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Cryptocurrency is backed by the same thing as any other currency: popularity and consumer confidence. Whether such sentiments are "warranted" or "deserved" is a

Cryptocurrency is backed by the same thing as any other currency: popularity and consumer confidence. Whether such sentiments are "warranted" or "deserved" is a subjective matter, but that is irrelevant to determining its economic influence - enough people have invested in it for network effects to all but guarantee its continued relevance.

imtringued 5y ago
Most fiat currencies are backed by the fact that people made themselves liable to accept that currency. It's a literal "I owe you". A restaurant owner promises to work to earn money, the bank gives the restaurant owner money via a loan. The money is spent on a bigger restaurant, the construction workers who built the restaurant get the money and they can then go to the restaurant and pay to eat there. They don't have to worry whether their shiny rock is currently worth something. The restaurant owner has a loan he wants to repay. He'll gladly take your money. At the end of the day it is just delayed barter. Except, nothing forces people to spend their money so the barter transaction may never conclude which allows economic imbalances to build up over the short term which violentely resolve themselves through a crash. Inflation could be interpreted as a tiny crash every year that rebalances transactions made in the economy.
thoughtstheseus 5y ago
The one exception is when you go to pay your taxes.
civilized 5y ago
> Cryptocurrency is backed by the same thing as any other currency: popularity and consumer confidence. I don't think currency is just a confidence game. The most important thing is that the currency is actually used to make transactions that are meaningful to human life. A currency that isn't used to exchange goods is just a collectible. There is no such thing as an abstract "store of value" that has no actual utility other than as a store of value. Crypto will fail when people tire of owning the collectible and want to exchange it for something useful.
- civilized 5y ago
  I suppose I should mention a data point that might go against my own thesis: the performance of gold. While gold has some legitimate uses in jewelry and technology, its price in recent years seems to be driven mostly by financial speculation, the same "store of value" theory that drives crypto. I think this theory is nonsense but it's true that if enough people believe it, it can become sort-of-true for a while, until it's not anymore.
  - imtringued 5y ago
    It's nonsense because if you sell your potatoes for gold, why would you be able to get those potatoes back 30 years later? The sad answer is population growth. The optimistic answer is that the person ate the potatoes which gave him the strength to harvest potatoes in 30 years. The realistic answer is that you should have no expectation that you ever get any potatoes back as the potatoes have spoiled and nobody is exerting additional energy to counteract the loss.
- StanislavPetrov 5y ago
  >The most important thing is that the currency is actually used to make transactions that are meaningful to human life. Millions of people use cryptocurrency on a daily basis to make transactions that are not only meaningful, but absolutely critical to human life. Here in New York I personally know more than a dozen people who regularly send cryptocurrency to their families in other countries. It is cheaper, easier and faster than using banks and legacy money transfer vehicles like Moneygram or Western Union and it has the added bonus of not being saddled with the red tape or regulatory requirements that go along with these institutions. Here's one personal anecdote. Several years ago I attempted to send a small amount of money ($50) to a friend in Ecuador via Moneygram. When my friend went to pick up the money, it wasn't there, so I called Moneygram. They proceeded to ask me a series of questions about why I sent the money, who I was sending it to, and a variety of other intrusive questions that (in my opinion) they have absolutely no right to ask. If I had sent that money in crypto, I would have paid less of a fee and had confidence it would arrive without going through the third degree by a middle man. I find that wealthy people, those with deep ties to traditional banking systems and those who don't value their privacy are the ones who have the biggest problem understanding the value in cryptocurrency. They don't see the need to operate outside of a system that works very well for them. For many, the system doesn't work well, or efficiently, and crypto offers a valuable alternative.
lifekaizen 5y ago
I'm on the pro-crypto side, but the US dollar has more than consumer confidence, it has the largest armed forces the world has ever seen. So a better comparison is something like gold, I think, that has value because we say it has value (it's shiny! and rare...)... which is fine, just different.
- JohnFen 5y ago
  I'm not "anti-crypto", but reason that I won't touch it is that it's not stable. With dollars, I know that the money will have a roughly constant value across time. Cryptocurrencies do the opposite of that. By the measure of stability, gold is also preferable to crytocurrency. If I were a speculator, that instability would be attractive. But I'm not.
  - landemva 5y ago
    Then you also avoid the equities markets and you stick to bonds denominated in your home currency. T-bills are useful for some people.
  - scalesolved 5y ago
    The dollar hasn't had a roughly constant value across time, perhaps on short time periods.
belltaco 5y ago
You mean speculator confidence.
mohanmcgeek 5y ago
> the same thing as any other currency: popularity and consumer confidence Real money is backed by your obligation to pay taxes in that currency.. not popularity or confidence.
- DennisP 5y ago
  People manage to come up with mediums of exchange even in the absence of taxing governments.
  - JohnFen 5y ago
    When has there been a government that doesn't tax?
    - DennisP 5y ago
      My claim is that currencies don't depend on taxation in that currency. Many areas today have local currencies, which are not accepted by any government for taxes. Prisoners use things like cigarettes as currency. On the island of Yap they used giant stones, which nobody attempted to tax. According to David Graeber, money actually arose as an abstraction of debts. You can have debts between people without having taxes.
      - mohanmcgeek 5y ago
        > Prisoners use things like cigarettes as currency This didn't happen in a society that didn't have money. Prisoners have an approximate idea of how much a cigarate is worth in dollar terms and how much they're willing to pay for..a phone call (?) > David Graeber, money actually arose as an abstraction of debts Yes. I think you're drawing the wrong conclusions from that chapter of the book. The money that we have today is an IOU from the reserve bank which is backed by an iou by the government. And since taxes are essentially a form of debt on the citizen's part, you pay taxes and all this should cancel out. Needless to say, none of these ponzi coins are of this design

