[jmyeet]

This doesn't go far enough.

The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset.

Crypto in any form doesn't solve the trust problem other than a very narrow slice because as soon as you interact with anything outside of the blockchain, you're adding trust. Even on the blockchain, all the math in the world doesn't avoid the trust problem (eg it's been estimated that over half the Ethereum are owned by less than 10 entities).

Even backing a currency with gold (or any other asset) doesn't solve this problem. Additionally, it's not even correct. In years long gone the US government just maintained a peg between the US dollar and the gold price. Any reserves (which were never 100% anyway) are irrelevant to this. You don't need them. You just need sufficient capital to maintain the peg. Even if you had 100% reserves you still have to trust the government to honor redemptions and not to change the peg. If you have sufficiently deep pockets, you end up not even having to spend much money because no one challenges your peg.

So what actually makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might.

So going back to algorithmic stablecoins, it doesn't matter how much you have in reserve. It doesn't even matter if there's new money entering the system (as this article claims) to maintain the peg. If people lose faith in the "stable" coin, it's finished.

[pid-1]

> The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset

Most non currency assets are cash flow generating financial instruments.

If analysts don't believe a company is worth a dime, it can show them wrong by being profitable and paying dividends.

Edit: I think my point is - even if no one else believes in a stock or bond, you can still profit by "being right". The same is not true for currencies.

[Ntrails]

I cannot remember where I read this, but it was a view that basically the mere concept of a "company" is a collective fiction that we all believe in. As are nations, laws, etc etc. The idea that "tesla" is an entity one can interact with. That this "tesla" thing has value in and of itself. They're derived from beliefs in a system. Which could evapourate and render the idea of value meaningless.

I don't think this is very useful, since "yeah but without society there are no companies, money is nothing" doesn't take us very far! But hey.

[kuhewa]

It's useful from the standpoint it was explained in Sapiens (like how the fiction of the LLC allowed certain innovations) but not so much in this context. You can believe in the corporation or not, the important thing is that you won't go personally bankrupt if your company does, if the relevant 'belief system' aka the US judicial system evaporates, we have bigger problems to worry about than well, anything else in this conversation

[Avicebron]

I agree with GP to some extant, but yeah..the old "nothing matters in this semi infinite void we call reality" isn't usually much of a starter.

[kuhewa]

It's worth talking about in so far as trust is important for some concept to work. Like.. how you will help your friend move apartments because you know he will help you in a year or so. Or whether a successful (thus far) crypto coin could go to zero.

But the whole point of a corporation is it is a legal entity, you don't need to trust anything for it to work other than other than.. idk the fabric of our society.

[BlueTemplar]

But it's kind of a problem that TFA tries to "prove" otherwise without a big disclaimer about the limits of his model in the real world...

[9notorp]

>I cannot remember where I read this, but it was a view that basically the mere concept of a "company" is a collective fiction

I think I read something similar in Sapiens.

[simonh]

So the other way to say this is that companies are just as real as anything else in our society.

[kuhewa]

That was kind of Harari's point when using that lens in Sapiens, it wasn't that the corporation was some flimsy imaginary concept, it was that it is a fiction in the same way democracy or religion is.

[fantasticshower]

It's interesting but not very useful. What's also interesting is that almost everything (actually everything?) is concepts that we collectively believe in.

This is my takeaway from the book The Case Against Reality.

[crawfordcomeaux]

> I don't think this is very useful, since "yeah but without society there are no companies, money is nothing" doesn't take us very far!

This reminds me there always exists a path between the current society & a completely different one, and a short path to something completely different is to start from scratch.

[galaxyLogic]

Company is not fiction to believe in, it is an agreement a contract by the society encoded in a set of laws. The laws governing companies, unlike the market-value of assets, are very resistant to change. Market values change very often, especially values of crypto-currencies. Laws don't change often.

A company exists and has valid standing not because people believe in it but because the law says it exists. It is easy to prove beyond reasonable doubt that a company exists (or not). That has nothing to do with whether people believe it is valuable.

[drdeca]

I suspect that a company is still a natural abstraction in the sense described by John Wentworth (wrt “information at a distance” and such).

[jmyeet]

My point is more fundamental than anticipating market mispricing within a certain set of constraints.

How does a company make money? Why does it distribute that money to shareholders? Why can't someone working at the company just keep all the money? Why can't the bank just confiscate it?

