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This doesn't go far enough. The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another

• pid-1 4y ago
  > The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset Most non currency assets are cash flow generating financial instruments. If analysts don't believe a company is worth a dime, it can show them wrong by being profitable and paying dividends. Edit: I think my point is - even if no one else believes in a stock or bond, you can still profit by "being right". The same is not true for currencies.
  • xphos 4y ago
    Have to agree an asset is not a currency, in some case one can consider labor an assets and by extension an asset that can produce value. Labor might be unique in that regard but property seems to be similar you can derive value from nothing by putting property to use and since you can always change what the property produces. However, without any property, you physically cannot produce anything.
  • Ntrails 4y ago
    I cannot remember where I read this, but it was a view that basically the mere concept of a "company" is a collective fiction that we all believe in. As are nations, laws, etc etc. The idea that "tesla" is an entity one can interact with. That this "tesla" thing has value in and of itself. They're derived from beliefs in a system. Which could evapourate and render the idea of value meaningless. I don't think this is very useful, since "yeah but without society there are no companies, money is nothing" doesn't take us very far! But hey.
    • crawfordcomeaux 4y ago
      > I don't think this is very useful, since "yeah but without society there are no companies, money is nothing" doesn't take us very far! This reminds me there always exists a path between the current society & a completely different one, and a short path to something completely different is to start from scratch.
    • 9notorp 4y ago
      >I cannot remember where I read this, but it was a view that basically the mere concept of a "company" is a collective fiction I think I read something similar in Sapiens.
    • simonh 4y ago
      So the other way to say this is that companies are just as real as anything else in our society.
      • kuhewa 4y ago
        That was kind of Harari's point when using that lens in Sapiens, it wasn't that the corporation was some flimsy imaginary concept, it was that it is a fiction in the same way democracy or religion is.
    • drdeca 4y ago
      I suspect that a company is still a natural abstraction in the sense described by John Wentworth (wrt “information at a distance” and such).
  • jmyeet 4y ago
    My point is more fundamental than anticipating market mispricing within a certain set of constraints. How does a company make money? Why does it distribute that money to shareholders? Why can't someone working at the company just keep all the money? Why can't the bank just confiscate it? The answer at all levels is the the threat of violence. Property rights (eg to the money) are enforced by the threat of state-sanctioend violence, for example the police showing up at your house and throwing you in jail if you don't comply with laws. So why would the police show up and do that? Why would the courts enforce those laws? It's not just the threat of violence, essentially. It's the collective belief in that system.
    • kgwgk 4y ago
      Why stop there? What makes an asset exist at all if not someone’s belief? Persistence is not a physical property as much as a phenomenon of perception. We believe that what we see is what we saw - and we believe that who we are is who we were. Etc.
• ozim 4y ago
  Gold standard fetishist forget that if there is a food shortage even tons of gold won't help them. In scenario where financial system collapses only real currency is skill - if you can make food from something available locally or be helpful like being a medic. Why would I trade a chicken that I can eat for piece of gold when I can trade chicken for sewing my wounds after being bitten by a stray dog.
  • zarzavat 4y ago
    There is a spectrum between everything going smoothly and complete government collapse. Most people worry about a Turkey or Argentina where the currency loses most of its value but the government still functions. Even in failed states gold maintains value. For example in Somalia’s recent past, not only was gold still fully exchangeable but the existing Somali currency continued to work with counterfeit currency filling the vacuum. What stops gold exchange is not non-existent government but any particularly strong and draconian government that decides that alternative forms of money are a risk to the regime (e.g. North Korea).
  • koalala 4y ago
    My grandfather who lived through the Dutch famine in world war 2 did fine buying food with gold while people were eating flower bulbs and grass, so in that case at least it worked.
• ur-whale 4y ago
  > The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. The only thing that maintains the value of any asset is the demand for it. Where that demand comes from may or may not be belief. Water has value because there is a clear demand for it, not because anyone believes in it. As long as there is someone who wants an asset, it has value. Belief is but a cog in the machine.
  • hgomersall 4y ago
    Indeed. The demand for most currencies comes from states requiring payment of taxes in said currencies.
    • RandomLensman 4y ago
      I'd say the demand for most large currencies comes from the ability to buy stuff with them and being able to speculate on changes in value amongst them. The daily trillion dollar in FX trades are not tax motivated.
