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Oleg, I learned quite a bit with your article but there is a statement that is not quite accurate: "dollar bills do not have any value in themselves" Legal te

Oleg, I learned quite a bit with your article but there is a statement that is not quite accurate: "dollar bills do not have any value in themselves" Legal tenders like dollar bills are the value themselves, it might even come to a situation where the material used to build it costs more than the actual value of the medium (1 cent coins). I wrote an article some time ago and I would be very happy if you could read it and give your thoughts: http://eduardo.intermeta.com.br/posts/2013/1/18/bitcoins-and-the-future-of-electronic-money http://eduardo.intermeta.com.br/posts/2013/1/18/bitcoins-and...

weavejester 14y ago
How do you figure that a dollar bill has any intrinsic value? The raw materials have some minor value, sure, but the cost of making a dollar note is significantly lower than a dollar. A dollar bill is a promise of value, conceptually no different to a cheque from the US government. If you believe that money has any value in itself, then I have some Zimbabwean dollars to sell you.
- eduardordm 14y ago
  I did not 'figure'. What you described is representative money, not fiat/paper money.
  - weavejester 14y ago
    Representative money is a particularly vague term, which usually means money backed by a physical commodity, but can also encompass fiat money as well. There's nothing inherently magical about something being legal tender. The only difference between a $1 cheque and a $1 note is risk. The probability of a cheque bouncing is more likely than the USA economy collapsing into hyperinflation.
    - eduardordm 14y ago
      As you said, once I give you a dollar bill, the transaction is over. If I give you a check it will takes days for the actual transaction to happen and the money transferred (which can possibly end up in a physical transfer of cash) Money does not depend on any kind of backing at all, for instance: the US gov has been flooding the market with dollars backed by the promise it will buy them back someday. Some countries don't even bother buying dollars anymore, they rely 100% on swap agreements. Even if the economy collapses, the dollar will still be accepted for paying your gov duties, which means it will collapse too, equalizing the system. (inflation and deflation can be too complex for me to have any useful discussion)
      - weavejester 14y ago
        You say money does not have any backing, and then immediately after you say that dollars are backed with a promise from the US government. Fiat money is backed by the faith in a countries economy and government. A dollar is worth something to me because I can ultimately exchange it for goods or services produced in the United States. If this were not possible, for instance if the USA completely closed their borders to all foreign trade and travel, then the dollar would be worthless to anyone outside the country. You mention that a cheque needs time for the money to be transferred. So you give me a cheque for $1, I would have to wait for the dollar to be transferred from your bank account to mine. But what if I didn't cash the cheque? What if I gave that cheque to someone else as a substitute for a dollar bill? If Alice gives a cheque to Bob, then Bob can pay Carol with that cheque if Carol trusts Alice is good for the debt. Finally, regarding the dollar being accepted for paying my government duties, that's only true for countries that have the US dollar as their official currency. If the USA disappeared tomorrow, the dollars I own would be worthless; they only have worth because they're backed by the USA, much has a cheque only has worth while a particular bank account exists and has funds.
        eduardordm 14y ago
        Interesting how the cheque situation you explained (not cashing and passing it to others) is somewhat similar to what happens to swap agreements. It's really interesting how currency can manifest itself without a regulated system. The main point of my article (I think my poor writing didn't help me convey the message) is that even when we move on to electronic money (like bitcoin) people will still not want to carry them (having their own wallets at home), they will prefer a bank or service to take care of this. I think this is great because we could start using bitcoins with systems that are already in place, I even built a small demo for Verifone PoS which integrated nicely with our current systems (I run a credit card company) Sometimes I also think that electronic money, like credit cards, could not be as democratic as paper.
oleganza 14y ago
Thanks for the comment. A couple of words about "value". Value is a concept. It does not exist in reality like matter or energy. This concept applies to voluntary actions. It does not apply to involuntary actions. If a judge and a policeman force you to accept USD as a method of paying you, it says nothing about how USD is valuable for you. We can only observe that you value your life more than non-complience. So "legal tender" laws do not create any kind of value at all. I would argue that, probably, the opposite is true: when something must be enforced, it is because of its negative utility. In the peaceful situation, however, we may discuss different kinds of values. Certain things can be valuable for your own immediate needs, without much participation from other people. E.g. your pen is useful without need for cooperation with others. You may say the pen has "direct" use value. Dollar bills are almost only valuable when you can trade them for something with others. Of course, you can do paper planes or use them for cocaine sniffing, but that happens comparatively rarely. Bitcoin block chain allows not only money exchange (which requires somebody to exchange with you), but also some bookkeeping for yourself, or your friends, or future generations.

