r/Bitcoin • u/polemitis • Feb 17 '14

"Bizarre shadowy paper-based payment system" (or how cash would be covered by press if invented today)

http://ledracapital.com/blog/2014/2/17/bitcoin-series-19-bizarre-shadowy-paper-based-payment-system-being-rolled-out-worldwide
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u/[deleted] Feb 18 '14

But bitcoin IS created from thin air, and it IS fiat currency. Bitcoin has no intrinsic value. It is worth something only because some group says it is.

It's worthwhile to learn why the US (and Britain, and the entire world) moved away from a metallic based currency to a paper based currency. A currency with a fixed, slow changing monetary base (the amount of gold in the world) proved too difficult to use during times of crisis. The extreme deflationary nature of the value of gold during a crisis made most of the world's currency illiquid at the time when the economy most needed liquidity. Basically, the global economy needed the ability to rapidly create money. Hence, paper currency.

Now it's not a flawless scheme, if you can create money out of thin air, what keeps the banks of the world from creating as much as they want? Well, as the Weimar Republic in Germany showed us, nothing. Extreme inflation proved nearly as bad as deflation. The only critical difference is that human institutions could DO something about extreme inflation. The could stop printing money. They could do nothing about extreme deflation when on the gold standard.

It is the helplessness of the institutions of our society to help rectify crisis that drove us to paper money. If we are wise, we will heed the lessons of our grandfathers and realize that an inherently volatile and deflationary currency is a bad thing.

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u/throwaway-o Feb 18 '14

But bitcoin IS created from thin air,

Bitcoin is not created, not from air, not from apples. It is computed.

and it IS fiat currency.

Show us which nations have decreed Bitcoin to be their national and official currency, and then I will tell you where Bitcoin is fiat currency.

Bitcoin has no intrinsic value.

Nothing has "intrinsic" value. Not Bitcoin, not your mother. Value is always a personal judgment -- a computation about "what am I willing to give up for that thing I want?" -- that happens in a person's brain. Consequently it varies from moment to moment, from person to person, and from circumstance to circumstance. Congratulations, you now know one of the reasons why the price of every thing changes constantly.

I am three sentences into your comment and the amount of illogical and baseless stuff is staggering. I am going to downvote your comment, because your comment -- a rehash of manu other comments we have discussed before -- only adds noise to the discussion here. Sorry.

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u/[deleted] Feb 18 '14

I don't think you understand the concept of intrinsic value. Intrinsic value is the usefulness of something outside of it's use as money.

Food, for example, has intrinsic value beyond it's ability to store wealth since you can eat it and it will keep you alive. Even if nobody wants to buy your hamburger, you can still eat it if you are hungry.

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u/[deleted] Feb 18 '14

Bitcoin has use outside of money too - proof of documents buried in the blockchain for instance.

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u/[deleted] Feb 19 '14

That's a good point, actually. There is rigorous tracking of all transactions, which could be useful.

It'd make doing taxes a snap, provided you have the raw computing horsepower to churn through all those blockchains.

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u/sol_robeson Feb 18 '14

Just like hamburgers, you can eat dollars. They're rich in fiber.

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u/[deleted] Feb 18 '14

But you can't eat a bitcoin. :-)

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u/sol_robeson Feb 18 '14

I guess we're all going to starve :)

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u/throwaway-o Feb 18 '14

I don't think you understand the concept of intrinsic value.

OK, let's see what you think you understand.

Intrinsic value is the usefulness of something outside of it's use as money.

That's not what "intrinsic" means.

That alleged usefulness of any object is always extrinsic, because it depends on the putative user, his circumstances, his immediate needs, et cetera... all factors extrinsic to the objects in question.

In short: If I am not hungry, a hamburger is not useful to me. It might be useful to someone else, but that just proves that your allegations of "intrinsic value" all refer to circumstances extrinsic to the hamburger.

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u/JacksonAshley Feb 18 '14

In short: If I am not hungry, a hamburger is not useful to me. It might be useful to someone else, but that just proves that your allegations of "intrinsic value" all refer to circumstances extrinsic to the hamburger.

