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I am having a difficult time following the author’s explanation in this article. I believe it’s flawed, but I’m hoping an economist jumps in and comments on th

I am having a difficult time following the author’s explanation in this article. I believe it’s flawed, but I’m hoping an economist jumps in and comments on this one. > When a currency’s value is based on belief alone, it’s liable to evaporate. It is my understanding that all currencies (fiat money) are not like hard assets. So belief, or trust, is necessary in establishing the value of any currency, not just crypto.

Finnucane 4y ago
In a sense, the value of currency is backed by the economy it is part of--how much people need to have it to buy stuff, pay taxes, and so on. For instance, a country can get into a spot of trouble if their economy weakens and they have foreign debt in another currency they have to buy, at ever-increasingly unfavorable exchange rates. People then indeed 'lose faith' that their currency is worth holding. But he also says, "Instead, the value of an asset depends on what people think it’s worth. " That's basically how commodity markets function. Buyers bid on the price based on what's available for sale right now and how much they need to have it. Some commodities are driven by the demand for consumption of the good, some have more, shall we say, speculative valuations. Commodity markets can be volatile and fickle.
ddingus 4y ago
Crypto has no "full faith and credit" entity to back promises of value recognition and actualization. The US, for example, can labor to deliver on the dollar. In the end, labor is the source of all wealth created. We have a lot of people, resource plentiful, developed homeland, and understanding of many means and methods, all able to be brought to bear on the task of backing the US Dollar. And that happens every day, making the dollar robust and low risk. (The current conflicts and the reality of the petrodollar do complicate this some, but not enough to impact the discussion) With crypto, what is there? When it is used as a value transfer medium, meaning it's intrinsic value can be low, the value so traded lies outside crypto. It is also being used like precious metals, meaning it's intrinsic value should be high and it as a resource should be scarce. New crypto is created all the time. Unlike other resources, crypto does little of value on its own. Which is it? As we have seen, the risks are quite high. Who backs the value? What happens when someone fat fingers a contract and commits large sums to no one, in effect removing it from the market. How does an owner insure against that kind of thing? (Just one risk event out of many, and I meant no one in particular.) What basis do people have for belief and trust? Whose full faith and credit is there in service to make things happen?
DemocracyFTW2 4y ago
In a sense, science is just a belief system so no different from, say, creationism. Established practice, shared long-term experience among users, and widespread consent on some fundamental aspects of 'real' currency make (among other things) all the difference. "You know, actually, there are no heaps of sand, all there is is grains of sand" is wrong on much the same counts. A grain of sand is hardly less of a human mental construct than a heap of sand. We cannot tell the moment that an accumulating mass of individual grains turns into a heap, doesn't mean there 'are no heaps'. Just because both fiat and crypto are both among other things based on faith, too, doesn't mean there are no vital differences. Same goes for the observation that, yes, a given fiat denomination may display the same roller coaster ride of a wildly swaying exchange rate, but do we in practice experience that? Not with most fiat currencies, most of the time (or so we hope). In crypto, it's par for the course, the insane growth flanks being one of the concept's main selling points for a time. In currency much as in real estate you want stability over everything else if you're sane and not exuberantly affluent. A skyrocketing commodity is a red flag—what goes up, must come down.
- ddingus 4y ago
  Sidebar: Science is absolutely not a belief system. It is the product of a specific method that can yield understanding. Understanding is basically monkey do A, monkey get b. And that goes on to any monkey do A, any monkey gets b. Knowing is a different thing, as is believing. Practicing science will yield neither. When we do A, our confidence in getting B increases with the quality of our understanding. Should we lack confidence, we ask more questions. Science questions everything, including science and the scientific method itself. Where we do not understand, we ask more questions. Where we are inclined to believe, we don't, and we ask more questions. Belief is not merely high confidence. People conflate the two, but science does not. Where we do A and get B almost all the time, except 1/10000000 times we get C, then we ask questions. There simply is no believing in the scientific method, which has delivered to us our current body of understanding. Now people can choose to believe or not believe in science, and or understanding we have arrived at via the scientific method. That is on them and in no way renders science into a belief system. Science is all about asking questions to improve our understanding. That is it. Science is very different from creationism. Creationism is rooted in a belief there is a creator. Science is rooted in a method to ask questions and gain understanding. These are entirely different basis.