imtringued 5y ago

Most fiat currencies are backed by the fact that people made themselves liable to accept that currency. It's a literal "I owe you". A restaurant owner promises to work to earn money, the bank gives the restaurant owner money via a loan. The money is spent on a bigger restaurant, the construction workers who built the restaurant get the money and they can then go to the restaurant and pay to eat there. They don't have to worry whether their shiny rock is currently worth something. The restaurant owner has a loan he wants to repay. He'll gladly take your money. At the end of the day it is just delayed barter. Except, nothing forces people to spend their money so the barter transaction may never conclude which allows economic imbalances to build up over the short term which violentely resolve themselves through a crash. Inflation could be interpreted as a tiny crash every year that rebalances transactions made in the economy.

thoughtstheseus 5y ago

The one exception is when you go to pay your taxes.

civilized 5y ago

> Cryptocurrency is backed by the same thing as any other currency: popularity and consumer confidence. I don't think currency is just a confidence game. The most important thing is that the currency is actually used to make transactions that are meaningful to human life. A currency that isn't used to exchange goods is just a collectible. There is no such thing as an abstract "store of value" that has no actual utility other than as a store of value. Crypto will fail when people tire of owning the collectible and want to exchange it for something useful.

civilized 5y ago
I suppose I should mention a data point that might go against my own thesis: the performance of gold. While gold has some legitimate uses in jewelry and technology, its price in recent years seems to be driven mostly by financial speculation, the same "store of value" theory that drives crypto. I think this theory is nonsense but it's true that if enough people believe it, it can become sort-of-true for a while, until it's not anymore.
- imtringued 5y ago
  It's nonsense because if you sell your potatoes for gold, why would you be able to get those potatoes back 30 years later? The sad answer is population growth. The optimistic answer is that the person ate the potatoes which gave him the strength to harvest potatoes in 30 years. The realistic answer is that you should have no expectation that you ever get any potatoes back as the potatoes have spoiled and nobody is exerting additional energy to counteract the loss.
StanislavPetrov 5y ago
>The most important thing is that the currency is actually used to make transactions that are meaningful to human life. Millions of people use cryptocurrency on a daily basis to make transactions that are not only meaningful, but absolutely critical to human life. Here in New York I personally know more than a dozen people who regularly send cryptocurrency to their families in other countries. It is cheaper, easier and faster than using banks and legacy money transfer vehicles like Moneygram or Western Union and it has the added bonus of not being saddled with the red tape or regulatory requirements that go along with these institutions. Here's one personal anecdote. Several years ago I attempted to send a small amount of money ($50) to a friend in Ecuador via Moneygram. When my friend went to pick up the money, it wasn't there, so I called Moneygram. They proceeded to ask me a series of questions about why I sent the money, who I was sending it to, and a variety of other intrusive questions that (in my opinion) they have absolutely no right to ask. If I had sent that money in crypto, I would have paid less of a fee and had confidence it would arrive without going through the third degree by a middle man. I find that wealthy people, those with deep ties to traditional banking systems and those who don't value their privacy are the ones who have the biggest problem understanding the value in cryptocurrency. They don't see the need to operate outside of a system that works very well for them. For many, the system doesn't work well, or efficiently, and crypto offers a valuable alternative.

lifekaizen 5y ago

I'm on the pro-crypto side, but the US dollar has more than consumer confidence, it has the largest armed forces the world has ever seen. So a better comparison is something like gold, I think, that has value because we say it has value (it's shiny! and rare...)... which is fine, just different.

JohnFen 5y ago
I'm not "anti-crypto", but reason that I won't touch it is that it's not stable. With dollars, I know that the money will have a roughly constant value across time. Cryptocurrencies do the opposite of that. By the measure of stability, gold is also preferable to crytocurrency. If I were a speculator, that instability would be attractive. But I'm not.
- landemva 5y ago
  Then you also avoid the equities markets and you stick to bonds denominated in your home currency. T-bills are useful for some people.
- scalesolved 5y ago
  The dollar hasn't had a roughly constant value across time, perhaps on short time periods.

belltaco 5y ago

You mean speculator confidence.

mohanmcgeek 5y ago

> the same thing as any other currency: popularity and consumer confidence Real money is backed by your obligation to pay taxes in that currency.. not popularity or confidence.

DennisP 5y ago
People manage to come up with mediums of exchange even in the absence of taxing governments.
- JohnFen 5y ago
  When has there been a government that doesn't tax?
  - DennisP 5y ago
    My claim is that currencies don't depend on taxation in that currency. Many areas today have local currencies, which are not accepted by any government for taxes. Prisoners use things like cigarettes as currency. On the island of Yap they used giant stones, which nobody attempted to tax. According to David Graeber, money actually arose as an abstraction of debts. You can have debts between people without having taxes.
    - mohanmcgeek 5y ago
      > Prisoners use things like cigarettes as currency This didn't happen in a society that didn't have money. Prisoners have an approximate idea of how much a cigarate is worth in dollar terms and how much they're willing to pay for..a phone call (?) > David Graeber, money actually arose as an abstraction of debts Yes. I think you're drawing the wrong conclusions from that chapter of the book. The money that we have today is an IOU from the reserve bank which is backed by an iou by the government. And since taxes are essentially a form of debt on the citizen's part, you pay taxes and all this should cancel out. Needless to say, none of these ponzi coins are of this design