The answer at all levels is the the threat of violence. Property rights (eg to the money) are enforced by the threat of state-sanctioend violence, for example the police showing up at your house and throwing you in jail if you don't comply with laws.

So why would the police show up and do that? Why would the courts enforce those laws? It's not just the threat of violence, essentially. It's the collective belief in that system.

[kgwgk]

Why stop there? What makes an asset exist at all if not someone’s belief? Persistence is not a physical property as much as a phenomenon of perception. We believe that what we see is what we saw - and we believe that who we are is who we were. Etc.

[xphos]

Have to agree an asset is not a currency, in some case one can consider labor an assets and by extension an asset that can produce value. Labor might be unique in that regard but property seems to be similar you can derive value from nothing by putting property to use and since you can always change what the property produces. However, without any property, you physically cannot produce anything.

[tim333]

My house is valuable to me even if there isn't a collective belief in it. Most financial assets are backed to some extent by real assets.

I'm happy enough to put value in USD or imaginary-coin if I can swap my holdings in them for a nice house/car/jet. You don't really need "economic, military and even cultural might" - just for the currency to be accepted somewhere where you can buy real assets and for the supply to be limited so it doesn't inflate to nothingness.

[tlb]

The collective belief that you own your home is a crucial part of its value. If you come home and find a bunch of people partying in your kitchen, you can tell them to leave, or call the police and they'll drag them out. That's all due to the collective belief that you own your house.

Without that collective belief, owning anything is a huge effort to defend it against whoever else it might appeal to.

[mettamage]

Yep, ultimately it's all belief. The fact that we have countries is a collective belief as well.

It's feels very similar to a game. A serious one at that, with real consequences. It does not have a clear winning and/or losing condition though.

[abakker]

It is a game! Hence “game theory” and other reductive, useful abstraction used to describe and model the real world.

[galaxyLogic]

There's a big difference. Everybody may believe that you own your house. And everybody may believe you own 100 bitcoins. At issue is what is the exchange rate between bitcoins and say US dollars. If that goes to zero then you've lost the value of your bitcoins. You have not lost the ownership of your bitcoins, they have lost their value.

Whereas for your house, no matter what its market value would be you still have the right to live there and prevent others from doing so.

[DoughnutHole]

That is entirely still a societal norm and a statement of personal belief about specific rights. You might believe those rights to be inalienable and that your property is necessarily yours, but that doesn't actually translate to to a guarantee of maintaining that possession in the absence of the institutions that currently protect that ownership.

Anyone who's lived through a massive societal upheaval, collectivisation, dictatorship etc can attest to this - your ownership of property only means anything in as much as it's protected. If the state fails, or if society's understanding of private property radically changes then your investment is only valuable if you can hold on to it.

Even in the private-property loving West the value of an individuals property can often turn out to just be the amount that the state decides to pay them when they seize it via eminent domain.

[galaxyLogic]

All true but still I think there is a clear difference. Assets can and are traded in exchanges. Their value goes up and down based on what is the "shared belief" of their expected value. Laws are not traded. They can change but do so many orders of magnitudes less frequently than the value of assets on the market. Laws are not beliefs they are societal contracts.

[zikzikzik]

> Laws are not beliefs they are societal contracts.

Societal contracts are just collective beliefs. When the number of people upholding a particular societal contract goes to zero it ceases to exist. Just as any other belief, it requires believers to exist. Unlike, for example, the space rock that some group of sentient organisms decided to call Mars.

[smaryjerry]

Pretty sure when Detroit went bankrupt they were basically paying people to come back to the city. There are ghost towns for a reason, because homes do lose value, even for the person who can still live there. Bitcoin right now is in the middle of nowhere like these ghost towns that can fail if the one company supporting them fails or the farmers just give up. It’s becoming a bigger city, to continue the analogy, but is still in the gold rush phase, where all the miners have come out looking for something. Maybe the city becomes San franscisco or maybe we find a ghost town in 100 years once everyone realizes the gold ran out.

[galaxyLogic]

I'm a crypto-sceptic myself. Crypto is a currency. The value of most currencies goes up and down based on the expected production/export capabilities of countries supporting their currency. But crypto is not associated with any country, so there is no country whose economic output could make crypto stronger or weaker. Perhaps this is a naive viewpoint but I think best way to look at crypto is as a currency and think what makes some currencies strong and some weak.

[kuramitropolis]

Rights are constructs, let's talk capabilities.

