what I spend money on in the world, then I'm going to have to use the US Dollar whether I want to or not. That gives the fiat currency weight - someone that is a third of my budget will only accept payment in it. That's what a virtual currency lacks - someone that is a large portion of your spending that won't accept any other currency as payment. The US government is a large portion of my spending and won't accept non-USD payments. The fact that you need to pay the government money in the currency they mandate means you'll use their currency. That guarantees users. For a virtual currency, there's no one demanding that I use it - at least no one that's a significant portion of my life that I can't avoid. So, I can easily leave and never come back. But if I lose faith in the US Dollar, I still need a significant portion of my income in dollars to give to the government.

russell_h 10y ago
I'm not sure that paying (US) taxes is a good example. The effort required to buy some virtual currency is insignificant compared to the effort required to file a tax return.
- FatalLogic 10y ago
  Yes, but US citizens are also legally compelled to file a tax return if their income is above about $10,000 to $15,000. So that effort is a sunk cost for many people.
hkjgkjy 10y ago
> That's what a virtual currency lacks - someone that is a large portion of your spending that won't accept any other currency as payment. Not if you're addicted to mail-order drugs that is!