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This "fiat currency is backed by the government" is being thrown around a lot, but what does that actually mean? Can you go and redeem your dollars for a piece

This "fiat currency is backed by the government" is being thrown around a lot, but what does that actually mean? Can you go and redeem your dollars for a piece of the government? Well, obviously not, but what is it that you mean by that? And as for Mt Gox: Well, what if Toyota runs off with your money, who has jurisdiction? Who you gonna sue? May I suggest Japan's courts and Toyota? What does that even have to do with bitcoin? If you do business with someone you don't know, that may be risky, whether you give them dollar bills or bitcoin, and if you do business with someone you can identify in real life, some country will probably have jurisdiction over them and you can sue them there, no matter whether they stole your dollars, your bitcoins, or your car.

cromwellian 13y ago
Bitcoin isn't regulated, there is no oversight or regulation. There is oversight and regulation over the car industry, just like there is over the financial industry. It doesn't stop all fraud or loss, but it does stop some. I can't redeem my fiat currency for gold bars, but I can and must pay taxes for it, and that creates a demand floor. It means there will always be someone willing to trade dollars for something so that they can pay their taxes.
- zAy0LfpBZLC8mAC 13y ago
  As for bitcoin being regulated: Well, first of all, that's not an inherent property of bitcoin, but of how it is currently handled politically. And actually, I would argue it isn't actually true. In lots of places, regulation of financial services applies to bitcoin just as it does to dollars, euros, stock, funds, insurance, ... - it may not necessarily consider the specifics of how bitcoin works, but it's not like you could legally operate an unregulated retirement fund in most countries just because you are using bitcoin, and all the general laws regarding fraud and stuff obviously still apply when bitcoin is involved. As for needing dollars to pay taxes: That doesn't really make much sense, does it? If people didn't want to use it for anything but for paying taxes, how much taxes would they have to pay? If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero, and any percentage of that would still be zero, and so you would not have to pay any taxes at all, and thus would not need any dollars at all in order to pay them (and the government wouldn't even care, as dollars that noone wants to exchange for goods and services are completely useless for the government to have, so why collect them). The only way for the government to actually force the creation of a demand floor would be to force people to sell certain goods and services at government-mandated prices - in which case what you need in order to pay your taxes ultimately are those goods and services and not dollars.
  - dragonwriter 13y ago
    > As for needing dollars to pay taxes: That doesn't really make much sense, does it? If people didn't want to use it for anything but for paying taxes, how much taxes would they have to pay? As long as taxes are collected other than based on just income in the form of dollars, just as much (or possibly, quite a bit more in real terms) as if they wanted dollars for everything else as well as paying taxes. > If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero Wrong, if the market value of dollars was near zero, and you have a tax system that has taxes other than on cash income (e.g., ad valorem property taxes, income taxes that include as income the cash value of non-cash goods and services received in place of cash income, etc.) but demands taxes in dollars, than the tax in dollars will be very large numbers, which will require you to acquire very large numbers of dollars to pay. (If the value of dollars was actually zero, the tax would be infinite, but then, the value of dollars won't actually be zero, because as the value of dollars declines, the number of them needed to meet tax obligations increases, which shores up the value.)
    - zAy0LfpBZLC8mAC 13y ago
      If I was paid in bananas, what would be the value of those bananas that I would have to declare for taxes in dollars when the market value of dollars was zero? And how many dollars would I need in order to pay taxes on that income? edit: forget that, you are right, of course - I guess it's not a good idea to treat infinity as a number ;-)
isleyaardvark 13y ago
>This "fiat currency is backed by the government" is being thrown around a lot, but what does that actually mean? It means the government will do it's best to ensure the value of its currency, the failure of which would be an existential threat to its existence. I believe many people consider this low risk, that they consider the likelihood of the government failing as much less likely than a particular company or commodity failing. (Of course that depends on the government.)
- dragonwriter 13y ago
  > I believe many people consider this low risk, that they consider the likelihood of the government failing as much less likely than a particular company or commodity failing. (Of course that depends on the government.) Perhaps nearly as importantly than considering it low risk in an absolute sense, they consider the risk of it with particular government currencies as being strongly correlated to the risk of money, regardless of its type, losing its utility. If the US government loses the ability to protect the dollar so rapidly that holders don't have a viable exit to alternative currencies, that probably involves a pretty fundamental breakdown in society (particularly for people located in and around the US.)
- zAy0LfpBZLC8mAC 13y ago
  I don't think that that is what people usually mean when they say that, and it's not really true either. The goal of the government is to maintain power and hopefully a stable society or something - money is just a tool to that end, and not a goal in itself. After all, the goal of monetary policy usually is inflation, which tends to reduce the value of money. And also, currency is not the only area where governments will interfere as they deem it necessary. Really, I think what you are saying boils down to "stuff that can have a big impact on society tends to be watched more closely by the government, and it's more likely that the government will interfere to maintain the status quo" - which is a valid point, but it's neither a particularly special thing with money, nor is there any guarantee that it's always to the benefit of the governed.