If the value of _dollars_ goes to zero, the house doesn't collapse. The social consensus and enforcement mechanism that protects your right to live there probably does though

[tim333]

Well such is the way of the world that you may have to defend your property or have someone do it on your behalf. Animals have homes and territories that they defend in nature too so it's not unique to human belief systems.

[mihaic]

That feels to be reductionist beyond the point of usefulness. Treating physical objects and violence as abstract concepts seems to always lose something, although I find it difficult to pinpoint exactly what.

[doctor_eval]

I'm not an expert in this, but I think that it basically starts with the political concept of legitimacy [0] - government, with the consent of the governed - which leads to the monopolisation of force (police, army etc), which provides a concrete means of enforcement for the collective belief of "property".

That is, the reason that you can call the cops when strangers take over your kitchen is because we have a very real police force, whose are permitted (even required) to use force in order to protect your property. Property may have started out as a collective belief, but the processes put in place over the last few centuries - especially the concept of Rule of Law [3] - have made it very real.

But ISTM that crypto works outside of these norms. From what I can see, it has no effective rule of law; no possibility for the creation of an effective enforcement body. There appear to be no consistently applied consequences of cheating, either intentional (eg, rug-pulls) or not. People seem to steal money using crypto scams all the time [1]; from what I've seen of it, the world of crypto seems to pretty much embody my personal, nightmare interpretation of anarcho-capitalism [2].

So while I agree that property is a collective belief in theory, in practice it has the rule of law, the legitimacy of the state, and the monopolisation of force supporting it. Crypto seems to have none of these things supporting it; I'm yet to be convinced that it is even, actually, property.

[0] https://en.wikipedia.org/wiki/Legitimacy_(political)

[1] https://web3isgoinggreat.com

[2] https://en.wikipedia.org/wiki/Anarcho-capitalism

[3] https://en.wikipedia.org/wiki/Rule_of_law

[pfraze]

Ethereum has intentional soft and hard forks; whatever that process is, that’s it’s government. Whether that government chooses to address problems which challenge Ethereum‘s legitimacy is up to them.

[doctor_eval]

But that government is not legitimate, in the political sense. There is no mechanism for the population of users, as a whole, to vote.

In a sense, it sounds like a political party that splits in two. It’s not democratic; maybe it’s technocratic.

[pfraze]

I think that’s the right follow up question to explore - what establishes political legitimacy. Or perhaps more accurately, what best establishes political legitimacy. There’s arguably a vote in the sense that users of the network choose which fork to adhere to. This isn’t a perfectly distributed vote; you depend on the miners, the validators, the client developers, and the exchanges to establish a concept of the “current fork.” (God help us if all the exchanges ever decided differently than Vitalik what “ethereum” is.) Regular users have a minimal voice in that decision, but it’s theoretically possible for anyone to start a new fork and campaign for its adoption.

Personally I think the question of political legitimacy doesn’t make the notion of blockchain governance wrong; it just highlights that the system as constructed may have problems.

[foobarian]

> From what I can see, it has no effective rule of law; no possibility for the creation of an effective enforcement body.

In early crypto days there was a general feeling that the "power of math" (i.e. how hard it would be to break various hash/public key algorithms) is the enforcement body and the reason you don't need a government and a police force. Maybe smart people saw through that, or maybe the experiment just had to be done to see how this actually turns out in practice.

Your points are why I thought an official US crypto coin could work. But there is not that much net added value compared to what credit cards offer.

[jqpabc123]

This "collective belief" is somewhat more than mere "belief".

It has been translated into laws and social contracts backed by established enforcement that is sufficiently effective and has been demonstrated to the satisfaction and judgment of most people.

It's true that in the event of nuclear war, this could all evaporate --- but this probabilty is low enough for most people to reasonably ignore. Labeling this a "belief" is thus somewhat disingenous in the fact that it is reason rooted in logic and judgment and probability.

[tlb]

The claim that major elements of the social contract can be derived through logic and reason is controversial.

If you find yourself believing that our own social contract is the only logical & rational one, or at least the likely result of social progress, you might try reading Graeber and Wengrow's The Dawn of Everything. It covers a very wide range of alternatives that all made sense to the people in those societies at the time.

[jqpabc123]

The claim that major elements of the social contract can be derived through logic and reason is controversial.

The "logic and reason" here has to do with the fact that the social contract is sufficiently real and functional enough to transcend mere "belief" in most people's lives.