Finnucane 4y ago

In a sense, the value of currency is backed by the economy it is part of--how much people need to have it to buy stuff, pay taxes, and so on. For instance, a country can get into a spot of trouble if their economy weakens and they have foreign debt in another currency they have to buy, at ever-increasingly unfavorable exchange rates. People then indeed 'lose faith' that their currency is worth holding. But he also says, "Instead, the value of an asset depends on what people think it’s worth. " That's basically how commodity markets function. Buyers bid on the price based on what's available for sale right now and how much they need to have it. Some commodities are driven by the demand for consumption of the good, some have more, shall we say, speculative valuations. Commodity markets can be volatile and fickle.

ddingus 4y ago

Crypto has no "full faith and credit" entity to back promises of value recognition and actualization. The US, for example, can labor to deliver on the dollar. In the end, labor is the source of all wealth created. We have a lot of people, resource plentiful, developed homeland, and understanding of many means and methods, all able to be brought to bear on the task of backing the US Dollar. And that happens every day, making the dollar robust and low risk. (The current conflicts and the reality of the petrodollar do complicate this some, but not enough to impact the discussion) With crypto, what is there? When it is used as a value transfer medium, meaning it's intrinsic value can be low, the value so traded lies outside crypto. It is also being used like precious metals, meaning it's intrinsic value should be high and it as a resource should be scarce. New crypto is created all the time. Unlike other resources, crypto does little of value on its own. Which is it? As we have seen, the risks are quite high. Who backs the value? What happens when someone fat fingers a contract and commits large sums to no one, in effect removing it from the market. How does an owner insure against that kind of thing? (Just one risk event out of many, and I meant no one in particular.) What basis do people have for belief and trust? Whose full faith and credit is there in service to make things happen?

DemocracyFTW2 4y ago

In a sense, science is just a belief system so no different from, say, creationism. Established practice, shared long-term experience among users, and widespread consent on some fundamental aspects of 'real' currency make (among other things) all the difference. "You know, actually, there are no heaps of sand, all there is is grains of sand" is wrong on much the same counts. A grain of sand is hardly less of a human mental construct than a heap of sand. We cannot tell the moment that an accumulating mass of individual grains turns into a heap, doesn't mean there 'are no heaps'. Just because both fiat and crypto are both among other things based on faith, too, doesn't mean there are no vital differences. Same goes for the observation that, yes, a given fiat denomination may display the same roller coaster ride of a wildly swaying exchange rate, but do we in practice experience that? Not with most fiat currencies, most of the time (or so we hope). In crypto, it's par for the course, the insane growth flanks being one of the concept's main selling points for a time. In currency much as in real estate you want stability over everything else if you're sane and not exuberantly affluent. A skyrocketing commodity is a red flag—what goes up, must come down.

ddingus 4y ago
Sidebar: Science is absolutely not a belief system. It is the product of a specific method that can yield understanding. Understanding is basically monkey do A, monkey get b. And that goes on to any monkey do A, any monkey gets b. Knowing is a different thing, as is believing. Practicing science will yield neither. When we do A, our confidence in getting B increases with the quality of our understanding. Should we lack confidence, we ask more questions. Science questions everything, including science and the scientific method itself. Where we do not understand, we ask more questions. Where we are inclined to believe, we don't, and we ask more questions. Belief is not merely high confidence. People conflate the two, but science does not. Where we do A and get B almost all the time, except 1/10000000 times we get C, then we ask questions. There simply is no believing in the scientific method, which has delivered to us our current body of understanding. Now people can choose to believe or not believe in science, and or understanding we have arrived at via the scientific method. That is on them and in no way renders science into a belief system. Science is all about asking questions to improve our understanding. That is it. Science is very different from creationism. Creationism is rooted in a belief there is a creator. Science is rooted in a method to ask questions and gain understanding. These are entirely different basis.