weavejester 14y ago

How do you figure that a dollar bill has any intrinsic value? The raw materials have some minor value, sure, but the cost of making a dollar note is significantly lower than a dollar. A dollar bill is a promise of value, conceptually no different to a cheque from the US government. If you believe that money has any value in itself, then I have some Zimbabwean dollars to sell you.

eduardordm 14y ago
I did not 'figure'. What you described is representative money, not fiat/paper money.
- weavejester 14y ago
  Representative money is a particularly vague term, which usually means money backed by a physical commodity, but can also encompass fiat money as well. There's nothing inherently magical about something being legal tender. The only difference between a $1 cheque and a $1 note is risk. The probability of a cheque bouncing is more likely than the USA economy collapsing into hyperinflation.
  - eduardordm 14y ago
    As you said, once I give you a dollar bill, the transaction is over. If I give you a check it will takes days for the actual transaction to happen and the money transferred (which can possibly end up in a physical transfer of cash) Money does not depend on any kind of backing at all, for instance: the US gov has been flooding the market with dollars backed by the promise it will buy them back someday. Some countries don't even bother buying dollars anymore, they rely 100% on swap agreements. Even if the economy collapses, the dollar will still be accepted for paying your gov duties, which means it will collapse too, equalizing the system. (inflation and deflation can be too complex for me to have any useful discussion)
    - weavejester 14y ago
      You say money does not have any backing, and then immediately after you say that dollars are backed with a promise from the US government. Fiat money is backed by the faith in a countries economy and government. A dollar is worth something to me because I can ultimately exchange it for goods or services produced in the United States. If this were not possible, for instance if the USA completely closed their borders to all foreign trade and travel, then the dollar would be worthless to anyone outside the country. You mention that a cheque needs time for the money to be transferred. So you give me a cheque for $1, I would have to wait for the dollar to be transferred from your bank account to mine. But what if I didn't cash the cheque? What if I gave that cheque to someone else as a substitute for a dollar bill? If Alice gives a cheque to Bob, then Bob can pay Carol with that cheque if Carol trusts Alice is good for the debt. Finally, regarding the dollar being accepted for paying my government duties, that's only true for countries that have the US dollar as their official currency. If the USA disappeared tomorrow, the dollars I own would be worthless; they only have worth because they're backed by the USA, much has a cheque only has worth while a particular bank account exists and has funds.
      - eduardordm 14y ago
        Interesting how the cheque situation you explained (not cashing and passing it to others) is somewhat similar to what happens to swap agreements. It's really interesting how currency can manifest itself without a regulated system. The main point of my article (I think my poor writing didn't help me convey the message) is that even when we move on to electronic money (like bitcoin) people will still not want to carry them (having their own wallets at home), they will prefer a bank or service to take care of this. I think this is great because we could start using bitcoins with systems that are already in place, I even built a small demo for Verifone PoS which integrated nicely with our current systems (I run a credit card company) Sometimes I also think that electronic money, like credit cards, could not be as democratic as paper.

oleganza 14y ago

Thanks for the comment. A couple of words about "value". Value is a concept. It does not exist in reality like matter or energy. This concept applies to voluntary actions. It does not apply to involuntary actions. If a judge and a policeman force you to accept USD as a method of paying you, it says nothing about how USD is valuable for you. We can only observe that you value your life more than non-complience. So "legal tender" laws do not create any kind of value at all. I would argue that, probably, the opposite is true: when something must be enforced, it is because of its negative utility. In the peaceful situation, however, we may discuss different kinds of values. Certain things can be valuable for your own immediate needs, without much participation from other people. E.g. your pen is useful without need for cooperation with others. You may say the pen has "direct" use value. Dollar bills are almost only valuable when you can trade them for something with others. Of course, you can do paper planes or use them for cocaine sniffing, but that happens comparatively rarely. Bitcoin block chain allows not only money exchange (which requires somebody to exchange with you), but also some bookkeeping for yourself, or your friends, or future generations.