[snikeris]

In other words, the belief is pragmatic.

[mrpopo]

> It has been translated into laws and social contracts backed by established enforcement

So, the "long dick" of the US government that grand-parent was talking about. Society creates value.

[jqpabc123]

Not just the "US" government --- most governments around the world do the same.

[hapiri]

"beliefs" here is a sarcastic term but of course they refers to the written legal contracts.

[afiori]

> if I can swap my holdings in them

The reason people are willing to give away their house/car/jet in exchange for crumpled is the existence of the market protected by that "economic, military and even cultural might".

Trust here is not in that the some big guns are protecting your cash, it is rather about you trusting that the next day/month/decade people will want that cash about the same as today.

[coldtea]

>My house is valuable to me even if there isn't a collective belief in it.

That's because it also has use value (and land use value), etc. Crypto coins don't have any.

>Most financial assets are backed to some extent by real assets.

Negligibly so in modern economy.

[silon42]

House is only valuable as long as the US military has enough $ to defend from Russia/China (taken to extreme, but not if you were in Ukraine).

[floodle]

You're confusing having value to others with having value to yourself.

I can be happy with a nice rock I found on the beach if I really love it and it's important to me. However, what we are taking about here is are assets which have a wider value on an open market.

[tim333]

Yeah but if it has value to me it probably does to others. These kind of things, good houses, land, gold etc. have a good record of retaining some sort of value over long periods of time.

[KptMarchewa]

>My house is valuable to me even if there isn't a collective belief in it.

If people suddenly stopped believing that living in your location makes sense, the value would drop very much. See ghost towns.

[tonyarkles]

To a certain degree yeah, but that has an interesting balance of, not being a finance guy, intrinsic vs extrinsic value? A great example is my rural property; my wife paid $1 for the land 20 years ago, and I paid $300 for the 40 year old mobile home we put on it. On the market, it probably wouldn’t be worth a whole lot, but to us it is an absolutely wonderful place that we treasure very much. It’s exceptionally unlikely that anyone would ever offer us a price that would convince us to sell. No one really wants to live in the area we live in! (Although Starlink has had a disproportionate effect on that, now that we’ve got wonderful internet out there)

A different belief shifting, though, would change the equation dramatically: either a shift towards less exclusive property ownership (e.g. theoretically requiring any non-primary residence to be rentable or something crazy like that) or dramatically higher tax burden for non-primary residences. If the annual upkeep costs were to increase, the external value wouldn’t change much (it’s already pretty close to zero), but the intrinsic value for us would drop dramatically and we might consider dumping it.

[gitfan86]

I would happily use Tether, Shib, beanie babies, USD as medium of exchange if I trusted that the exchange took place in a timeline I wanted. I'm not comfortable holding tether for more than a few minutes, and I'm not comfortable holding USD for more than a few years.

The problem is getting stuck holding the asset for a long period of time. USD will lose 80% of it's value over the next 50 years. Tether likely will lose 100% in that time frame.

[NikolaNovak]

>>My house is valuable to me even if there isn't a collective belief in it.

Right. I believe the point of the post you replied to is that while it may be "valuable to you", it also may or may not "have value" (which I interpret as being exchangeable / interesting to other parties), which requires common belief/faith that it has value (basically a circular definition). I could be misinterpreting one or both :)

[baq]

the point is your belief is not relevant, it's the belief of the counterpart to any transaction that may involve your house ("the market").

[ajross]

> My house is valuable to me even if there isn't a collective belief in it.

It surely is, but this is just a semantic play on the word "value". You mean something like "personally important" in that sentence, the comment you were replying to was using it under its well-established economic definition.

In fact, your house is *not* valuable (in the economic sense) if there isn't a collective belief in it's equivalent in currency. Rather: it is exactly as valuable as the market is willing to pay, which is just a statement of the definition of "market value". That's what "collective belief" means in this context.

[usrn]

You probably don't own it outright and without the collective belief in its value the mortgage would be under water.

[simonh]

The value of a thing is in two parts, it's use value to it's possessor and it's exchange value with others.

Examples have already been posted here. My house has a use value to me because I need somewhere to live. If I lived on a small island off Antarctica it would still have great value to me but perhaps no value to anyone else.

Money is a financial instrument that only has exchange value, unless you count say the use of bank notes for lighting fires or papering walls. It's value as money is entirely by consensus.

