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Luna crashed because people lost trust in it. The only reason people have trust in BTC is because other people have trust in it. If that ever changed, there is

Luna crashed because people lost trust in it. The only reason people have trust in BTC is because other people have trust in it. If that ever changed, there is no actual use for a BTC, and they are thus intrinsically worthless. Fiat currency has the backing of a government. The government demands certain payments of this currency in order to own land, and also for some extra rights like mineral extraction, fishing licenses etc. Thus, as long as the government is viable and can confiscate the land of those who don't pay, there will be demand for the currency, and it will be proportional to the value the government assigns to the property and the rate of tax. Thus, the currency is stable, because you know at the end of the day, there will always be a buyer who needs to pay their taxes.

eric_cc 4y ago
> Luna crashed because people lost trust in it. No. It crashed because trillions of tokens were created rendering each token worthless.
- snovv_crash 4y ago
  Then why did the total Luna market cap go down? Surely if people still had trust it should have just diluted the token values?
  - orangepurple 4y ago
    Both can be true
    - kristopolous 4y ago
      That's not the point here. It's behaviorist. Prices stay changed because the beliefs change. If people had thought this was a sane and reasonable move that didn't really affect things the price would quickly return despite the quantity increasing. The believed durability of the token changed No matter what strategy is to be used to try to repeg it, it will only work if there's faith in the price. Price isn't a thing it's a relationship between people about a thing
      - orangepurple 4y ago
        Price is the expected resale value of a good or service
- namdnay 4y ago
  You have the chronology wrong. The tokens were created because the price kept slipping, and the more the price slipped the more tokens were printed, the more people panicked etc
- seoaeu 4y ago
  You have it backwards. The trillions of tokens were created because people lost trust in it. Specifically, the loss of trust instigated the price drop from $1 to ~98¢. That's what started the collapse. Only afterwards did the "death spiral" of minting of more tokens, which degraded trust, which decreased the price, which drove more minting, etc. happen
  - stickfigure 4y ago
    There were two coins involved; the overprinting of Luna corresponded with lost confidence in UST. The obvious conclusion is that "algorithmic" stablecoins are bullshit. Whatever fate lies ahead for Bitcoin, it doesn't have this particular weakness. It's not "leveraged" in the same way as Luna/UST.
  - lfmunoz4 4y ago
  - nwiswell 4y ago
    It's chicken and egg. People lost trust because they knew people losing trust would cause a death spiral, and they wanted to get out before everyone else. It was a fire in a crowded theater. Bitcoin depends on trust, yes, but there's no Damoclean sword like there was for Luna. Some people losing confidence does not necessarily lead to others losing confidence.
    - _carbyau_ 4y ago
      Like toilet paper in a COVID pandemic... people were acting not because of the item itself, but because they knew how "the crowd" would react - a self-fulfilling prophecy.
- asimjalis 4y ago
  Why were these trillions of tokens created? Wouldn’t that naturally lead to the token’s devaluation?
junofan 4y ago
I don’t understand your argument. What happens during hyperinflationary periods or other currency collapses? The government stops demanding payments?
- snovv_crash 4y ago
  Monetary supply outstrips the government's ability to collect on it. It is usually done on purpose to benefit some ruling individuals or for strategic reasons to zero the value of a country's debt. But I challenge you to find any example where the hyperinflation didn't make sense to pursue to the people in charge of the money supply.
Strom 4y ago
Bitcoin also has the backing of a government - El Salvador. I would rather argue though that even government backed currencies are fully dependant on trust, not government usage of it. Just check out any government currency hyperinflation event.
- dmitrygr 4y ago
  yup... https://www.datacenterdynamics.com/en/news/el-salvador-risks-defaulting-on-debt-amid-bitcoin-crash/ https://www.datacenterdynamics.com/en/news/el-salvador-risks...
  - jimmydorry 4y ago
    From the article, El Salvador has been cut off from financial markets by two of the ratings agencies that played a pivotal role in the corruption that caused the 2008 GFC to happen. Their reason for cutting El Salvador off is because their debt to GDP is approaching 87% (a fraction of what other countries have run up, especially due to COVID). The IMF (International Monetary Fund) which typically steps in to offer predatory financing terms, already outlined their demands: drop Bitcoin support. So El Salvador really must have gone all into Bitcoin, right? Yes, somewhere between 25million to 73million dollars worth (in contrast to their 800million dollar bond or the ~6billion dollars they raise in taxes each year [1]). Oh the horror. There is definitely no geopolitical maneuverings here. /s [1] Government Revenues in El Salvador increased to 6037.70 USD Million in 2021 from 4894.30 USD Million in 2020 https://tradingeconomics.com/el-salvador/government-revenues#:~:text=Government%20Revenues%20in%20El%20Salvador%20averaged%202709.54%20USD%20Million%20from,583.80%20USD%20Million%20in%201990 https://tradingeconomics.com/el-salvador/government-revenues....
