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It's the latter and it's true of any form of money; i.e., money as defined in legal terms. Money always has a counter-party and there's a finite chance of that

It's the latter and it's true of any form of money; i.e., money as defined in legal terms. Money always has a counter-party and there's a finite chance of that counter-party not honouring their commitment. For example, last year treasury announced sanctions after Ukraine conflict where they froze Russian USD assets. This is essentially the govt of United States deciding to not honour their commitment. Even when you physically own money, let's say physical cash/bills, the counterparty could default. For instance in Nov 2016 govt of India declared that about 90% of currency in circulation stop being money within a certain deadline. In my mind whenever I try to analyse money or different forms of money I always think in terms of counterparty.

eru 4y ago
I mostly agree. > Money always has a counter-party [...] That's mostly true for most forms of money. But not technically true for gold coins or bitcoin. > For example, last year treasury announced sanctions after Ukraine conflict where they froze Russian USD assets. This is essentially the govt of United States deciding to not honour their commitment. That's sort-of true. It's a bit simplified. The treasury isn't typically the counterparty for these commitments. What they did was ban other entities from honouring their own commitments. So eg if a bank in Singapore didn't want to lose access to the USD ecosystem, they had to cease honouring their commitments to certain Russian entities. That's independent of whether those commitments were specified in USD, Singapore dollars, Euros, British Pounds or pork bellies.
- vishnugupta 4y ago
  Thanks for clarifying about the treasury part. I thought treasury (or the US Govt) had instructed federal reserve to freeze assets of Russian entity. > But not technically true for gold coins In so far as gold is used as money one is indeed relying on rest of humanity/society to accept it in exchange for whatever you need. Granted that for most (all?) of their existence, civilised humans have accepted gold as money because of its use as jewellery and its attractive qualities. But there's still a possibility that some tribe/community will refuse to accept gold as money as they don't have any use value of it. In my mind, money is a promise or a contract which says here's a "thing" I'll give you in exchange for goods or services. The other party could always walk away from that contract or decide to not honour that promise. Gold/cattle etc., have worked as money because they have an intrinsic use value which one could fall back to if it stops working as money. Which brings me to the next point. > ..or bitcoin. I could never understand the intrinsic use value of Bitcoin. People think of it as store of energy or whatever but what is the intrinsic use of Bitcoin? ETH at least is used as a currency to get work done on Ethereum chain so that is its intrinsic use value.
  - eru 4y ago
    > I thought treasury (or the US Govt) had instructed federal reserve to freeze assets of Russian entity. I'd need to look that up. But I don't think Russian entities directly held assets at the federal reserve? It's mostly about the commitments of third parties? > In so far as gold is used as money one is indeed relying on rest of humanity/society to accept it in exchange for whatever you need. Hence my use of the term 'technically'. Yes, the industrial uses for gold are relatively limited. So its value is mostly (but not totally) a social construct. However imagine for a second coins made of something that has enormous industrial value but hasn't acquired any social value (yet). Eg coins made of graphene or so? (Not sure about a specific example.) In any case, there's no contractual counterpart for gold. It's an expectation, but no on in obligated to live up to that obligation. > In my mind, money is a promise or a contract which says here's a "thing" I'll give you in exchange for goods or services. The other party could always walk away from that contract or decide to not honour that promise. For proper contracts, there would be contract penalties. Eg if your bank refuses to pay out cash when asked. > I could never understand the intrinsic use value of Bitcoin. People think of it as store of energy or whatever but what is the intrinsic use of Bitcoin? ETH at least is used as a currency to get work done on Ethereum chain so that is its intrinsic use value. Network effects aren't good enough for you?
pgwhalen 4y ago
I’ve struggled for a long time to explain to others what money is, but “money always has a counter party” is a great way to start, thanks.

eru 4y ago

I mostly agree. > Money always has a counter-party [...] That's mostly true for most forms of money. But not technically true for gold coins or bitcoin. > For example, last year treasury announced sanctions after Ukraine conflict where they froze Russian USD assets. This is essentially the govt of United States deciding to not honour their commitment. That's sort-of true. It's a bit simplified. The treasury isn't typically the counterparty for these commitments. What they did was ban other entities from honouring their own commitments. So eg if a bank in Singapore didn't want to lose access to the USD ecosystem, they had to cease honouring their commitments to certain Russian entities. That's independent of whether those commitments were specified in USD, Singapore dollars, Euros, British Pounds or pork bellies.

vishnugupta 4y ago
Thanks for clarifying about the treasury part. I thought treasury (or the US Govt) had instructed federal reserve to freeze assets of Russian entity. > But not technically true for gold coins In so far as gold is used as money one is indeed relying on rest of humanity/society to accept it in exchange for whatever you need. Granted that for most (all?) of their existence, civilised humans have accepted gold as money because of its use as jewellery and its attractive qualities. But there's still a possibility that some tribe/community will refuse to accept gold as money as they don't have any use value of it. In my mind, money is a promise or a contract which says here's a "thing" I'll give you in exchange for goods or services. The other party could always walk away from that contract or decide to not honour that promise. Gold/cattle etc., have worked as money because they have an intrinsic use value which one could fall back to if it stops working as money. Which brings me to the next point. > ..or bitcoin. I could never understand the intrinsic use value of Bitcoin. People think of it as store of energy or whatever but what is the intrinsic use of Bitcoin? ETH at least is used as a currency to get work done on Ethereum chain so that is its intrinsic use value.
- eru 4y ago
  > I thought treasury (or the US Govt) had instructed federal reserve to freeze assets of Russian entity. I'd need to look that up. But I don't think Russian entities directly held assets at the federal reserve? It's mostly about the commitments of third parties? > In so far as gold is used as money one is indeed relying on rest of humanity/society to accept it in exchange for whatever you need. Hence my use of the term 'technically'. Yes, the industrial uses for gold are relatively limited. So its value is mostly (but not totally) a social construct. However imagine for a second coins made of something that has enormous industrial value but hasn't acquired any social value (yet). Eg coins made of graphene or so? (Not sure about a specific example.) In any case, there's no contractual counterpart for gold. It's an expectation, but no on in obligated to live up to that obligation. > In my mind, money is a promise or a contract which says here's a "thing" I'll give you in exchange for goods or services. The other party could always walk away from that contract or decide to not honour that promise. For proper contracts, there would be contract penalties. Eg if your bank refuses to pay out cash when asked. > I could never understand the intrinsic use value of Bitcoin. People think of it as store of energy or whatever but what is the intrinsic use of Bitcoin? ETH at least is used as a currency to get work done on Ethereum chain so that is its intrinsic use value. Network effects aren't good enough for you?

pgwhalen 4y ago

I’ve struggled for a long time to explain to others what money is, but “money always has a counter party” is a great way to start, thanks.