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Your (traditional currency) bank balance is "just bits". The only reason that a number stored on a bank's computer has value is that we have all agreed to trust
by foxylad 14y ago
Your (traditional currency) bank balance is "just bits". The only reason that a number stored on a bank's computer has value is that we have all agreed to trust the bank not to mess with that number. They are allowed to add and subtract from it in very limited circumstances, usually only when they modify another bank balance by the same amount (unless it's a bank in Cyprus!).
Bitcoin replaces that trust in banks with fancy cryptography. Assuming the cryptography is up to snuff, there is no reason why people won't come to accept it's value in time, just as we now accept that the "bits" that represent our bank balance denote value.
- nhaehnle 14y agoThought experiment: I set up my own "bank", which is really just a little website that maintains accounts and a transaction ledger. I somehow manage to convince a large fraction of the population that I will follow certain rules and not mess with those numbers. Assuming that I do manage this, do you think those numbers on my website would become valuable? If yes, why? If no, why do you believe that trust is the reason that fiat currency is valuable? Consider the following alternative explanation: Fiat currency is valuable because there is demand for it. The prime source of demand for fiat currency is for taxes. The secondary source is from all sorts of contracts (in particular, mortgage and other debt service) that require lots of people to obtain it. Trust comes in only as a tertiary source, at best.