    • smaryjerry 4y ago
      This is precisely why bitcoin adoption is not higher. By categorizing bitcoin as a security and not accepting bitcoin as a denomination for taxes or any calculation of taxes due it is effectively an extra unnecessary cog in every single system it is a part of. Any company doing legitimate business has to record every transaction they make in the denomination of their governments chose currency. It goes from a simple “I sold 5 pencils for X dollars” to “I sold this pencil for 1 bitcoin which is equal to X dollars on the date I sold it then made/lost Y dollars by converting back to dollars at a later date in order to pay taxes and buy more pencils, and spent Z dollars to trading fees in doing so.” So really at minimum we’ve gone from a single clear amount, to now having at minimum 3 separate records to make the same transaction. Bitcoin can never be as simple and efficient as an actual currency when you have to convert it anyways at some point.
  • mywaifuismeta 4y ago
    Agreed. In the special case of currencies, demand follows belief. If people believe in an assert they will accept it for trade, which may in turn crate demand. This leads to a cycle where more demand often strengthens the belief. The issue with most crypto tokens is that its demand only exists within the closed crypto ecosystem in the form of liquidity, not in the real world. This makes is much easier to shake belief.
• knorker 4y ago
  > The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency That simplifies too much. There's also the fact that all taxes on income, capital gains, and consumption must be paid in this currency. It has a very real value, in that if you don't pay using this then people will come and lock you in a cell. It's not just a collected belief. I also believe that the government will by force not allow its own currency to be replaced within its borders. That's a belief in a trusted third party, not a collective belief.
• pa7x1 4y ago
  > eg it's been estimated that over half the Ethereum are owned by less than 10 entities You throw this kind of claim without providing proof. Unfortunately, it's a claim I have seen made before (e.g. https://www.financemagnates.com/cryptocurrency/news/top-10-ethereum-whale-accounts-own-21-of-the-total-eth-supply/ https://www.financemagnates.com/cryptocurrency/news/top-10-e...) and it doesn't hold any level of scrutiny. Although you embellish it and exaggerate it even further. This kind of number typically assumes that a smart contract owns the ETH that it contains. Which is not true by the very nature of the smart contract, what it can do with the ETH is programmed in its code and the users depositing the ETH on it are the ones that decide what to do with it. Then it looks at the accounts that have the most ETH (https://etherscan.io/accounts https://etherscan.io/accounts), aggregates together all centralize exchange accounts, assumes they also own the ETH. Do some quick math and publish a misinformation article ready to be shared by anyone whose confirmation biases are triggered. Bonus points if you can then exaggerate the numbers further without providing any figures and keep the misinformation going. Some numbers... There is currently 39 M ETH locked in DeFI smart contracts (32% of circulating supply). https://defillama.com/chain/Ethereum?currency=ETH https://defillama.com/chain/Ethereum?currency=ETH There is 13 M ETH locked in the staking contract (11% of circulating supply). There is 2.5 M ETH locked in L2s (2% of circulating supply). https://l2beat.com/ https://l2beat.com/ So that's 45% of circulating supply not owned by any single entity.
  • bombcar 4y ago
    Why restrict it to circulating supply? Is there some other type of ETH that isn’t circulating?
    • aqme28 4y ago
      Yes. A lot of it has been burned (sent to nonfunctional addresses), for example.
    • pa7x1 4y ago
      Whenever you do a transaction on the Ethereum network part of the fees (the base fee) are destroyed, this amount goes nowhere not even a special locked account. It just disappears, it's "burnt" as it's commonly referred. This means that you cannot look simply at total ETH issued from the genesis block as you will be overestimating the amount of ETH in circulation by the total amount of ETH destroyed through base fee burning. Currently around 2.4M ETH has been destroyed in this manner. The figure I gave above (~120M) includes all other ETH. I.e. All ETH that exists. Including ETH that perhaps has been forever lost due lost keys or sent to wrong addresses or addresses that nobody has the keys for (e.g. https://etherscan.io/address/0x0000000000000000000000000000000000000000 https://etherscan.io/address/0x00000000000000000000000000000... or https://etherscan.io/address/0x000000000000000000000000000000000000dead https://etherscan.io/address/0x00000000000000000000000000000...) So for all intents and purposes circulating supply is total supply.
• tim333 4y ago
  My house is valuable to me even if there isn't a collective belief in it. Most financial assets are backed to some extent by real assets. I'm happy enough to put value in USD or imaginary-coin if I can swap my holdings in them for a nice house/car/jet. You don't really need "economic, military and even cultural might" - just for the currency to be accepted somewhere where you can buy real assets and for the supply to be limited so it doesn't inflate to nothingness.