    - ImPostingOnHN 4y ago
      if bitcoin constitutes an insignificant portion of their activities, why would they oppose such a term?
      - jimmydorry 4y ago
samatman 4y ago
To be perfectly clear, you're claiming with a straight face that government issued currencies are stable because there will always be a buyer who needs to pay taxes? Any reasonable definition of stability precludes hyperinflation, we agree on that right?
- iaw 4y ago
  Historically government backed currencies are are stable because they have two underlying components: an economy denominated in the currency and an implicit threat of force (e.g. standing militaries). It's one of the reasons the US dollar is the chief reserve currency around the world as well as the denomination in which oil is traded in. You need dollars not because people have faith in them but because people have faith in the underlying institutions they represent. It's fine to claim you back bitcoin because you don't have faith in the traditional institutions but pretending that those institutions don't support dollars in a way that crypto/bitcoin isn't seems a little near-sighted.
- imtringued 4y ago
  Yes it would preclude hyperinflation. Of course, now we should ask ourselves what kind of situation results in the government having to spend more money into the economy than it is receiving back. Oh right, by not taxing those who have money. Money that doesn't circulate doesn't pay taxes. If you keep money in your bank account forever that money will never be taxed, the government will never see that money again. It must run a deficit, not because it is stupid, it must run a deficit because it is actively subsidizing an influential part of the economy and any refusal to pay the subsidy is harshly rejected not just by the rich but also by the poor. The fact that inflation is the escape hatch for loss aversion psychology tells you that everyone on this planet is actively choosing for there to be inflation or even hyperinflation instead of a negative interest rate. People will argue how immoral it is for a bank to tell you that your physical capital is slowly depreciating and thus even a 0% interest rate would be too high to offer to you. No, that would violate the principle of private property, private property of coupons that represent the time of other people, who are slowly aging and paying opportunity costs. People think they deserve to own the time of other people as if they were cattle or slaves. After all, their freedom to not be a debt slave violates your right to private property which is a far more pressing matter, after all the psychological bias of loss aversion justifies any hideous act (note how I didn't refer to immoral acts, as many hideous acts are considered moral).
rubyfan 4y ago
A better argument might be fiat currency is stable because governments hold a monopoly on violence. But governments can be poorly run so I suppose “stable” is not the right word.
- cma 4y ago
  An ad-hoc system of local warlords who take power isn't more stable, even with a blockchain.
  - imtringued 4y ago
    What people refuse to believe is that a currency is actually a reflection of the real world. Yes there is some filtering going on and time lags can be huge but any well managed currency is only going to perform as well as the real economy.
- chii 4y ago
  > But governments can be poorly run so I suppose “stable” is not the right word. no, but the currency belonging to a particular gov't is as stable as the gov't itself, so your statement is still true; vis a vis the Zimbabwe currency vs the US dollar.
- deleted 4y ago
  [deleted]
whatshisface 4y ago
Fiat currency does not actually have the backing of a government. What could the UK do when the pound peg broke? Nothing but lose enormous amounts of money trying to hold it.
- squidbeak 4y ago
  It could leave the Exchange Rate Mechanism which created the conditions for the run. And it did. Fiat currency always has the backing of a government, as 'fiat' suggests.
  - whatshisface 4y ago
    When the UK ended the ERM, they stopped backing the currency. The UK does not back the pound, the pound does whatever the market wants it to do.
    - lottin 4y ago
      Not entirely. Central banks try to ensure price stability via monetary policy.
- neltnerb 4y ago
  What scenario involves the UK losing an enormous amount of money would be one where they are attempting to "hold a peg"? I'm confused. Countries manipulate their currency supply in various ways in order to make their money cheaper or more expensive, I get that. But I thought the main goal was to keep exports or imports to a good balance to avoid wrecking a real economy. Like, actual people's lifestyles and jobs and well-being, beyond just the value of an investment instrument I'm not sure I see the metaphor holding up here, isn't the issue that came up an arbitrage opportunity caused by a peg that in the real world doesn't really exist or which is easy for actual human beings to intervene in? Are you describing what Russia did? Did they "lose money" with the actions they actually took? It seemed more about adding rules and changing contracts than by spending money on anything in particular, I'm not sure how one would calculate how much money they lost doing it. Or if that's a useful way to think about it really even, nations just have so many other priorities and their money policy is not at all algorithmic...
BurningFrog 4y ago
There are plenty of fiat currencies, backed by stable governments, that have become completely worthless. The Zimbabwean Dollar is the most famous one this century. There are plenty others. This fully disproves your argument, as far as I can see.

