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Fiat is backed by weapons. The same weapons that defend your house from other countries and force you to give up half your salary. My main criticism to cryptoc

Fiat is backed by weapons. The same weapons that defend your house from other countries and force you to give up half your salary. My main criticism to cryptocurrencies is that they're mostly unbacked. The ones that are backed by Fiat have similar problems to Fiat currency (why would I need that?), the ones that are backed by physical assets are much more interesting - but they don't seem to be the mainstream ones, probably because you can't speculate on it. This makes me think cryptocurrencies are mainly about speculation more than rebelling against governments and central banks.

qez 5y ago
> My main criticism to cryptocurrencies is that they're mostly unbacked. The fact of a currency being "backed" by something went away in 1933. No currency is "backed". > This makes me think cryptocurrencies are mainly about speculation more than rebelling against governments and central banks. Yeah, they are about speculation. Whether investing in crypto rather than some other financial asset constitutes "rebelling" is subjective.
- caoilte 5y ago
  Fiat currencies are mostly "backed" by the necessity to pay taxes and other government fees using them. The US Dollar has the additional advantage of being the currency through which most large financial trade transactions are required to be paid. Ultimately, however, this backing is mostly possible through the unexpressed coercive threat of legal action and ultimately force.
nipponese 5y ago
And not just any weapons but thousands of strategic and tactical nuclear weapons.
michaelscott 5y ago
> Fiat is backed by weapons. The same weapons that defend your house from other countries and force you to give up half your salary This is a very American view of fiat (and governmental role in general). It's a logic that only works if you're talking about the strongest military and associated country out of all alternatives, and at this point it falls apart. How do weapons protect the value of the Angolan kwanza or the Singaporean dollar? Neither of these countries could do anything militarily if a sizeable number of countries did not support their value.
- TheCoelacanth 5y ago
  Do Angola and Singapore not have police that enforce that their residents pay their tax bills?
  - michaelscott 5y ago
    Irrelevant. These currencies are traded on forex exchanges outside their native countries, which means outside the jurisdiction of said police.
- EvilEy3 5y ago
  They don't need sizeable number of countries. Only one major one.
- reader_mode 5y ago
  > Neither of these countries could do anything militarily if a sizeable number of countries did not support their value. That kwanza exchange graph looks like it has nothing backing it. If you doubt his point go look at Ukrainian hryvnia exchange rates graph, try to guess at which point Crimea thing happened.
- rustybelt 5y ago
  Any government that only accepts payment for taxes or other obligations in their own currency is backing their currency with the force of law and creating real demand for it.
atemerev 5y ago
While in Switzerland we do have some weapons, it is not like Swiss franc is backed by our army, which is purely defensive. And, in fact, here you can pay municipal and cantonal taxes with cryptocurrencies.
- md_ 5y ago
  I think the parent is talking about chartalism (https://en.wikipedia.org/wiki/Chartalism https://en.wikipedia.org/wiki/Chartalism), which is essentially the idea that fiat currencies derive their value from the fact that taxes must be paid in them. A sort of "just so" story about this would go something like (with much credit to David Graeber): "Way back when, some Assyrian king got the great idea to, instead of giving their soldiers food and drink, give their soldiers tokens. They would then demand a certain number of those tokens per head from their subjects. Suddenly the tokens have value, and the subjects are put to