  • baq 4y ago
    the point is your belief is not relevant, it's the belief of the counterpart to any transaction that may involve your house ("the market").
  • afiori 4y ago
    > if I can swap my holdings in them The reason people are willing to give away their house/car/jet in exchange for crumpled is the existence of the market protected by that "economic, military and even cultural might". Trust here is not in that the some big guns are protecting your cash, it is rather about you trusting that the next day/month/decade people will want that cash about the same as today.
  • coldtea 4y ago
    >My house is valuable to me even if there isn't a collective belief in it. That's because it also has use value (and land use value), etc. Crypto coins don't have any. >Most financial assets are backed to some extent by real assets. Negligibly so in modern economy.
    • deleted 4y ago
      [deleted]
  • silon42 4y ago
    House is only valuable as long as the US military has enough $ to defend from Russia/China (taken to extreme, but not if you were in Ukraine).
  • tlb 4y ago
• neilwilson 4y ago
  "So what actually makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might." It's the ability to demand and enforce tax payments in that denomination - with the consequence of not doing that being you will lose property and liberty. Obtaining the denomination to settle the tax then becomes the discounted option, since the other option is far more expensive. That alone makes the currency worth holding, since you can always get rid of it to somebody with a tax bill to pay. As we have seen with Russia that power extends wherever the denomination is used. The US government has 'taxed' Russia anything it holds denominated in US dollars - completely unilaterally and wherever it was held.
  • afiori 4y ago
    I would say that what makes any currency valuable is the market using that currency; the necessity of paying taxes is both a jump-start and a stabilizer of that market preventing fragmentation of the currency.
  • spyder 4y ago
    Yea, and also it's not just tax: "This note is legal tender for all debts public and private"
    • triceratops 4y ago
      "All debts public and private" - but only debts denominated in USD, right? If you loan me gold and specify repayment in gold or Canadian dollars or gerbils, I can't just give you a fistful of dollar bills to settle it, can I?
  • analog31 4y ago
    I would say yes, in the sense that the government would cease to exist if it were to declare: "Compute your taxes in whatever unit of account you prefer." But I think a broader statement is that the "long dick of the US government" is the collective expectation for the behavior of major world governments. On the other hand, it's worth noting that US currency is not absolutely stable.
• Kinrany 4y ago
  We need a crypto that builds the network on trust between real people. If A and B know each other and B and C know each other, then A and C can trade or give credit to each other by going through B. No need for a global consensus.
  • dgb23 4y ago
    Vouching systems are generally very solid if you also have some way to expell parts of your network after the fact. You need some way to slow down and curate your network or all the benefits are lost. The benefit of these: it mimics in person interactions and describes a simple process. But The trade off is that they only work if they grow slowly and organically, which seems to be contrary to what the crypto space is trying to do.
  • rglullis 4y ago
    https://trustlines.network https://trustlines.network
    • Kinrany 4y ago
      Huh! The marketing materials look like exactly the same thing so far. > However, since Trustlines is designed to be implemented on a public blockchain, making transactions requires the use of a native cryptocurrency to pay transaction fees. But this one part seems wrong. With such a design there should be no need for global consensus. :(
      • rglullis 4y ago
        You still need to avoid double-spending issues.
        • Kinrany 4y ago
          Why? Everyone is only ever dealing with people they trust. And every single agent is in charge of confirming or rejecting every operation they agree to.
• baobabKoodaa 4y ago
  If you have a backed stablecoin (as opposed to algorithmic stablecoin) that is pegged to the USD without any funny business, then the price of that coin can always be restored to $1. No matter how badly people "lose faith" in the coin.
  • vincnetas 4y ago
    "... without continuous funding "
    • BbzzbB 4y ago
      GP's last paragraph seems to imply to me too that trust is all that keeps the pegs. I think the billions of dollars in arbitrage opportunity is a bit more powerful than trust as we've seen a few days ago when USDT lost its peg, but what do I know Trust keeps bank runs away, arbitrage keeps the peg tight (feeding into said trust).
    • baobabKoodaa 4y ago
      Sounds like you are confusing an algorithmic stablecoin with a fully backed stablecoin. If I am mistaken and you have an actual argument behind that smirk, then please go ahead and present your argument.
  • TomSwirly 4y ago
    As long as you're willing to expend unlimited amounts of money doing so. But no one is.