Notably not even the government that issues it actually sets it's value. Ask the governments of Venezuela or Zimbabew about that. Yes of course they can do things that affect it's value, like printing too much of it or defaulting on bonds, or consistently paying on their bonds, but the actual value is set by people. When someone sells a product or service they ask for a price, and if someone pays it then that establishes a value for the product relative to other products, and a value for the currency exchanged. What happened in Zimbabwe is people asked for an awful lot of ZB$ for things compared to how many US$ they asked for. Thats what set the value of the ZB$ (and to some extent the US$ of course).

Governments sometimes do try to manipulate currency values through currency controls, but what that actually does is constrain currency flows. If a currency control set a high price for a currency, it will just not be traded as much, only people willing to pay the premium will do so. Those not willing to pay it simply won't and those transactions and that economic activity will be constrained (or the exchange will happen on the black market).

There can be coercive pressure of course, such as Russia requiring companies to hold Rubles, but you could hold a gun to my head and force me to hand over my house at a discount or for nothing. That says more about the use value of loaded guns than about the exchange value of my house. Governments have the ability to take value rather than exchanging it, but even that has it's limits.

[jmyeet]

It's true that utility is also a factor but it's extremely limited.

The house you and others have mentioned is an easy one. That whole concept of ownership is reliant on an entire system existing and enforcing those "rights". It's the threat of violence that prevents someone from showing up, "claiming" your house and kicking you out.

[simonh]

True, economically speaking personal use value doesn't really matter. It's great for you, but economics is about exchange.

Enforcement is an interesting factor. Laws can guarantee rights to enable and protect free exchange, but they can also coerce behaviour as I touched on.

In more or less free markets what laws do is provide guarantees that increase trust, which has the main effect of reducing costs. You don't need to personally audit the books of a company you invest in, because the government mandates that it's done for you to a set of standards which eliminates some risks (not all, just some). You don't need to personally research if the products you buy are safe or of a basic level of quality if the government mandates standards and enforces them, and if you have a right to return goods if you find a problem with them. This makes the goods themselves a little more expensive, but the overall costs and risks (which translates into costs) to consumers are much lower.

[neilwilson]

"So what actually makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might."

It's the ability to demand and enforce tax payments in that denomination - with the consequence of not doing that being you will lose property and liberty.

Obtaining the denomination to settle the tax then becomes the discounted option, since the other option is far more expensive.

That alone makes the currency worth holding, since you can always get rid of it to somebody with a tax bill to pay.

As we have seen with Russia that power extends wherever the denomination is used. The US government has 'taxed' Russia anything it holds denominated in US dollars - completely unilaterally and wherever it was held.

[afiori]

I would say that what makes any currency valuable is the market using that currency; the necessity of paying taxes is both a jump-start and a stabilizer of that market preventing fragmentation of the currency.

[analog31]

I would say yes, in the sense that the government would cease to exist if it were to declare: "Compute your taxes in whatever unit of account you prefer."

But I think a broader statement is that the "long dick of the US government" is the collective expectation for the behavior of major world governments. On the other hand, it's worth noting that US currency is not absolutely stable.

[spyder]

Yea, and also it's not just tax: "This note is legal tender for all debts public and private"

[triceratops]

"All debts public and private" - but only debts denominated in USD, right? If you loan me gold and specify repayment in gold or Canadian dollars or gerbils, I can't just give you a fistful of dollar bills to settle it, can I?

[ringrocket]

> The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset.

This is false in the general case. An asset means a useful or valuable thing, person, or quality. If something is useful to me, such as food, hydration or shelter, trust is irrelevant. In fact, something can have value to me (perhaps even objective value), even if there are no other agents/persons.

Even where there are other agents/humans, no trust in an asset is required in some cases. Suppose we all can independently verify the use and quality of something (we call this measurement). If that thing has some definite utility to us, the value each will assign may differ, but that thing's value is not dependent on the subjective valuation (Say a morsel contains 15 Joules and I can harvest 9 Joules and you 11 Joules, the value we each could assign differs, yours being greater than mine, but is objectively derived, being based not on trust nor subjectivity. Subjective meaning based on or influenced by personal feelings, tastes, or opinions). Granted, we can not preclude the possibility that someone, somewhere providing a subjective value to this thing, merely that somethings have value, potentially to many of us that is objective and intrinsic in and of the thing itself.

Trust in every asset is, indeed, escapable.