work selling goods and services to the army." I'm not an expert on this theory, but there are potential oddities, similar to your points: * This would suggest the value of the currency is closely tied to the total taxation. (Why, for example, is the Swiss Franc highly valued by investors outside of Switzerland?) I guess you could validate or invalidate this by looking at whether the ratio of M2 to annual tax revenue is somewhat fixed (across currencies) or quite fluid? * This fails to explain currencies which retain value after they are no longer in use by a central government (as with the Somali shilling, as noted in the Wikipedia article) or, indeed, Bitcoin. Personally, my sense is that chartalism is correct as an explanation for one way to bootstrap a currency, but clearly (as Bitcoin shows) is not the only way to bootstrap a currency, and once you create a level of reliable demand, you no longer need it (hence the Somali shilling or, perhaps, the high valuation of the CHF outside of Swiss taxpayers).
  - jokethrowaway 5y ago
    I think the value of a currency comes from the creditworthiness of the country issuing it. If someone nuked the USA and burn down the entire USA army and economy, the dollar wouldn't have much value. The USA army protects the states. Switzerland, as per parent's post, has defense agreements with other countries. The likelihood of Switzerland being attacked or destroyed is also very low. What would the international community think of a country attacking Switzerland? If I started my own country in the middle of the ocean and started issuing my own currency it would be worthless. Maybe if I do some trade deals and a defense agreement with some other country it would start having some value. The difference with BTC is that there is no-one defending BTC with weapons. It can all be banned tomorrow if global governments think it would be good to do so. Similarly, I can spin my own fork of BTC and achieve similar technology advance as BTC.
_tshin_ 5y ago
Stablecoins have opened up some interesting ideas about what it means to be backed/unbacked; even ones that are stablised/pegged algorithmically: https://www.theancientbabylonians.com/what-is-terra-luna/ https://www.theancientbabylonians.com/what-is-terra-luna/ has a good summary
wyager 5y ago
> Fiat is backed by weapons. This is one of the most hilarious misunderstandings of how monetization works. Is someone from the army going to come shoot me if I charge too many USD for a hamburger?
- quesera 5y ago
  > Fiat is backed by weapons. I interpret this to mean: The major fiat currencies are ultimately backed by their respective government's willingness to use war to preserve their economic interests. The other fiat currencies are based on the level of mutual interest in economic partnerships or trade relations between the majors and the non-majors. ... This is intuitively sensible to me, but I am not an economist.
  - X6S1x6Okd1st 5y ago
    Also more prosaically force is used to prevent anyone from counterfeiting Fiat currency. In the US that was why the secret service was created. Obviously if anyone could print USD it'd be near worthless.
- hencq 5y ago
  No, but someone from the police will show up if you don't pay your taxes in USD.
  - wyager 5y ago
    Great, so there’s guaranteed to be enough demand for USD to pay tax obligations, which probably represents like 3% of its other sources of demand.
    - caoilte 5y ago
      38% of US spending is by the government. In case you hadn't noticed they spend their money in US dollars.
      - 5y ago
Blikkentrekker 5y ago
Various valued materials that are valued only for their rarity are similarly unbacked, and also mined.
- adventured 5y ago