cromwellian 13y ago

Bitcoin isn't regulated, there is no oversight or regulation. There is oversight and regulation over the car industry, just like there is over the financial industry. It doesn't stop all fraud or loss, but it does stop some. I can't redeem my fiat currency for gold bars, but I can and must pay taxes for it, and that creates a demand floor. It means there will always be someone willing to trade dollars for something so that they can pay their taxes.

zAy0LfpBZLC8mAC 13y ago
As for bitcoin being regulated: Well, first of all, that's not an inherent property of bitcoin, but of how it is currently handled politically. And actually, I would argue it isn't actually true. In lots of places, regulation of financial services applies to bitcoin just as it does to dollars, euros, stock, funds, insurance, ... - it may not necessarily consider the specifics of how bitcoin works, but it's not like you could legally operate an unregulated retirement fund in most countries just because you are using bitcoin, and all the general laws regarding fraud and stuff obviously still apply when bitcoin is involved. As for needing dollars to pay taxes: That doesn't really make much sense, does it? If people didn't want to use it for anything but for paying taxes, how much taxes would they have to pay? If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero, and any percentage of that would still be zero, and so you would not have to pay any taxes at all, and thus would not need any dollars at all in order to pay them (and the government wouldn't even care, as dollars that noone wants to exchange for goods and services are completely useless for the government to have, so why collect them). The only way for the government to actually force the creation of a demand floor would be to force people to sell certain goods and services at government-mandated prices - in which case what you need in order to pay your taxes ultimately are those goods and services and not dollars.
- dragonwriter 13y ago
  > As for needing dollars to pay taxes: That doesn't really make much sense, does it? If people didn't want to use it for anything but for paying taxes, how much taxes would they have to pay? As long as taxes are collected other than based on just income in the form of dollars, just as much (or possibly, quite a bit more in real terms) as if they wanted dollars for everything else as well as paying taxes. > If noone wants to actually have dollars, its market value would be zero, so if you measure the income that you want to tax in dollars, it would also be zero Wrong, if the market value of dollars was near zero, and you have a tax system that has taxes other than on cash income (e.g., ad valorem property taxes, income taxes that include as income the cash value of non-cash goods and services received in place of cash income, etc.) but demands taxes in dollars, than the tax in dollars will be very large numbers, which will require you to acquire very large numbers of dollars to pay. (If the value of dollars was actually zero, the tax would be infinite, but then, the value of dollars won't actually be zero, because as the value of dollars declines, the number of them needed to meet tax obligations increases, which shores up the value.)
  - zAy0LfpBZLC8mAC 13y ago
    If I was paid in bananas, what would be the value of those bananas that I would have to declare for taxes in dollars when the market value of dollars was zero? And how many dollars would I need in order to pay taxes on that income? edit: forget that, you are right, of course - I guess it's not a good idea to treat infinity as a number ;-)

isleyaardvark 13y ago

>This "fiat currency is backed by the government" is being thrown around a lot, but what does that actually mean? It means the government will do it's best to ensure the value of its currency, the failure of which would be an existential threat to its existence. I believe many people consider this low risk, that they consider the likelihood of the government failing as much less likely than a particular company or commodity failing. (Of course that depends on the government.)

dragonwriter 13y ago
> I believe many people consider this low risk, that they consider the likelihood of the government failing as much less likely than a particular company or commodity failing. (Of course that depends on the government.) Perhaps nearly as importantly than considering it low risk in an absolute sense, they consider the risk of it with particular government currencies as being strongly correlated to the risk of money, regardless of its type, losing its utility. If the US government loses the ability to protect the dollar so rapidly that holders don't have a viable exit to alternative currencies, that probably involves a pretty fundamental breakdown in society (particularly for people located in and around the US.)
zAy0LfpBZLC8mAC 13y ago
I don't think that that is what people usually mean when they say that, and it's not really true either. The goal of the government is to maintain power and hopefully a stable society or something - money is just a tool to that end, and not a goal in itself. After all, the goal of monetary policy usually is inflation, which tends to reduce the value of money. And also, currency is not the only area where governments will interfere as they deem it necessary. Really, I think what you are saying boils down to "stuff that can have a big impact on society tends to be watched more closely by the government, and it's more likely that the government will interfere to maintain the status quo" - which is a valid point, but it's neither a particularly special thing with money, nor is there any guarantee that it's always to the benefit of the governed.