90% of money in the world don't really exist?

DavidSnider
Gold Member
There is an interesting argument being made that its intrinsic value is technological and that it doesn't need to be a store of value. That the value is the ability to wire money extremely cheap and anonymously. IE. Person A buys $100 worth of bitcoins, sends them to Person B who immediately sells them on the market. Evo what's a fake currency? To David's point it's not about whether I trust anonymous people over the internet, it's about whether I trust the safety of the cryptocurrency system. At this stage I'd say no, but in principle I think the system could be made very secure. To Russ's question as to the why of anarchism, I believe all institutionalized power is inherently corrupt, and the less of it there is the better. Evo Mentor Evo what's a fake currency? A currency that has no backing. Who backs bitcoins? What amount is guaranteed? What collateral do they have to back it? Who do you go to to get your money back if it goes down the drain? So it's fake because it doesn't have the equivalent of an FDIC? Evo Mentor There is an interesting argument being made that its intrinsic value is technological and that it doesn't need to be a store of value. That the value is the ability to wire money extremely cheap and anonymously. IE. Person A buys$100 worth of bitcoins, sends them to Person B who immediately sells them on the market.
David, I have the ability to instantly transfer and receive money worldwide right now with "real" money. Did you know that paypal does this? You can send money to anyone via e-mail. It's just one of many.

Evo
Mentor
So it's fake because it doesn't have the equivalent of an FDIC?
You tell me, who is backing it? What are they backing it with? What is the guarantee? What is their ability to back it?

DavidSnider
Gold Member
David, I have the ability to instantly transfer and receive money worldwide right now with "real" money. Did you know that paypal does this? You can send money to anyone via e-mail. It's just one of many.
Yes but as far as I know PayPal charges a fee for this and is far from anonymous.

You tell me, who is backing it? What are they backing it with? What is the guarantee? What is their ability to back it?
Nobody, is backing it, but I'm not sure that means the currency is fake. The main reason I'm having this debate, and what I find interesting about it, is that it exposes what people think is real verse what is not real. It's the perfect platform for the question of what is value? To my understanding of credit based money, the value of the money is purely a human contrivance that is dependent on what you find to be credible.

Evo
Mentor
Yes but as far as I know PayPal charges a fee for this and is far from anonymous.
It's like a dollar for a \$500 transfer and they do the foreign money exchange.

Evo
Mentor
Nobody, is backing it, but I'm not sure that means the currency is fake. The main reason I'm having this debate, and what I find interesting about it, is that it exposes what people think is real verse what is not real. It's the perfect platform for the question of what is value? To my understanding of credit based money, the value of the money is purely a human contrivance that is dependent on what you find to be credible.
No, money issued by the US actually has backing and there is the FDIC. But paranoid people have problems trusting anyone, and they usually get screwed, IMO.

russ_watters
Mentor
Ultimately, the value of *anything* in a market economy is determined by what people *think* the value is, whether there is something real behind it or not. The US government has a massive wealth with demonstrated staying-power, so people have faith in the stable value of its money - which therefore causes it to be stable.

Because Bitcoin is new and interesting and fun (novel), there must be a component of novelty in its value. The question is whether once that novelty wears-off if there's anything left to give it value.

Bitcoins have attributes that I think even the supporters should agree, do not have mass appeal. The fact that ordinary people like me and Evo are genuinely confused by the appeal is an indicator of limited mass appeal. It really smells like a fad or even a scam.

Another important issue that somehow I missed before is that the performance of Bitcoin has actually been a mutually exclusive attribute for different purposes. The most important attribute of currency is stability. The most important attribute of an investment is growth. These are mutually exclusive ideas that are nevertheless both being attributed to bitcoin. If bitcoin's value grows, that is a deterrent to using it as a currency. If its value stabilizes, that is a deterrent to using it as an investment. This tells me that its use lacks rationality. Again, that points to a fad.

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I think if BitCoin ever got out of the 'beanie-baby' stage and people started taking it seriously I'm fairly sure most governments would make it illegal and find ways to cripple the infrastructure supporting it so badly as to be almost unusable.
Mastercard and Visa would surely lean on Amazon and so forth to not accept it. But if it gets popular enough Amazon would rebel. Amazon doesn't like to pay Mastercard 3% on each transaction. If bitcoin is popular enough then Mastercard's threat loses its force, and would actually work against them.

Governments might not like the anonymity. But my guess is that governments have more important things to worry about than bitcoin.

Here's what I don't understand: Are you less dubious about the faith and credit of a group of anonymous people on the internet?
They aren't anonymous. The whole point is that the algorithm is open, not secretive. There is no secret that can be lost.

