[RoboPlumber]

The confusion is probably from your internal semantics of the phrase "backing".

When you say

> the "we the nation" backing of fiat money.

what do you think that means?

First, I'll tell you what it doesn't mean: It doesn't mean that people are forced to accept it in the general case. It doesn't mean that the government guarantees it to have some value. (It's not even clear what that would entail.) It doesn't mean that if you undervalue a dollar, the army is going to come in and shoot you.

Here's what it does mean: First, the court can compel you to repay debts or settlements in that currency. That's the "legal tender" part. Second, you have to pay taxes in it (usually).

So what, exactly, do you think the advantage of "government backing" is? It's really not tremendously useful. It's also completely orthogonal from the value of the currency, which (along with its time derivatives) is a much more relevant property.

Here are a few reasons I think Bitcoin is better than USD for many applications:

* It's more private than anything but cash/barter, especially with mixing

* It's not subject to arbitrary freezes or confiscations (which has happened to me, without warning, after a paperwork error by the state comptroller)

* It's not subject to arbitrary export controls, so it's more convenient for international payments

* It's cheaper than most existing money transfer systems (Western Union, Paypal, etc.), even with the currently elevated transaction fees

* It's deflationary. You can argue all you want about whether this is good or bad for "the economy", however you define it, but all I know is that it's good for me, a person who wants a store of value. In this respect, it emulates a physical commodity like gold (although with gold, you have the substantial risk of asteroid mining saturating the market many years from now).

* Cash and gold has some of the advantages listed above. Advantages of bitcoin over cash and gold: Easier to move long distances, easier to carry large amounts without attracting notice, harder to steal. Advantages over cash alone: Harder to forge (or inflate). Advantages over gold alone: More fungible.

[ddebernardy]

> So what, exactly, do you think the advantage of "government backing" is?

By backing I meant a .gov's ability to tax or confiscate wealth, or for that matter impose capital controls. You incidentally - and intriguingly, at least to me - highlight the second point, if not also the third, as strong points for Bitcoin. Might I be missing something?

It's like, if shit hits the fan, my dollars are worth whatever US .gov and its taxpayers agree they're OK with, backed by .gov's ability to enforce (through all of the latter three points) that it's worth this or that.

In Bitcoin's case, or other crypto currencies', it seems like pure faith built-in with no ability to say "hey we've a taxpayer down the line". If the thing goes crashing to the ground, there's no guarantee anyone will pickup the tab - in steong contrast with fiat money, where a Nation's work output offers some guarantee on the value.

[RoboPlumber]

> By backing I meant a .gov's ability to tax or confiscate wealth, or for that matter impose capital controls.

Neither of these are an advantage of a fiat currency. They are both very bad for users of the currency. These are precisely the reasons people prefer Bitcoin.

> Might I be missing something?

Yeah, although I can't imagine how. People don't like having their money stolen or messed with. That seems fairly clear to me. Bitcoin makes it a lot harder to do either of those things, which is an advantage.

> if shit hits the fan, my dollars are worth whatever US .gov and its taxpayers agree they're OK with

This statement doesn't make any sense. Can you please explain what your reasoning is here? Not to be condescending, but this sounds like you only have a very vague idea of what value is.

> backed by .gov's ability to enforce (through all of the latter three points) that it's worth this or that.

This is a very important lesson to absorb; a government cannot "enforce" a value. That doesn't even make sense. The closest thing they could do is kill people who use the market value, in which case all you're doing is devaluing other currencies by making them more dangerous to use. This catches up with you very quickly, when you can no longer afford to interact with external markets that don't have a crazy military trying to shoot the truth out of existence.

> with no ability to say "hey we've a taxpayer down the line"

Again, what does this even mean? The dollar doesn't derive its value from the existence of people who pay taxes in USD. Not even close.

> If the thing goes crashing to the ground, there's no guarantee anyone will pickup the tab

If the dollar goes crashing to the ground, no one will "pick up the tab either".

> fiat money, where a Nation's work output offers some guarantee on the value.

OK, this also doesn't make any sense. Fiat money doesn't entitle you to dividends sourced from tax revenue. There is zero relationship between the number of dollars and the "work output" of the US. What region's "work output" is gold tied to?

Again, I'm not intending to be condescending here, but I'm not sure how else to say this; I think you have a very deep and fundamental misunderstanding of what money actually is. Most of your arguments here "aren't even wrong", so to speak. They are just completely out of the ball park. There's no easy fix for this, and I can't recommend any particular reading. There are probably some good economics courses on coursera or something. But if you take nothing else away from this post, at least take this: having a dollar entitles you to nothing from the government. The government makes no guarantees about the dollar. The only relationship between the dollar and the US government is that it's the "approved" payment method for court-mandated debt repayments and tax payments, and enjoys a number of less significant legal privileges, especially w.r.t bank regulation and government debt instruments.

[wjn0]

So, then a primary argument for the current/recent instability (is presumably?) is its relative widespread lack of adoption? Does economic theory tell us n = number of people using currency such that we can begin to expect more stability? (Presumably, as some function of average transaction size?)

Forgive the assumptions and less-relevant questions, but I appreciated your points and you seem to have a good knowledge of the topic. Edited quickly for clarity.

[RoboPlumber]

Experimental evidence suggests that having lots of users isn't a guarantee of stability. See Venezuela (right now), Zimambwe Dollar, German Reichsmark, Argentine Peso, Mexican Peso, Thai Baht, etc. All of these had tremendous collapses despite a solid user base.

However, I think you are right in that a small user base implies some level of volatility. A large user base is perhaps a necessary, but not sufficient, condition for stability. Bitcoin's instability is also generally overstated, in my opinion. There have only been a few instances where it was so volatile that you wouldn't want to use it for day-to-day transactions.

[wjn0]

> Experimental evidence suggests that having lots of users isn't a guarantee of stability. See Venezuela (right now), Zimambwe Dollar, German Reichsmark, Argentine Peso, Mexican Peso, Thai Baht, etc. All of these had tremendous collapses despite a solid user base.

True. I don't think this negates your point, but it's worth noting that in each (or at least most) of these cases there's a feedback loop between the financial and socio/political collapse which might increase the currency's volatility. In fact, perhaps we see this even more strongly with Bitcoin vs. a state-backed currency due to the current speculatory climate, but this may be another false characterization of the current culture (I'm not sure).

> Bitcoin's instability is also generally overstated, in my opinion. There have only been a few instances where it was so volatile that you wouldn't want to use it for day-to-day transactions.

As someone who's only tinkered with Bitcoin and tends to otherwise read about it only in the news in situations like this, I think you're right.

I appreciate your reply!