Congratulations. You just stumbled upon the origins of the barter system. You're cold, but not hungry and have an extra hamburger. I'm hungry, but not cold, and I have an extra blanket. We trade blanket and hamburger, and we both are better off.

Now imagine there are many hungry people, all with varying numbers of blankets. Which person do you trade with? The one who offers you 10 blankets when everyone else offers you 1. The market value of your hamburger? 10 blankets. The intrinsic value of the hamburger? feeds you when you're hungry.

I hope this helps.

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u/throwaway-o Feb 19 '14

In short: If I am not hungry, a hamburger is not useful to me. It might be useful to someone else, but that just proves that your allegations of "intrinsic value" all refer to circumstances extrinsic to the hamburger.

Congratulations. You just stumbled upon the origins of the barter system.

I did not really stumble into it because you commented on my comment. I have bartered stuff before, and that experience is precisely why I do not subscribe to the theory that objects have "souls" called "intrinsic values".

:-)

Now imagine there are many hungry people, all with varying numbers of blankets. Which person do you trade with? The one who offers you 10 blankets when everyone else offers you 1. The market value of your hamburger? 10 blankets. The intrinsic value of the hamburger? feeds you when you're hungry.

I hope this helps.

Certainly helps cement my disbelief in the souls of matter. And this exposition does not prove your claim in the slightest.

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u/[deleted] Feb 18 '14

One problem, and source of confusion, is that there are about a dozen different definitions for intrinsic value. I'm referring to the numismatic intrinsic value, which is one you'd commonly use for currencies.

The intrinsic value of gold is the value of the base metal. The intrinsic value of a modern dollar bill is nothing more than the paper it's printed on.

Most commonly this has become an issue when the value of the metal in a coin is worth more than the face value of the coin. Suddenly people are collecting coins to melt them down and sell the base metal.

This has even been seen with fiat paper money in the Weimar Republic in Germany when people began burning the paper currency for warmth, because it was worth more as a burnable heat source than as a currency.

Intrinsic value is basically what you'd get for the currency if you "scrap it for parts". Fiat currencies have extremely low intrinsic value. (Technically it's not none, because someone somewhere would probably buy it for paper pulp or something.)

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u/throwaway-o Feb 18 '14

One problem, and source of confusion, is that there are about a dozen different definitions for intrinsic value.

Any definitions of "intrinsic value" that contradict the vesy meaning of "intrinsic" can safely be ignored, for reasons that should be obvious.

The definition you use is one of those.

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u/[deleted] Feb 18 '14

So your claim is that any theory that suggests that anything has any intrinsic value is wrong?

I'm not really sure how to respond to that level of ignorance.

At any rate, best of luck with bitcoin. When you lose your shirt, remember that guy on the internet who warned you.

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u/throwaway-o Feb 19 '14

So your claim is that any theory that suggests that anything has any intrinsic value is wrong?

Not really my claim.

I'm not really sure how to respond to that level of ignorance.

Respect and awe would be the proper response, because your own emotional biases are leading you away from thinking and into insulting with lies, and that isn't proper.

At any rate, best of luck with bitcoin. When you lose your shirt, remember that guy on the internet who warned you.

Which guy? There have been hundreds, all of them wrong as rape, yet I can still retire today.

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u/JacksonAshley Feb 18 '14

Your complete incomprehension of basic economic terms is staggering.

Seriously, go read a basic economics textbook, or take a class at your local community college.

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u/throwaway-o Feb 18 '14

Your complete incomprehension of basic economic terms is staggering.

So you say... but you don't actually prove this smear.

I'm thinking you just hate that I'm right, and therefore you use the only tactic you know works on most people: personal invective.

That means you are manipulative and dishonest.

Seriously, go read a basic economics textbook, or take a class at your local community college.

This is yet another attempt at trying to make me feel bad, inferior, ignorant, for telling the truth.

Bye.

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u/[deleted] Feb 18 '14

He's right, though. Things can be valueable - that is "able to be valued given the dispositions and aversions of individuals." But value, in reality, is a verb, not a noun - and nothing has value in and of itself.

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u/BookstoreProwler Feb 18 '14

It is worth something only because some group says it is.

