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>The value of fiat currency comes purely from the wealth that it represents, with a stability guarantee provided by things like tax revenues being denominated i

>The value of fiat currency comes purely from the wealth that it represents, with a stability guarantee provided by things like tax revenues being denominated in that currency. This is wrong or at least woefully incomplete. The value of a fiat (or any) currency comes from its utility as (1) a medium of exchange (2) a store of value and (3) a unit of account. If few people use a currency for buying or selling real (and legal) goods or services then it is a ineffective medium of exchange. If a currency is not legal tender (to your point) it may also be ineffective as a medium of exchange. Try paying your taxes with Bitcoin. Won't work. Bitcoin is not a stable store of value. (so 2 is not satisfied). You can not reliably store a certain fixed amount of purchasing power in your Bitcoin savings (Hodlings) for future use at an arbitrary future time. (3) Bitcoin is not a unit of account in any general sense. Goods and services are not priced in Bitcoin units. Thus Bitcoin fails the three prong test of whether an instrument may be considered a currency. If Bitcoin is not a currency, which it manifestly is not why don't we stop calling it one? Ok so it is an asset then? Right? Not really. An asset is something of tangible use and durable value something that can be subject to property rights. What is the use of Bitcoin? Can you live on the block chain? Can you sue other people if they steal your Bitcoin (e.g. is Bitcoin intellectual property?). No actually the only value in Bitcoin is that maybe you can find somebody who will pay a higher price (in dollars) than what you paid. Thus if Bitcoin claims to be an asset it is a fraudulent asset. Fundamental since Bitcoin has no physical underlying asset it is just a number. Nobody can own numbers. Nothing prevents anybody from duplicating a number. In fact this has happened multiple times when the blockchain forks. See Bitcoin Cash, etc.

antonvs 5y ago
> The value of a fiat (or any) currency comes from... You're incorrectly parroting a definition without understanding it. The items you listed are the functions that a currency needs to provide. They are not the source of its value, they're preconditions for it being able to have value in the first place. The only possible source for the value of a widely-used currency is the wealth that it represents. That's what money is: an abstract representation of wealth, that can be used in all the ways you described. Once you understand that fundamental fact, you'll find it much easier to understand other things about money, and you'll be better able to understand why the "intrinsic value" or "underlying real asset" of a currency is an essentially irrelevant property. The rest of your comment goes off at a tangent about what Bitcoin is. For that discussion, try r/bitcoin on reddit.
- morpheos137 5y ago
  >The only possible source for the value of a widely-used currency is the wealth that it represents. I disagree and I think most economists would too. You provided a tautologic "definition." I would say a currency has value as a currency iff it meets the three criteria that define a currency. These have to do with utility or fungibility not representation. A currency has value because it is useful as (1), (2), (3). A currency is defined by its use and functions. You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful. I think you don't understand what a currency is.
  - antonvs 5y ago
    What I'm describing is what any economist would tell you. You made your misunderstanding clear when you write this: > You provided a tautologic "definition." No, I didn't. Money itself is not "real" wealth. It's an agreed-on abstraction which is used to represent wealth. It's a measure of wealth, in the "unit of account" sense. Wealth exists in the form of things like property, other tangible assets, the output of services, etc. To understand this better, consider a barter economy. Someone might trade a cow for some swords or whatever. The cow and the swords are assets which have value because they're useful to someone. But not every asset is useful to everyone. I have no use for a cow or a sword, but some people do. This makes it difficult for pure barter systems to work well, because the assets I have may be of no use to the people who have assets that I want to trade for, and vice versa. Money solves this problem. It is used to represent wealth. Typically via a market system, assets are valued in terms of an amount of money. This allows people to trade assets for money without having to match assets that both sides are interested in. Once you understand this basic fact, a lot of economics follows quite obviously. For example, it become clear that the amount of money in a society needs to grow to match the underlying wealth (total assets) in that society, otherwise the value of money will either increase (deflation - prices drop making money more valuable) or decrease (inflation - prices increases making money less valuable). This is why central banks pay attention to, and manage, the money supply. Bringing this back to crypto, we can use this fundamental understanding to understand why cryptos like Bitcoin are deflationary: since they have a limited supply, as the amount of wealth they represent increases, the value of the currency has to increase. > I would say a currency has value as a currency iff it meets the three criteria that define a currency. You can say that, but it's pointless because you're not using "value" in the economic sense. It's more accurate and less misleading just to say that some instrument can serve as a currency if it meets those criteria. Your description doesn't help explain how much actual economic value a currency has. To find that out, you need to look at how much underlying wealth it represents. > A currency has value because it is useful as (1), (2), (3). You could say "it is possible for a currency to have value because..." But that doesn't help you identify how valuable it is. > You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful. That's the point. Money has to actually represent real wealth for it to have value. Its value is largely determined by how much real, non-money wealth it represents. > I think you don't understand what a currency is. You've been reading definitions without a full understanding of the bigger picture.