  Most prominent metals have considerable industrial use, which makes those metals valuable, and makes them de facto backed in a big way (by the demand for them). Bitcoin has modest industrial/economic use, at present (and obviously other cryptos may present different advantages in that regard, given time). You also can't physically wear Bitcoin and show off status, unlike Gold, Silver and Platinum. If gold gets cheap enough people will use it in their wallpaper because humans have an insatiable demand for luxury goods. That will never change. It's why people still adorn themselves with sparkly rocks and shiny metals after 20,000 years of supposed evolution and refinement. The store of value argument for Bitcoin is fully legitimate; as are the arguments for building potent economic uses on top of blockchains. There's no reason humans can't invent superior stores of value, and ever better transaction & contract systems. However, those various valued physical metals are not unbacked. Bitcoin is unbacked, and it can be replaced by other coins in the near future, coins that are technologically superior for storing value, and so on. The properties that we like metals for, industrially, make them difficult to replace in most cases; the demand - at an industrial minimum - will remain for a long time to come accordingly. And the human population keeps expanding (~80m per year), the odds are zero the next two billion people will suddenly stop having any interest in wearing/owning gold as a status symbol, and that puts an enormous demand factor under gold (on top of the fact that the median has gotten richer, so their demand for luxury goods has skyrocketed; see: China 1990-2020). Try mining new sums of scarce metals, or any metals for that matter. Try inventing a new metal. Now try cloning Bitcoin or Litecoin. Trivial, relatively speaking. There are thousands of bullshit crypto clones, and there will be thousands more to come. Bitcoin is temporarily special due to acceptance. There is little industrial demand under that fickleness however, which means Bitcoin can easily fall out of favor, exchanged for the next popular fad coin that people decide is the better way to store value (click, click, you just converted your Bitcoin over to the next more popular coin, byebye Bitcoin; now try that process with physical metals that you need for manufacturing purposes).
bko 5y ago
> Fiat is backed by weapons. What does this mean? It's the currency of a country that has weapons. If someone steals my USD, will US use their weapons to get it back for me? If the value of their currency drops substantially, will they go to war with some unknown power that's causing this drop and reverse the change? Countries also change currencies, often during times of inflation. This is an effectively meaningless statement
- mandelbrotwurst 5y ago
  > If the value of their currency drops substantially, will they go to war with some unknown power that's causing this drop and reverse the change? They might - that’s essentially what the U.S. has done (or, at least, did for a while) when other nations tried to break the petrodollar system.
  - bko 5y ago
    Good point, but this isn't really a good thing :-/
- thirdplace_ 5y ago
  > What does this mean? I have found that viewing money as a regular good eases the thought process. The price of money is regulated by demand and supply. Most of the demand comes because government requires taxes to be paid in the fiat money. Also because businesses are required to accept fiat as payment.
- throwawayffffas 5y ago
  The argument is that every year the us government will demand you pay a certain amount in USD (taxes). If you fail to comply men with guns (the police) will arrest you and put you in prison.
- TheCoelacanth 5y ago
  The weapons are for using against their own residents. US residents need to pay taxes in USD. If they don't, weapons will be used to force them to pay (most pay voluntarily, but if they escalate far enough, the weapons will come out). That means US residents need to acquire USD and are willing to trade valuable assets to do so. That makes USD valuable to US residents. US residents own many valuable non-fiat assets, so non-US residents know that they will be able to find a US resident who will trade them something valuable in exchange. That makes USD valuable to non-US residents. The same thing is true of more or less every fiat currency that has a non-negligible value.