Barack Obama's ancestors were exposed to a fiat currency. The natives of Kenya were self-sufficient so they would not work for wages. The colonists imposed a tax on huts. The natives had to pay the tax in cash. To get the cash they had to work for the colonists.

Many times I read that the US dollar works the same way, but I always doubted that. Many corporations pay no tax, but this does not at all reduce their desire for dollars. The dollar's true value lies in being a convenient medium of exchange. The contribution of the US government is to supply a currency that is difficult for others to counterfeit and ability to prosecute those who do. I bet that it is legal to counterfeit bitcoin, so they have to depend on their algorithm and public trust in such.

That is, the tax angle may get the whole thing started, but if somehow magically Utopia arrived and we no longer had to pay taxes there would still be a demand for dollars. People would still need a medium of exchange.

It's hard to say what they full faith and credit of the US government means. I guess it means that they are trusted both to avoid inflation that rapidly degrades the value of the currency, and also not to default on its debts.

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mheslep
Gold Member
Reference on the definition of a fiat currency:

Principals of Economics said:
Fiat money, such as paper dollars, is money without intrinsic value: It would be worthless if it were not used as money
That is, the US government can only produce more of the same on demand; there is no pot of gold or other alternative security behind the curtain. The US M2 money supply is around 10 trillion dollars and, for the last two year period, is continuing to grow faster than it ever has since 1980.

BWV
no money has any intrinsic value, its a fallacy to believe that gold or any other substance represents "real" money.

Evo
Mentor
It's not money.

Bitcoin: Whatever It Is, It's Not Money!

The basic reason: it has no fixed value. It trades like a stock or commodity. In recent days it has been crashing after a spectacular rise in terms of dollars. Such volatility makes it useless as a means to do transactions. Money has only one purpose–it makes doing transactions, that is buying and selling products and services and securities, infinitely easier than barter. All the other purposes of money flow from this basic function.
http://www.forbes.com/sites/steveforbes/2013/04/16/bitcoin-whatever-it-is-its-not-money/

no money has any intrinsic value, its a fallacy to believe that gold or any other substance represents "real" money.

Gold has very useful properties and is in demand as both an industrial and decorative material. Gold is very electrically conductive and is used as a ground plate in computer boards.

It's not money.

Bitcoin: Whatever It Is, It's Not Money!

The basic reason: it has no fixed value. It trades like a stock or commodity. In recent days it has been crashing after a spectacular rise in terms of dollars. Such volatility makes it useless as a means to do transactions. Money has only one purpose–it makes doing transactions, that is buying and selling products and services and securities, infinitely easier than barter. All the other purposes of money flow from this basic function.

http://www.forbes.com/sites/steveforbes/2013/04/16/bitcoin-whatever-it-is-its-not-money/
To have a currency with a truly fixed value one would have to have a very controlled market in which the price of every commodity was fixed. Forbes appears to be arguing in favor of the economic system of the Soviet Union.

Looking further at bitcoin I have to say that it is an ingenious thing. I'll assume that it is proof against counterfeiting. The big problem is this. The supply of money has to grow in such a way that the price is more or less stable. Recently this has been done by having it under the control of some sort of Alan Greenspan somewhere. The bitcoin people wanted to set up something that is self stabilizing and under no ones control.

What they do is very clever. The bitcoins can only be obtained by using large amounts of computer power, and this costs money. It is also a readily available technology that cannot be monopolized. So it "costs money to make money." The idea is that the market will reach a dynamic equilibrium. It is very much to be expected that this will take some time, maybe a year or two.

I really can't tell whether it will work or not. The supply always increases and never decreases, so the long term trend would seem to be a steady decline in value. This is a good thing as it discourages saving of bitcoin. I actually had this idea of a currency that intentionally and predictably declines in value, but never pursued it. Some guy in 1890 or so thought of it first. The basic problem is that money has two functions: as a medium of exchange and as a repository of value. They aren't all that compatible and this creates a basic tension. There is a lot to be said of splitting money into two forms. Bitcoin seems deliberately designed to be a good medium of exchange and poor repository of value. I approve. Traditional currencies can then concentrate on the repository of value function. Everyone will be better off.

What it more, it is the first non-national currency with no intrinsic value. That's great. It seems to me that they have taken a very abstract real world problem and come up with a clever real world solution.

I can't wait till ten years from now when I can post "Bitcoin won, and you were wrong".

Whoops! I was wrong. It gets harder and harder to create bitcoins as time goes by. So the value would tend increase over time, which I think is a bad idea. This encourages hoarding, speculators and market instability, which is exactly what I don't want. It's been around for three years or so and is still very unstable, which is a bad sign. On the other hand only one bug was found in the system which allowed counterfeiting, so that was a success.

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Ryan_m_b
Staff Emeritus