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Fiat is money not backed by a commodity. What commodity was it again that backs Bitcoin?

by jrek 5y ago

beaner 5y ago
Fiat means "by decree," I don't think it means anything about being backed by a commodity. Dollars used to be backed by gold and it was still fiat money. Bitcoin is backed by its own scarcity.
- ghostwriter 5y ago
  Fiat money means exactly a government-issued currency not backed by a commodity such as gold. https://www.investopedia.com/terms/f/fiatmoney.asp https://www.investopedia.com/terms/f/fiatmoney.asp
  - beaner 5y ago
    By which definition Bitcoin is still not a "fiat" currency, since it is not government-issued.
  - cblconfederate 5y ago
    That definition is wrong. "by fiat" does not imply a commodity, it was just one of the many alternatives
  - dredmorbius 5y ago
    I'm questioning Investopedia here. Fiat is typically contrasted with commodity or representational currencies. The key element is that fiat has no intrinsic value. It's usually issued by a government, but need not be. The value comes from faith. Bitcoin meets all the qualifications save government issuance. The bits themselves have no value. The currency's value is based on faith in both the underlying computations and in the existence of a market for trading bitcoin. Wikipedia gives the definition "often by government regulation" (implying not necessarily) citing Goldberg, Dror (2005). "Famous Myths of "Fiat Money"". Journal of Money, Credit and Banking. 37 (5): 957–967. doi:10.1353/mcb.2005.0052. JSTOR 3839155. S2CID 54713138.
- jrek 5y ago
  "Dollars used to be backed by gold and it was still fiat money." - This is just plain wrong.
exdsq 5y ago
Technically correct however ‘fiat’ usually means both legal tender and government-backed too
drdeca 5y ago
technically they didn't say that bitcoin wasn't fiat, but that it hedged against massive fiat printing, presumably referring to the fixed issuance schedule.
- georgeplusplus 5y ago
  Why does a fixed issuance schedule give it value? Just because something takes a while to produce does not give something value otherwise I’d be making a killing on my Etsy store Also that fixed schedule will end soon.
  - sowbug 5y ago
    > soon In the year 2140. And the end strengthens the point you're disputing.
    - georgeplusplus 5y ago
      History is on my side here. A currency that can’t be produced anymore doesn’t last long as a currency.
  - drdeca 5y ago
    the idea being that the schedule is known, and therefore, in comparison to something that can change and have large issuance, you can be confident that the particular cause of "because a whole bunch got printed unexpectedly" won't cause it to become devalued, as opposed to other options. Doesn't mean that other things couldn't cause it to be devalued. (and, of course, if the network consensus shifts in a way that changes the issuance rate... though perhaps it wouldn't really "be bitcoin" if that happened.)
    - georgeplusplus 5y ago
      It makes no difference if its a known schedule. A schedule still only matters if it has value to begin with. What exactly does btc solve or bring to the table? People buy it “cause it goes up”. That won’t end well. Feels like a bunch of people buying digits rocks.
randomhodler84 5y ago
Energy. Also Math.
- Closi 5y ago
  Math isn’t a commodity, and it’s not backed by energy as you can’t trade Bitcoins in to get energy back.
  - randomhodler84 5y ago
    Right, it’s more like being backed by a derivative of energy; based on local power prices, seasonal variation and political climate. It’s a strange concept. Redefines “backed”. Backed means ‘security of value’ and this in bitcoin comes from mathematics of cryptography and energy in proof of work.
    - anigbrowl 5y ago
      I've heard this before and tbh I think it's like issuing receipts for 1 (one) barrel of oil that has already been consumed. Like, yeah, someone spent effort making it, but what does that do for me? From a mathematical crypto standpoint it's sorta good, but again what value has been created? It's not like the blockchain is now saving us time and effort in factorization that can be applied to real world problems that would otherwise need to be recalculated regularly, which is a pity. Of course you can truthfully say fiat currencies are totally notional, but as a practical matter the value of a fiat currency reposes economic stability and security offered by whatever government issues it (which may or may not be valued by other people).
    - Closi 5y ago
      That’s not what “backed” means. A backed currency means another entity is willing to guarantee they will trade the currency for something else. In the example of the gold standard, this means the government would exchange dollars for a certain fixed amount of gold. This meant that dollars could be worth more than gold, but theoretically wouldn’t fall below their fixed value in gold, because at that point people would trade them in for the gold. You can’t just redefine backed to mean something that is expensive to produce. If something is expensive to produce it also doesn’t mean it has any intrinsic value. (I’m also not arguing that modern fiat currencies are backed - in fact they are not backed by definition! I just get frustrated by all the fake economic mumbo-jumbo about Bitcoin).