qez 5y ago

> My main criticism to cryptocurrencies is that they're mostly unbacked. The fact of a currency being "backed" by something went away in 1933. No currency is "backed". > This makes me think cryptocurrencies are mainly about speculation more than rebelling against governments and central banks. Yeah, they are about speculation. Whether investing in crypto rather than some other financial asset constitutes "rebelling" is subjective.

caoilte 5y ago
Fiat currencies are mostly "backed" by the necessity to pay taxes and other government fees using them. The US Dollar has the additional advantage of being the currency through which most large financial trade transactions are required to be paid. Ultimately, however, this backing is mostly possible through the unexpressed coercive threat of legal action and ultimately force.

nipponese 5y ago

And not just any weapons but thousands of strategic and tactical nuclear weapons.

michaelscott 5y ago

> Fiat is backed by weapons. The same weapons that defend your house from other countries and force you to give up half your salary This is a very American view of fiat (and governmental role in general). It's a logic that only works if you're talking about the strongest military and associated country out of all alternatives, and at this point it falls apart. How do weapons protect the value of the Angolan kwanza or the Singaporean dollar? Neither of these countries could do anything militarily if a sizeable number of countries did not support their value.

TheCoelacanth 5y ago
Do Angola and Singapore not have police that enforce that their residents pay their tax bills?
- michaelscott 5y ago
  Irrelevant. These currencies are traded on forex exchanges outside their native countries, which means outside the jurisdiction of said police.
EvilEy3 5y ago
They don't need sizeable number of countries. Only one major one.
reader_mode 5y ago
> Neither of these countries could do anything militarily if a sizeable number of countries did not support their value. That kwanza exchange graph looks like it has nothing backing it. If you doubt his point go look at Ukrainian hryvnia exchange rates graph, try to guess at which point Crimea thing happened.
rustybelt 5y ago
Any government that only accepts payment for taxes or other obligations in their own currency is backing their currency with the force of law and creating real demand for it.

atemerev 5y ago

While in Switzerland we do have some weapons, it is not like Swiss franc is backed by our army, which is purely defensive. And, in fact, here you can pay municipal and cantonal taxes with cryptocurrencies.

md_ 5y ago
I think the parent is talking about chartalism (https://en.wikipedia.org/wiki/Chartalism https://en.wikipedia.org/wiki/Chartalism), which is essentially the idea that fiat currencies derive their value from the fact that taxes must be paid in them. A sort of "just so" story about this would go something like (with much credit to David Graeber): "Way back when, some Assyrian king got the great idea to, instead of giving their soldiers food and drink, give their soldiers tokens. They would then demand a certain number of those tokens per head from their subjects. Suddenly the tokens have value, and the subjects are put to work selling goods and services to the army." I'm not an expert on this theory, but there are potential oddities, similar to your points: * This would suggest the value of the currency is closely tied to the total taxation. (Why, for example, is the Swiss Franc highly valued by investors outside of Switzerland?) I guess you could validate or invalidate this by looking at whether the ratio of M2 to annual tax revenue is somewhat fixed (across currencies) or quite fluid? * This fails to explain currencies which retain value after they are no longer in use by a central government (as with the Somali shilling, as noted in the Wikipedia article) or, indeed, Bitcoin. Personally, my sense is that chartalism is correct as an explanation for one way to bootstrap a currency, but clearly (as Bitcoin shows) is not the only way to bootstrap a currency, and once you create a level of reliable demand, you no longer need it (hence the Somali shilling or, perhaps, the high valuation of the CHF outside of Swiss taxpayers).
- jokethrowaway 5y ago
  I think the value of a currency comes from the creditworthiness of the country issuing it. If someone nuked the USA and burn down the entire USA army and economy, the dollar wouldn't have much value. The USA army protects the states. Switzerland, as per parent's post, has defense agreements with other countries. The likelihood of Switzerland being attacked or destroyed is also very low. What would the international community think of a country attacking Switzerland? If I started my own country in the middle of the ocean and started issuing my own currency it would be worthless. Maybe if I do some trade deals and a defense agreement with some other country it would start having some value. The difference with BTC is that there is no-one defending BTC with weapons. It can all be banned tomorrow if global governments think it would be good to do so. Similarly, I can spin my own fork of BTC and achieve similar technology advance as BTC.

_tshin_ 5y ago

Stablecoins have opened up some interesting ideas about what it means to be backed/unbacked; even ones that are stablised/pegged algorithmically: https://www.theancientbabylonians.com/what-is-terra-luna/ https://www.theancientbabylonians.com/what-is-terra-luna/ has a good summary

wyager 5y ago

> Fiat is backed by weapons. This is one of the most hilarious misunderstandings of how monetization works. Is someone from the army going to come shoot me if I charge too many USD for a hamburger?

quesera 5y ago
> Fiat is backed by weapons. I interpret this to mean: The major fiat currencies are ultimately backed by their respective government's willingness to use war to preserve their economic interests. The other fiat currencies are based on the level of mutual interest in economic partnerships or trade relations between the majors and the non-majors. ... This is intuitively sensible to me, but I am not an economist.
- X6S1x6Okd1st 5y ago
  Also more prosaically force is used to prevent anyone from counterfeiting Fiat currency. In the US that was why the secret service was created. Obviously if anyone could print USD it'd be near worthless.
hencq 5y ago
No, but someone from the police will show up if you don't pay your taxes in USD.
- wyager 5y ago
  Great, so there’s guaranteed to be enough demand for USD to pay tax obligations, which probably represents like 3% of its other sources of demand.
  - caoilte 5y ago
    38% of US spending is by the government. In case you hadn't noticed they spend their money in US dollars.
    - 5y ago

