Our monetary system (and money history)

I’m certainly not putting my life savings in it, but I’ve got money I can lose to bet on bitcoin being the future. Or at least a becoming a major currency in the world market. Given my philosophy it checks a lot of boxes for me. 

posted by justincredible

I’m certainly not putting my life savings in it, but I’ve got money I can lose to bet on bitcoin being the future. Or at least a becoming a major currency in the world market. Given my philosophy it checks a lot of boxes for me. 

Don't see it happening.  I can't see corporate or sovereign bonds ever being settled in bitcoin in any meaningful way.  You're not going to have interest rate swaps or futures settled with bitcoin.  Nowhere to put bitcoin to collect interest. 

Those are ginormous headwinds.  The big banks COULD make that stuff happen with their own cryptos, along with a very stable exchange value....because of their massive reserves of currencies around the globe with which they can guarantee liquidity and a fixed value.  I can't see a scenario where these "unbacked" crypto's do anything other than die a slow death. 

Time will tell. It is worth the minor bet I'm making regardless of what happens.

Why does it really matter what the form of currency is since the amount of a person's wealth is physical currency is estimated to be 8%?

I am much less than that, I bet I have less than $1000 of actual cash to my person.

https://www.youtube.com/watch?v=XUL4UlInlsM

posted by justincredible

To counter jmog, money has not always been coins of rare metals.Though gold coins have certainly made the best money over the course of human history.

The island of Yap used limestone stones, called Rai stones, as money for centuries. Until David O'Keefe found himself shipwrecked near the island and ruined their economy with "easy money" as it were.

https://en.wikipedia.org/wiki/Rai_stones

In Africa, they used glass beads as currency. Glass beads were cheap in Europe, so when Europeans showed up and realized they could come back with easy money, they did. They bought up resources from the locals, slowly flooded the economy with easy money, and it eventually collapsed. Leaving the natives with essentially nothing.

 

Absolutely, the "intrinsic" value is definitely a "local" thing. I mean look how much Europeans were willing to risk their lives and "pay" for spices from eastern Asia a couple hundred years ago.

If gold/platinum was extremely abundant on some other planet and the aliens showed up with a crap ton of it, it would probably ruin the Earth's economy for awhile as well.

posted by jmog

If gold/platinum was extremely abundant on some other planet and the aliens showed up with a crap ton of it, it would probably ruin the Earth's economy for awhile as well.

Indeed. But you know what they can't show up with? Bitcoin. ;)

posted by justincredible

Indeed. But you know what they can't show up with? Bitcoin. ;)

I used to play Everquest MMO. There was an exchange rate for their in game money (tunar/krono depending on version of game) to USD. The exchange rate was no different than USD to Euro, or USD to Bitcoin. 

The problem is when the game became far less popular (few people play it now) the rate basically went away. Meaning what used to be roughly $100 USD for 1 million tunar/krono, now 1 million tunar/krono probably wouldn't get you 1 USD.

Soon as bitcoin becomes less popular, like EQ/tunar, the rate will skyrocket making it worthless just like Venezuelan money.

Its not a guarantee that it will become worthless, but the chance is there and it is a decent chance.

With that being said, I wish I had bought bitcoin over a decade ago...

posted by justincredible

Indeed. But you know what they can't show up with? Bitcoin. ;)

But Bitcoin is still valued base off the USD. And, while the USD went off the gold standard decades ago, Earth's currencies are still loosely based off of gold and other rare metals.

If an alien came in with a crap ton of gold, bitcoin would be just as useless as USD.

posted by jmog

Soon as bitcoin becomes less popular, like EQ/tunar, the rate will skyrocket making it worthless just like Venezuelan money.

Its not a guarantee that it will become worthless, but the chance is there and it is a decent chance.

With that being said, I wish I had bought bitcoin over a decade ago...

I only seeing it gaining in popularity as the ecosystem evolves. I could certainly be wrong, but I'm betting on being right.

posted by jmog

But Bitcoin is still valued base off the USD. And, while the USD went off the gold standard decades ago, Earth's currencies are still loosely based off of gold and other rare metals.

If an alien came in with a crap ton of gold, bitcoin would be just as useless as USD.

Sure, it's "price" is given in USD, because that's our currency. But that isn't what gives it its worth/value. 

posted by justincredible

Sure, it's "price" is given in USD, because that's our currency. But that isn't what gives it its worth/value. 

So what gives it worth then?

Feel free to disagree, obviously. But: https://bitcoinmagazine.com/guides/what-makes-bitcoin-valuable

And again, I'm in no way shape or form making any guarantee that bitcoin will ever be anything more than it currently is. But, as a libertarian, the fundamentals are very intriguing to me.

I'm starting a deep dive into the Austrian school of economics. Bitcoin seems to align very well with that school of thought, it would not be a surprise if Satoshi, whoever the hell he/they may be, was/is an adherent of that school.

posted by jmog

But Bitcoin is still valued base off the USD. And, while the USD went off the gold standard decades ago, Earth's currencies are still loosely based off of gold and other rare metals.

If an alien came in with a crap ton of gold, bitcoin would be just as useless as USD.

Going back to this example. I think your logic would also dictate that the USD is what gives gold its worth. Since the price of gold is denoted in USD.

posted by justincredible

Feel free to disagree, obviously. But: https://bitcoinmagazine.com/guides/what-makes-bitcoin-valuable

In other words it is fiat. It is not "fiat" as in a government says it has value. It is fiat because the people who wrote the code say it has value.

Yeah, no flaw in that plan...there is a reason that the USD only fluctuates about 0.5% per day while Bitcoin fluctuates about 5% per day, or 10 times as much.

Like was said above, can't be used as normal currency as a shop may lose all of its profits by the end of the day unless their prices change by the hour.

Bitcoin is like the stock market/mutual funds.  Good investment, not good as currency. It is too volatile.

posted by jmog

In other words it is fiat. It is not "fiat" as in a government says it has value. It is fiat because the people who wrote the code say it has value.

No. The market says it has value. Because they are buying it. It's the free market in action, is it not?

Fiat currency is fiat currency, because the govt decrees it currency and forces you to use it. No one is forced to buy or use bitcoin, so that's a very bad comparison. 

posted by justincredible

No. The market says it has value. Because they are buying it. It's the free market in action, is it not?

Your own link said that the coders give it value by keeping it "rare" and scheduled releases. How is that less "fiat" than what the US Government does with the USD? 

Are the coders, so far, sticking to a set schedule and not changing it? Sure. Will they forever? who knows.

What makes it that different, fiat value wise (meaning someone is just saying it has value so it has value) if its a government or a group of coders? Either way some "entity" is just saying "this is valuable".

posted by justincredible

Fiat currency is fiat currency, because the govt decrees it currency and forces you to use it. No one is forced to buy or use bitcoin, so that's a very bad comparison. 

Little caviat, no one is forcing anyone to buy/use the USD, the only mandate is that places of business accept it. I can do as I please and barter with something different as long as the other person/company agrees with said form of currency.