    • baobabKoodaa 4y ago
      False. What you're describing applies to algorithmic stablecoin, but it doesn't apply to a backed stablecoin. If I sell 1000 units of BAOBABUSD to people for $1 each, and then they all panic and sell, I can buy all 1000 units of the stablecoin by using the $1000 I already have in the bank. Please explain why you feel that this maneuver requires unlimited amounts of money?
• simonh 4y ago
  The value of a thing is in two parts, it's use value to it's possessor and it's exchange value with others. Examples have already been posted here. My house has a use value to me because I need somewhere to live. If I lived on a small island off Antarctica it would still have great value to me but perhaps no value to anyone else. Money is a financial instrument that only has exchange value, unless you count say the use of bank notes for lighting fires or papering walls. It's value as money is entirely by consensus. Notably not even the government that issues it actually sets it's value. Ask the governments of Venezuela or Zimbabew about that. Yes of course they can do things that affect it's value, like printing too much of it or defaulting on bonds, or consistently paying on their bonds, but the actual value is set by people. When someone sells a product or service they ask for a price, and if someone pays it then that establishes a value for the product relative to other products, and a value for the currency exchanged. What happened in Zimbabwe is people asked for an awful lot of ZB$ for things compared to how many US$ they asked for. Thats what set the value of the ZB$ (and to some extent the US$ of course). Governments sometimes do try to manipulate currency values through currency controls, but what that actually does is constrain currency flows. If a currency control set a high price for a currency, it will just not be traded as much, only people willing to pay the premium will do so. Those not willing to pay it simply won't and those transactions and that economic activity will be constrained (or the exchange will happen on the black market). There can be coercive pressure of course, such as Russia requiring companies to hold Rubles, but you could hold a gun to my head and force me to hand over my house at a discount or for nothing. That says more about the use value of loaded guns than about the exchange value of my house. Governments have the ability to take value rather than exchanging it, but even that has it's limits.
  • jmyeet 4y ago
    It's true that utility is also a factor but it's extremely limited. The house you and others have mentioned is an easy one. That whole concept of ownership is reliant on an entire system existing and enforcing those "rights". It's the threat of violence that prevents someone from showing up, "claiming" your house and kicking you out.
    • simonh 4y ago
• twirlock 4y ago
• random_comment 4y ago
  > The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Hello jmyeet! Unfortunately, I believe this statement, as you have given it, is untrue. I hear it often, as it is continually and frequently asserted by crypto enthusiasts (and I am not suggesting you are one of those). ----- For assets, value is grounded in utility (whether to do some useful function, generate some feeling, etc). Asset price, on the other hand, could be almost anything depending on supply/demand and may be affected by beliefs at times. It's important to disambiguate price and value. I can buy a superb pair of shoes from a desperate seller for $1, but that doesn't make their 'value' $1 to me or other people. Value can be personal, it can also be societal i.e. averaged over many people. Indeed if price and value were the same thing, there would be no buyers or sellers, because you would have little reason to go to the effort of swapping two things of identical value to you. ----- For currency, specifically, national currency where you are living in that nation - the value (and relative price) of a unit of a currency is grounded in taxation enforced by, well... force, by the state. Taxation generates continual demand for units of currency regardless of individual or collective beliefs. And in trust in the currency, again, is enforced by... force, by the state. Which prevents unlimited supply (by random people), again, regardless of individual or collective beliefs. Thus, both supply and demand for the units of currency are set by the state, and supply/demand is what it takes to generate a stable price and mandatory use. I note you mention trust, and 'backed by...' and 'might'. However, discussing currency in terms of only trust and not in terms of taxation, misses half the argument. Both halves are essential for the argument to make sense. Absent a mandatory minimum demand, control of supply of currency (and trust in that control) is meaningless. In computing terms, you can see taxation + limited supply as a technique to 'bootstrap' an initial price for a currency without needing any shared or individual beliefs at all. It also underwrites the price in the long term, again, without any need for beliefs. None of this is to say that a currency can't have its price/value shifted around by collective beliefs once bootstrapping / underwriting is in place. Of course it can. But what maintains, inescapably, a certain minimum price (your own words: maintain, inescapable), is enforced taxation. ----- Going back to the price of assets. Well, you can believe all you want about, say, oil, and your whole country may have a collective belief, or even the planet, but since there is X units of oil needed and Y units of oil in supply, the price will be set by ongoing auction as always, or you can freeze/be stuck in your garage/factory shutdown. Supply and demand. Beliefs can affect supply and demand, of course. But supply and demand are primary, beliefs are secondary and they sit alongside necessity and physical reality. ----- (Finally - again without wishing to imply you are a crypto enthusiast - a lot of crypto enthusiasts seem to imagine that mathematics has a similar 'force' to states, 'there can only be X coins', ignoring that a) chain algorithms/limits can be changed by widespread consensus b) no one is forcing anyone to use the crypto at all i.e. no physically enforced taxation c) it's trivial to substitute a chain with a duplicate chain (again consensus), as e.g. dogecoin proved rather effectively. They also invariably neglect the issue of needing 'mandatory demand' via taxation. I would speculate this is because the essential need for tax in currency systems, completely undermines the ponzi's disguise as a currency.) (I use the word 'ponzi' casually here; technically ponzis are zero-sum, whereas crypto is worse - negative-sum, especially for the environment).