Blikkentrekker 5y ago

Various valued materials that are valued only for their rarity are similarly unbacked, and also mined.

adventured 5y ago
Most prominent metals have considerable industrial use, which makes those metals valuable, and makes them de facto backed in a big way (by the demand for them). Bitcoin has modest industrial/economic use, at present (and obviously other cryptos may present different advantages in that regard, given time). You also can't physically wear Bitcoin and show off status, unlike Gold, Silver and Platinum. If gold gets cheap enough people will use it in their wallpaper because humans have an insatiable demand for luxury goods. That will never change. It's why people still adorn themselves with sparkly rocks and shiny metals after 20,000 years of supposed evolution and refinement. The store of value argument for Bitcoin is fully legitimate; as are the arguments for building potent economic uses on top of blockchains. There's no reason humans can't invent superior stores of value, and ever better transaction & contract systems. However, those various valued physical metals are not unbacked. Bitcoin is unbacked, and it can be replaced by other coins in the near future, coins that are technologically superior for storing value, and so on. The properties that we like metals for, industrially, make them difficult to replace in most cases; the demand - at an industrial minimum - will remain for a long time to come accordingly. And the human population keeps expanding (~80m per year), the odds are zero the next two billion people will suddenly stop having any interest in wearing/owning gold as a status symbol, and that puts an enormous demand factor under gold (on top of the fact that the median has gotten richer, so their demand for luxury goods has skyrocketed; see: China 1990-2020). Try mining new sums of scarce metals, or any metals for that matter. Try inventing a new metal. Now try cloning Bitcoin or Litecoin. Trivial, relatively speaking. There are thousands of bullshit crypto clones, and there will be thousands more to come. Bitcoin is temporarily special due to acceptance. There is little industrial demand under that fickleness however, which means Bitcoin can easily fall out of favor, exchanged for the next popular fad coin that people decide is the better way to store value (click, click, you just converted your Bitcoin over to the next more popular coin, byebye Bitcoin; now try that process with physical metals that you need for manufacturing purposes).

bko 5y ago

> Fiat is backed by weapons. What does this mean? It's the currency of a country that has weapons. If someone steals my USD, will US use their weapons to get it back for me? If the value of their currency drops substantially, will they go to war with some unknown power that's causing this drop and reverse the change? Countries also change currencies, often during times of inflation. This is an effectively meaningless statement

mandelbrotwurst 5y ago
> If the value of their currency drops substantially, will they go to war with some unknown power that's causing this drop and reverse the change? They might - that’s essentially what the U.S. has done (or, at least, did for a while) when other nations tried to break the petrodollar system.
- bko 5y ago
  Good point, but this isn't really a good thing :-/
thirdplace_ 5y ago
> What does this mean? I have found that viewing money as a regular good eases the thought process. The price of money is regulated by demand and supply. Most of the demand comes because government requires taxes to be paid in the fiat money. Also because businesses are required to accept fiat as payment.
throwawayffffas 5y ago
The argument is that every year the us government will demand you pay a certain amount in USD (taxes). If you fail to comply men with guns (the police) will arrest you and put you in prison.
TheCoelacanth 5y ago
The weapons are for using against their own residents. US residents need to pay taxes in USD. If they don't, weapons will be used to force them to pay (most pay voluntarily, but if they escalate far enough, the weapons will come out). That means US residents need to acquire USD and are willing to trade valuable assets to do so. That makes USD valuable to US residents. US residents own many valuable non-fiat assets, so non-US residents know that they will be able to find a US resident who will trade them something valuable in exchange. That makes USD valuable to non-US residents. The same thing is true of more or less every fiat currency that has a non-negligible value.