4 ms·
Bitcoin doesn't offer that confidence, though. No currency does, fiat or otherwise. The confidence in a currency comes entirely from the economy that develops
by cube13 15y ago
Bitcoin doesn't offer that confidence, though. No currency does, fiat or otherwise. The confidence in a currency comes entirely from the economy that develops around the currency. In other words, the power of a currency comes from what it can be used for, not it's scarcity. If you cannot use Bitcoins, USD, or any other currency, they are worthless.
For example, if an overwhelming majority of people with bitcoins(or USD) decides tomorrow to not ever use them again, then the remainder that have them are screwed. If the places that the currency can be uses cease to exist, the currency is worthless. There isn't any technical solution to this problem, the economy just ceases to exist. Obviously, this is an extreme case, but it's entirely possible that this can happen with any currency over an extended period of time if it doesn't catch on, or if investors lose confidence in the currency itself.
- marssaxman 15y agoSure. Certainly. But that is true of any currency. The novelty in bitcoin is that it enforces scarcity, and thus limits inflation, without depending on a central issuing agent. Part of what it means to have confidence in a currency is to be reasonably sure that its inflation will be limited to a rate that allows you to exchange your currency tokens before they are drained of value. Passing the hot potato, etc. With a fiat currency that confidence is based on nothing more than your beliefs about the central issuing agent's likely future actions. What's new with bitcoin is that there is no central authority who can decide what the inflation rate should be. The inflation rate is built into the mathematical definition of the currency, and it is self-limiting: the more work people put into mining bitcoins, the longer it takes to find new ones. This is not true of any existing currency, and is in fact an improvement on existing currencies. Even if we don't all end up deciding to build an economy around bitcoin, this is an important achievement, something future currency designers ought to make note of.
- tzs 15y agoWhat's to stop some economically significant entity (like a government) from starting a new Bitcoin-like pool of coins, with different parameters? This would allow them to control the overall supply of digital currency.