antonvs 5y ago

> The value of a fiat (or any) currency comes from... You're incorrectly parroting a definition without understanding it. The items you listed are the functions that a currency needs to provide. They are not the source of its value, they're preconditions for it being able to have value in the first place. The only possible source for the value of a widely-used currency is the wealth that it represents. That's what money is: an abstract representation of wealth, that can be used in all the ways you described. Once you understand that fundamental fact, you'll find it much easier to understand other things about money, and you'll be better able to understand why the "intrinsic value" or "underlying real asset" of a currency is an essentially irrelevant property. The rest of your comment goes off at a tangent about what Bitcoin is. For that discussion, try r/bitcoin on reddit.

morpheos137 5y ago
>The only possible source for the value of a widely-used currency is the wealth that it represents. I disagree and I think most economists would too. You provided a tautologic "definition." I would say a currency has value as a currency iff it meets the three criteria that define a currency. These have to do with utility or fungibility not representation. A currency has value because it is useful as (1), (2), (3). A currency is defined by its use and functions. You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful. I think you don't understand what a currency is.
- antonvs 5y ago
  What I'm describing is what any economist would tell you. You made your misunderstanding clear when you write this: > You provided a tautologic "definition." No, I didn't. Money itself is not "real" wealth. It's an agreed-on abstraction which is used to represent wealth. It's a measure of wealth, in the "unit of account" sense. Wealth exists in the form of things like property, other tangible assets, the output of services, etc. To understand this better, consider a barter economy. Someone might trade a cow for some swords or whatever. The cow and the swords are assets which have value because they're useful to someone. But not every asset is useful to everyone. I have no use for a cow or a sword, but some people do. This makes it difficult for pure barter systems to work well, because the assets I have may be of no use to the people who have assets that I want to trade for, and vice versa. Money solves this problem. It is used to represent wealth. Typically via a market system, assets are valued in terms of an amount of money. This allows people to trade assets for money without having to match assets that both sides are interested in. Once you understand this basic fact, a lot of economics follows quite obviously. For example, it become clear that the amount of money in a society needs to grow to match the underlying wealth (total assets) in that society, otherwise the value of money will either increase (deflation - prices drop making money more valuable) or decrease (inflation - prices increases making money less valuable). This is why central banks pay attention to, and manage, the money supply. Bringing this back to crypto, we can use this fundamental understanding to understand why cryptos like Bitcoin are deflationary: since they have a limited supply, as the amount of wealth they represent increases, the value of the currency has to increase. > I would say a currency has value as a currency iff it meets the three criteria that define a currency. You can say that, but it's pointless because you're not using "value" in the economic sense. It's more accurate and less misleading just to say that some instrument can serve as a currency if it meets those criteria. Your description doesn't help explain how much actual economic value a currency has. To find that out, you need to look at how much underlying wealth it represents. > A currency has value because it is useful as (1), (2), (3). You could say "it is possible for a currency to have value because..." But that doesn't help you identify how valuable it is. > You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful. That's the point. Money has to actually represent real wealth for it to have value. Its value is largely determined by how much real, non-money wealth it represents. > I think you don't understand what a currency is. You've been reading definitions without a full understanding of the bigger picture.