eric_cc 4y ago

> Luna crashed because people lost trust in it. No. It crashed because trillions of tokens were created rendering each token worthless.

snovv_crash 4y ago
Then why did the total Luna market cap go down? Surely if people still had trust it should have just diluted the token values?
- orangepurple 4y ago
  Both can be true
  - kristopolous 4y ago
    That's not the point here. It's behaviorist. Prices stay changed because the beliefs change. If people had thought this was a sane and reasonable move that didn't really affect things the price would quickly return despite the quantity increasing. The believed durability of the token changed No matter what strategy is to be used to try to repeg it, it will only work if there's faith in the price. Price isn't a thing it's a relationship between people about a thing
    - orangepurple 4y ago
      Price is the expected resale value of a good or service
namdnay 4y ago
You have the chronology wrong. The tokens were created because the price kept slipping, and the more the price slipped the more tokens were printed, the more people panicked etc
seoaeu 4y ago
You have it backwards. The trillions of tokens were created because people lost trust in it. Specifically, the loss of trust instigated the price drop from $1 to ~98¢. That's what started the collapse. Only afterwards did the "death spiral" of minting of more tokens, which degraded trust, which decreased the price, which drove more minting, etc. happen
- stickfigure 4y ago
  There were two coins involved; the overprinting of Luna corresponded with lost confidence in UST. The obvious conclusion is that "algorithmic" stablecoins are bullshit. Whatever fate lies ahead for Bitcoin, it doesn't have this particular weakness. It's not "leveraged" in the same way as Luna/UST.
- lfmunoz4 4y ago
- nwiswell 4y ago
  It's chicken and egg. People lost trust because they knew people losing trust would cause a death spiral, and they wanted to get out before everyone else. It was a fire in a crowded theater. Bitcoin depends on trust, yes, but there's no Damoclean sword like there was for Luna. Some people losing confidence does not necessarily lead to others losing confidence.
  - _carbyau_ 4y ago
    Like toilet paper in a COVID pandemic... people were acting not because of the item itself, but because they knew how "the crowd" would react - a self-fulfilling prophecy.
asimjalis 4y ago
Why were these trillions of tokens created? Wouldn’t that naturally lead to the token’s devaluation?

junofan 4y ago

I don’t understand your argument. What happens during hyperinflationary periods or other currency collapses? The government stops demanding payments?

snovv_crash 4y ago
Monetary supply outstrips the government's ability to collect on it. It is usually done on purpose to benefit some ruling individuals or for strategic reasons to zero the value of a country's debt. But I challenge you to find any example where the hyperinflation didn't make sense to pursue to the people in charge of the money supply.

Strom 4y ago

Bitcoin also has the backing of a government - El Salvador. I would rather argue though that even government backed currencies are fully dependant on trust, not government usage of it. Just check out any government currency hyperinflation event.

dmitrygr 4y ago
yup... https://www.datacenterdynamics.com/en/news/el-salvador-risks-defaulting-on-debt-amid-bitcoin-crash/ https://www.datacenterdynamics.com/en/news/el-salvador-risks...
- jimmydorry 4y ago
  From the article, El Salvador has been cut off from financial markets by two of the ratings agencies that played a pivotal role in the corruption that caused the 2008 GFC to happen. Their reason for cutting El Salvador off is because their debt to GDP is approaching 87% (a fraction of what other countries have run up, especially due to COVID). The IMF (International Monetary Fund) which typically steps in to offer predatory financing terms, already outlined their demands: drop Bitcoin support. So El Salvador really must have gone all into Bitcoin, right? Yes, somewhere between 25million to 73million dollars worth (in contrast to their 800million dollar bond or the ~6billion dollars they raise in taxes each year [1]). Oh the horror. There is definitely no geopolitical maneuverings here. /s [1] Government Revenues in El Salvador increased to 6037.70 USD Million in 2021 from 4894.30 USD Million in 2020 https://tradingeconomics.com/el-salvador/government-revenues#:~:text=Government%20Revenues%20in%20El%20Salvador%20averaged%202709.54%20USD%20Million%20from,583.80%20USD%20Million%20in%201990 https://tradingeconomics.com/el-salvador/government-revenues....
  - ImPostingOnHN 4y ago
    if bitcoin constitutes an insignificant portion of their activities, why would they oppose such a term?
    - jimmydorry 4y ago

samatman 4y ago

To be perfectly clear, you're claiming with a straight face that government issued currencies are stable because there will always be a buyer who needs to pay taxes? Any reasonable definition of stability precludes hyperinflation, we agree on that right?

