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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, no

by 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
      One of their largest industries (up there with tourism) is remittance processing (mostly for out of the US) denominated in US dollars. Most of their local economy operates on US dolar too, which means accepting Bitcoin everywhere offers some significant advantages: 1. Not being beholden to the whims of American banks and the American government 2. Less administrative overhead would mean being able to offer more competitive services with lower fees [1] 3. Being Bitcoin friendly would attract more crypto oriented industries to be based out of their country: offering a wider market to tap into (global remittances) [1] "Last year, they collectively transferred nearly $6 billion, or roughly 23% of the country’s gross domestic product, and a chunk of that went to the middlemen facilitating these international transfers." https://www.cnbc.com/2021/09/09/el-salvador-bitcoin-move-could-cost-western-union-400-million-a-year.html https://www.cnbc.com/2021/09/09/el-salvador-bitcoin-move-cou...
      - lottin 4y ago
        > One of their largest industries (up there with tourism) is remittance processing What percentage of El Salvador's GDP does remittance processing represent?
        jimmydorry 4y ago
        As I mentioned in my comment above (from the article) ~23%.
        lottin 4y ago
        Sorry, I didn't see it. 23% of GDP is the value of the remittances that enter the country. This does not mean that remittance processing (which is an economic activity) represents 23% of GDP. Remittance processing is likely a tiny fraction of GDP, since it's a low value added activity.
nradov 4y ago
El Salvador is a failed state about to default on its national debt. It's not a real "government" in the way that most of us would define the term.
- Strom 4y ago
  What criteria of the definition doesn't El Salvador fulfill?
  - deleted 4y ago
    [deleted]
  - filoleg 4y ago
    > What criteria of the definition doesn't El Salvador fulfill? The one that is actually important when it comes to currencies, having something valuable (whether it is a resource, power, political influence, military, finances, etc.) to back the currency up with. But on the most technical level, you are correct, El Salvador has the ability to back up BTC in the same capacity as a country like Zimbabwe can back up Z$.
  - lottin 4y ago
    It doesn't have the resources nor a policy of "backing" bitcoin. By contrast, countries that issue their own currency have a central bank that is typically tasked with maintaining price stability, hence "backing" the currency.
- el-salvador 4y ago
  > El Salvador is a failed state about to default on its national debt. It's not a real "government" in the way that most of us would define the term. At least for now, El Salvador has enough cash on hand to pay the $800 million bond payable in February 2023. Current cash foreign reserves are about $3000 million. I'd like to clarify though, that I'm not an economist, and that the processes required and implications of using those funds to pay the upcoming bonds due are outside my scope of knowledge.
- minsc_and_boo 4y ago
nl 4y ago
> Bitcoin also has the backing of a government - El Salvador. A government backed currency means the government can issue that currency (for better or worse). Bitcoin is legal tender in El Salvador, as is the US Dollar[1]. The US dollar is also legal tender in Zimbabwe and other countries. We don't say the US dollar is backed by El Salvador or Zimbabwe. Instead it is backed by the "full faith and credit of the United States". [1] https://www.investopedia.com/articles/forex/040915/countries-use-us-dollar.asp https://www.investopedia.com/articles/forex/040915/countries...

by Strom 4y ago

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
    One of their largest industries (up there with tourism) is remittance processing (mostly for out of the US) denominated in US dollars. Most of their local economy operates on US dolar too, which means accepting Bitcoin everywhere offers some significant advantages: 1. Not being beholden to the whims of American banks and the American government 2. Less administrative overhead would mean being able to offer more competitive services with lower fees [1] 3. Being Bitcoin friendly would attract more crypto oriented industries to be based out of their country: offering a wider market to tap into (global remittances) [1] "Last year, they collectively transferred nearly $6 billion, or roughly 23% of the country’s gross domestic product, and a chunk of that went to the middlemen facilitating these international transfers." https://www.cnbc.com/2021/09/09/el-salvador-bitcoin-move-could-cost-western-union-400-million-a-year.html https://www.cnbc.com/2021/09/09/el-salvador-bitcoin-move-cou...
    - lottin 4y ago
      > One of their largest industries (up there with tourism) is remittance processing What percentage of El Salvador's GDP does remittance processing represent?
      - jimmydorry 4y ago
        As I mentioned in my comment above (from the article) ~23%.
        lottin 4y ago
        Sorry, I didn't see it. 23% of GDP is the value of the remittances that enter the country. This does not mean that remittance processing (which is an economic activity) represents 23% of GDP. Remittance processing is likely a tiny fraction of GDP, since it's a low value added activity.

nradov 4y ago

El Salvador is a failed state about to default on its national debt. It's not a real "government" in the way that most of us would define the term.

Strom 4y ago
What criteria of the definition doesn't El Salvador fulfill?
- deleted 4y ago
  [deleted]
- filoleg 4y ago
  > What criteria of the definition doesn't El Salvador fulfill? The one that is actually important when it comes to currencies, having something valuable (whether it is a resource, power, political influence, military, finances, etc.) to back the currency up with. But on the most technical level, you are correct, El Salvador has the ability to back up BTC in the same capacity as a country like Zimbabwe can back up Z$.
- lottin 4y ago
  It doesn't have the resources nor a policy of "backing" bitcoin. By contrast, countries that issue their own currency have a central bank that is typically tasked with maintaining price stability, hence "backing" the currency.
el-salvador 4y ago
> El Salvador is a failed state about to default on its national debt. It's not a real "government" in the way that most of us would define the term. At least for now, El Salvador has enough cash on hand to pay the $800 million bond payable in February 2023. Current cash foreign reserves are about $3000 million. I'd like to clarify though, that I'm not an economist, and that the processes required and implications of using those funds to pay the upcoming bonds due are outside my scope of knowledge.
minsc_and_boo 4y ago

nl 4y ago

> Bitcoin also has the backing of a government - El Salvador. A government backed currency means the government can issue that currency (for better or worse). Bitcoin is legal tender in El Salvador, as is the US Dollar[1]. The US dollar is also legal tender in Zimbabwe and other countries. We don't say the US dollar is backed by El Salvador or Zimbabwe. Instead it is backed by the "full faith and credit of the United States". [1] https://www.investopedia.com/articles/forex/040915/countries-use-us-dollar.asp https://www.investopedia.com/articles/forex/040915/countries...