Fiat is money not backed by a commodity. What commodity was it again that backs Bitcoin?

by jrek 5y ago

Fiat is money not backed by a commodity. What commodity was it again that backs Bitcoin?

Fiat means "by decree," I don't think it means anything about being backed by a commodity. Dollars used to be backed by gold and it was still fiat money. Bitcoin is backed by its own scarcity.

ghostwriter 5y ago
Fiat money means exactly a government-issued currency not backed by a commodity such as gold. https://www.investopedia.com/terms/f/fiatmoney.asp https://www.investopedia.com/terms/f/fiatmoney.asp
- beaner 5y ago
  By which definition Bitcoin is still not a "fiat" currency, since it is not government-issued.
- cblconfederate 5y ago
  That definition is wrong. "by fiat" does not imply a commodity, it was just one of the many alternatives
- dredmorbius 5y ago
  I'm questioning Investopedia here. Fiat is typically contrasted with commodity or representational currencies. The key element is that fiat has no intrinsic value. It's usually issued by a government, but need not be. The value comes from faith. Bitcoin meets all the qualifications save government issuance. The bits themselves have no value. The currency's value is based on faith in both the underlying computations and in the existence of a market for trading bitcoin. Wikipedia gives the definition "often by government regulation" (implying not necessarily) citing Goldberg, Dror (2005). "Famous Myths of "Fiat Money"". Journal of Money, Credit and Banking. 37 (5): 957–967. doi:10.1353/mcb.2005.0052. JSTOR 3839155. S2CID 54713138.
jrek 5y ago
"Dollars used to be backed by gold and it was still fiat money." - This is just plain wrong.

exdsq 5y ago

Technically correct however ‘fiat’ usually means both legal tender and government-backed too

drdeca 5y ago

technically they didn't say that bitcoin wasn't fiat, but that it hedged against massive fiat printing, presumably referring to the fixed issuance schedule.

georgeplusplus 5y ago
Why does a fixed issuance schedule give it value? Just because something takes a while to produce does not give something value otherwise I’d be making a killing on my Etsy store Also that fixed schedule will end soon.
- sowbug 5y ago
  > soon In the year 2140. And the end strengthens the point you're disputing.
  - georgeplusplus 5y ago
    History is on my side here. A currency that can’t be produced anymore doesn’t last long as a currency.
- drdeca 5y ago
  the idea being that the schedule is known, and therefore, in comparison to something that can change and have large issuance, you can be confident that the particular cause of "because a whole bunch got printed unexpectedly" won't cause it to become devalued, as opposed to other options. Doesn't mean that other things couldn't cause it to be devalued. (and, of course, if the network consensus shifts in a way that changes the issuance rate... though perhaps it wouldn't really "be bitcoin" if that happened.)
  - georgeplusplus 5y ago
    It makes no difference if its a known schedule. A schedule still only matters if it has value to begin with. What exactly does btc solve or bring to the table? People buy it “cause it goes up”. That won’t end well. Feels like a bunch of people buying digits rocks.

randomhodler84 5y ago

Energy. Also Math.

Closi 5y ago
Math isn’t a commodity, and it’s not backed by energy as you can’t trade Bitcoins in to get energy back.
- randomhodler84 5y ago
  Right, it’s more like being backed by a derivative of energy; based on local power prices, seasonal variation and political climate. It’s a strange concept. Redefines “backed”. Backed means ‘security of value’ and this in bitcoin comes from mathematics of cryptography and energy in proof of work.
  - anigbrowl 5y ago
    I've heard this before and tbh I think it's like issuing receipts for 1 (one) barrel of oil that has already been consumed. Like, yeah, someone spent effort making it, but what does that do for me? From a mathematical crypto standpoint it's sorta good, but again what value has been created? It's not like the blockchain is now saving us time and effort in factorization that can be applied to real world problems that would otherwise need to be recalculated regularly, which is a pity. Of course you can truthfully say fiat currencies are totally notional, but as a practical matter the value of a fiat currency reposes economic stability and security offered by whatever government issues it (which may or may not be valued by other people).
  - Closi 5y ago
    That’s not what “backed” means. A backed currency means another entity is willing to guarantee they will trade the currency for something else. In the example of the gold standard, this means the government would exchange dollars for a certain fixed amount of gold. This meant that dollars could be worth more than gold, but theoretically wouldn’t fall below their fixed value in gold, because at that point people would trade them in for the gold. You can’t just redefine backed to mean something that is expensive to produce. If something is expensive to produce it also doesn’t mean it has any intrinsic value. (I’m also not arguing that modern fiat currencies are backed - in fact they are not backed by definition! I just get frustrated by all the fake economic mumbo-jumbo about Bitcoin).