• Siira 4y ago
  This is just reverse foolery. A gun is valuable whether people believe in it or not. Same with a hamburger.
• Geee 4y ago
  What you're saying is wildly untrue. You are redefining words. Trust is completely different thing than valuation in markets. You don't need to trust gold or bitcoin. They are verifiable. Don't trust, verify. Also, the US dollar doesn't work very well, so you're redefining reality. They're constantly abusing that trust and creating way more money than would be necessary or moral.
• morpheos137 4y ago
  Belief is not well defined. The dollar has value because it is useful. Bitcoin may also have value to the extent that it is useful (e.g. for speculating, money laundering, grey/black market transactions). Thus usefulness or utility of a currency is a better measure of value than belief whatever that means.
• User23 4y ago
  > The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset. > So what actually makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might. What many people call fiat is in fact partly a proof of violence consensus algorithm. Practically applied it means the sovereign will create a demand for its currency by imposing taxes denominated in that currency on its subjects and then threatening or using violence against parties that don't pay those taxes. However, that alone is insufficient to maintain the value of a currency. Mr. Mugabe of Zimbabwe surely had no philosophical aversion to using violence to maintain the value of the Zimbabwean dollar, but the collapse in his country's productive capacity rendered that moot. Thus we can see that another major part of what makes the US dollar work is that the US economy that the US government has the power to tax is extremely large, productive, and well-diversified.
  • jmyeet 4y ago
    I like the term "violence consensus algorithm". I agree: ultimately government is a collective decision on who gets to do the violence. As for Zimbabwe, the primary difference it and the US is reach. More generally speaking, we've seen currencies collapse when people have lost faith in their value and what happens is people instead use a different currency (eg the US dollar) because they have more confidence in its value.
    • spiralx 4y ago
      More specifically they have confidence in the stability of its value over time. It's the same reason that US T-bonds etc are said to be "risk free" and why the USD comprises 60% of the world's currency reserves. The EU and EUR come in second in terms of reserves (30%) for the same reason.
• ringrocket 4y ago
  > The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset. This is false in the general case. An asset means a useful or valuable thing, person, or quality. If something is useful to me, such as food, hydration or shelter, trust is irrelevant. In fact, something can have value to me (perhaps even objective value), even if there are no other agents/persons. Even where there are other agents/humans, no trust in an asset is required in some cases. Suppose we all can independently verify the use and quality of something (we call this measurement). If that thing has some definite utility to us, the value each will assign may differ, but that thing's value is not dependent on the subjective valuation (Say a morsel contains 15 Joules and I can harvest 9 Joules and you 11 Joules, the value we each could assign differs, yours being greater than mine, but is objectively derived, being based not on trust nor subjectivity. Subjective meaning based on or influenced by personal feelings, tastes, or opinions). Granted, we can not preclude the possibility that someone, somewhere providing a subjective value to this thing, merely that somethings have value, potentially to many of us that is objective and intrinsic in and of the thing itself. Trust in every asset is, indeed, escapable.
• CryptoPunk 4y ago
• bufferoverflow 4y ago
  > Even backing a currency with gold (or any other asset) doesn't solve this problem It actually does. If the backing is real, the user knows he will always be able to exchange his coin for $1. If the price on an exchange goes under $1, the issuer of the coin can buy it back, making a profit. If the price goes above $1, the issuer can sell. It's a trivial algorithm. Of course, it only works if the backing is real. Unfortunately having billions in cash is a huge temptation to invest them and make even more profit. That's what Tether did. And now, if their commercial paper is under water, they are insolvent.