iaw 4y ago
Historically government backed currencies are are stable because they have two underlying components: an economy denominated in the currency and an implicit threat of force (e.g. standing militaries). It's one of the reasons the US dollar is the chief reserve currency around the world as well as the denomination in which oil is traded in. You need dollars not because people have faith in them but because people have faith in the underlying institutions they represent. It's fine to claim you back bitcoin because you don't have faith in the traditional institutions but pretending that those institutions don't support dollars in a way that crypto/bitcoin isn't seems a little near-sighted.
imtringued 4y ago
Yes it would preclude hyperinflation. Of course, now we should ask ourselves what kind of situation results in the government having to spend more money into the economy than it is receiving back. Oh right, by not taxing those who have money. Money that doesn't circulate doesn't pay taxes. If you keep money in your bank account forever that money will never be taxed, the government will never see that money again. It must run a deficit, not because it is stupid, it must run a deficit because it is actively subsidizing an influential part of the economy and any refusal to pay the subsidy is harshly rejected not just by the rich but also by the poor. The fact that inflation is the escape hatch for loss aversion psychology tells you that everyone on this planet is actively choosing for there to be inflation or even hyperinflation instead of a negative interest rate. People will argue how immoral it is for a bank to tell you that your physical capital is slowly depreciating and thus even a 0% interest rate would be too high to offer to you. No, that would violate the principle of private property, private property of coupons that represent the time of other people, who are slowly aging and paying opportunity costs. People think they deserve to own the time of other people as if they were cattle or slaves. After all, their freedom to not be a debt slave violates your right to private property which is a far more pressing matter, after all the psychological bias of loss aversion justifies any hideous act (note how I didn't refer to immoral acts, as many hideous acts are considered moral).

rubyfan 4y ago

A better argument might be fiat currency is stable because governments hold a monopoly on violence. But governments can be poorly run so I suppose “stable” is not the right word.

cma 4y ago
An ad-hoc system of local warlords who take power isn't more stable, even with a blockchain.
- imtringued 4y ago
  What people refuse to believe is that a currency is actually a reflection of the real world. Yes there is some filtering going on and time lags can be huge but any well managed currency is only going to perform as well as the real economy.
chii 4y ago
> But governments can be poorly run so I suppose “stable” is not the right word. no, but the currency belonging to a particular gov't is as stable as the gov't itself, so your statement is still true; vis a vis the Zimbabwe currency vs the US dollar.
deleted 4y ago
[deleted]

whatshisface 4y ago

Fiat currency does not actually have the backing of a government. What could the UK do when the pound peg broke? Nothing but lose enormous amounts of money trying to hold it.

squidbeak 4y ago
It could leave the Exchange Rate Mechanism which created the conditions for the run. And it did. Fiat currency always has the backing of a government, as 'fiat' suggests.
- whatshisface 4y ago
  When the UK ended the ERM, they stopped backing the currency. The UK does not back the pound, the pound does whatever the market wants it to do.
  - lottin 4y ago
    Not entirely. Central banks try to ensure price stability via monetary policy.
neltnerb 4y ago
What scenario involves the UK losing an enormous amount of money would be one where they are attempting to "hold a peg"? I'm confused. Countries manipulate their currency supply in various ways in order to make their money cheaper or more expensive, I get that. But I thought the main goal was to keep exports or imports to a good balance to avoid wrecking a real economy. Like, actual people's lifestyles and jobs and well-being, beyond just the value of an investment instrument I'm not sure I see the metaphor holding up here, isn't the issue that came up an arbitrage opportunity caused by a peg that in the real world doesn't really exist or which is easy for actual human beings to intervene in? Are you describing what Russia did? Did they "lose money" with the actions they actually took? It seemed more about adding rules and changing contracts than by spending money on anything in particular, I'm not sure how one would calculate how much money they lost doing it. Or if that's a useful way to think about it really even, nations just have so many other priorities and their money policy is not at all algorithmic...

BurningFrog 4y ago

There are plenty of fiat currencies, backed by stable governments, that have become completely worthless. The Zimbabwean Dollar is the most famous one this century. There are plenty others. This fully disproves your argument, as far as I can see.