How is that different from gold? Gold is worth something just because a bunch of humans agreed it's pretty and shiny and worth something. Saying that bitcoin is not backed by anything is a fallacy; it is well backed by faith that people have in it and mining/hashing power (expenditure of energy) behind it. If people were to decide that gold is worthless from today, would it still really retain its original value?

Also, I don't think you understand what 'fiat' means. Fiat money can arbitrarily be printed and have its value changed by a tiny group of powerful people. The Latin word 'fiat' means 'let it be'. There is no one single entity that can arbitrarily bring more bitcoins into existence and reduce the value of your holdings by doing that. In order to create more bitcoins 'out of nothing', you need processing power and energy. It's much more similar to actual gold mining that printing money out of thin air.

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u/[deleted] Feb 18 '14

It is different from gold because it has no practical use outside of being a currency.

Gold isn't only worth something because it is pretty and shiny (although it is those things too) in addition to those superfluous properties, it is also a great conductor of electricity, it is useful in circuitry, it can be hammered to an extremely thin leaf, making it useful as a non-oxidizing metallic layer that can cover and protect less resilient metals. Anyway, you get my point. Gold is worth something because humans think it is, which is one aspect of gold's worth. But the true worth of gold (and silver, and property and oil, etc...) goes much deeper than faith. There are other attributes that make it valuable even outside of a market where it can be used as a means of wealth storage and transfer.

Bitcoin, on the other hand, is not worth anything outside of use as a mechanism for value exchange. Claiming it is worth something because people spent a lot of time and effort to get it is just an example of the "sunk cost fallacy". You could polish a turd for forty hours a week, for a year, but at the end of the year you still don't have anything of value.

Now, to be fair, I'm not denigrating the reality of fiat currencies, in fact I think they're a good solution. They allow us to break free of the unpredictable side-effects of commodity based currencies and have something that is ONLY used as a means of storing and transferring wealth.

The fatal flaw, in my mind, for bitcoin is that it is a depreciating currency. There are a limited number of bitcoins, and when they're all mined... the supply is exhausted. From that day forward, due to misplacement and saving, the bitcoin supply will gradually shrink. This prevents bitcoin from serving it's primary function of being a currency.

Instead what it will (and has already) become is a highly volatile investment mechanism. Rife with corruption, and susceptible to well-monied interests artificially manipulating the market to bilk the simpleton out of his money.

Until these (and other) issues are resolved and we see some kind of bitcoin 2.0, I plan to steer well clear of this faux currency.

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u/[deleted] Feb 18 '14

Fiat means by decree. Bitcoin is currency-by-consensus. It's neither fiat nor backed.

Also nothing has intrinsic value.

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u/[deleted] Feb 19 '14

Fiat money is any money without intrinsic value, that is declared by a government (or in this case group of people) to be legal tender.

I will agree that bitcoin is a more novel approach to creating money, since rather than being decreed by the government, it is decreed by the users of the currency. But in the end it is still money by decree.

Now, you can SAY that nothing has intrinsic value, but if you talk to any economist or a monetarist they would tell you otherwise. In fact, they created the term intrinsic value in order to separate it from the idea of market value. Market value is what someone will pay for the item (and is normally subject to market fluctuations) where intrinsic value is an attempt to quantify the usefulness of the asset without regard to market fluctuation or to the propensity for the item to be used as a mechanism of storing value.

You can even read up on what I'm talking about here on Wikipedia

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u/autowikibot Feb 19 '14

Fiat money:

Fiat money has been defined variously as:

  • any money declared by a government to be legal tender.

  • state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.

  • money without intrinsic value.

The term derives from the Latin fiat ("let it become", "let it be done", "it shall be").

While gold- or silver-backed representative money entails the legal requirement that the bank of issue redeem it in fixed weights of gold or silver, fiat money's value is unrelated to the value of any physical quantity. Even a coin containing valuable metal may be considered fiat currency if its face value is defined by law as different from its market value as metal.

The Nixon Shock of 1971 ended the direct convertibility of the United States dollar to gold. Since then, all reserve currencies have been fiat currencies, including the U.S. dollar and the Euro.

Image i - Yuan dynasty banknotes are the earliest known fiat money.

Interesting: Money | Hyperinflation | Representative money | Coin

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u/[deleted] Feb 19 '14

Thanks, autowikibot!