[knorker]

> The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency

That simplifies too much. There's also the fact that all taxes on income, capital gains, and consumption must be paid in this currency.

It has a very real value, in that if you don't pay using this then people will come and lock you in a cell.

It's not just a collected belief.

I also believe that the government will by force not allow its own currency to be replaced within its borders.

That's a belief in a trusted third party, not a collective belief.

[ur-whale]

> The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency.

The only thing that maintains the value of any asset is the demand for it.

Where that demand comes from may or may not be belief.

Water has value because there is a clear demand for it, not because anyone believes in it.

As long as there is someone who wants an asset, it has value. Belief is but a cog in the machine.

[hgomersall]

Indeed. The demand for most currencies comes from states requiring payment of taxes in said currencies.

[smaryjerry]

This is precisely why bitcoin adoption is not higher. By categorizing bitcoin as a security and not accepting bitcoin as a denomination for taxes or any calculation of taxes due it is effectively an extra unnecessary cog in every single system it is a part of. Any company doing legitimate business has to record every transaction they make in the denomination of their governments chose currency. It goes from a simple “I sold 5 pencils for X dollars” to “I sold this pencil for 1 bitcoin which is equal to X dollars on the date I sold it then made/lost Y dollars by converting back to dollars at a later date in order to pay taxes and buy more pencils, and spent Z dollars to trading fees in doing so.” So really at minimum we’ve gone from a single clear amount, to now having at minimum 3 separate records to make the same transaction. Bitcoin can never be as simple and efficient as an actual currency when you have to convert it anyways at some point.

[RandomLensman]

I'd say the demand for most large currencies comes from the ability to buy stuff with them and being able to speculate on changes in value amongst them. The daily trillion dollar in FX trades are not tax motivated.

[mywaifuismeta]

Agreed. In the special case of currencies, demand follows belief. If people believe in an assert they will accept it for trade, which may in turn crate demand. This leads to a cycle where more demand often strengthens the belief.

The issue with most crypto tokens is that its demand only exists within the closed crypto ecosystem in the form of liquidity, not in the real world. This makes is much easier to shake belief.

[notahacker]

The main thing is that "belief" alone is a pretty useless source of demand because its extremely mutable.

Having a reliable long term income stream attached, an actual use for the asset and/or a supply which shrinks in relation to the fall in demand is a much more sustainable source of demand.

[HelloNurse]

The "belief" that value depends on is the belief that there is demand, so the good can be exchanged if desired. The "trust" is that people are going to want the good tomorrow, similarly to today.

[throwaheyy]

This seems an overly pedantic distinction. Demand is simply a result of belief in an asset’s value. If people didn’t believe an asset was valuable, they will not demand it.

[User23]

> The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset.

> So what actually makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might.

What many people call fiat is in fact partly a proof of violence consensus algorithm. Practically applied it means the sovereign will create a demand for its currency by imposing taxes denominated in that currency on its subjects and then threatening or using violence against parties that don't pay those taxes. However, that alone is insufficient to maintain the value of a currency. Mr. Mugabe of Zimbabwe surely had no philosophical aversion to using violence to maintain the value of the Zimbabwean dollar, but the collapse in his country's productive capacity rendered that moot.

Thus we can see that another major part of what makes the US dollar work is that the US economy that the US government has the power to tax is extremely large, productive, and well-diversified.

[jmyeet]

I like the term "violence consensus algorithm".

I agree: ultimately government is a collective decision on who gets to do the violence.

As for Zimbabwe, the primary difference it and the US is reach. More generally speaking, we've seen currencies collapse when people have lost faith in their value and what happens is people instead use a different currency (eg the US dollar) because they have more confidence in its value.

[spiralx]

More specifically they have confidence in the stability of its value over time. It's the same reason that US T-bonds etc are said to be "risk free" and why the USD comprises 60% of the world's currency reserves. The EU and EUR come in second in terms of reserves (30%) for the same reason.

[pa7x1]

> eg it's been estimated that over half the Ethereum are owned by less than 10 entities

You throw this kind of claim without providing proof. Unfortunately, it's a claim I have seen made before (e.g. https://www.financemagnates.com/cryptocurrency/news/top-10-e...) and it doesn't hold any level of scrutiny. Although you embellish it and exaggerate it even further.

This kind of number typically assumes that a smart contract owns the ETH that it contains. Which is not true by the very nature of the smart contract, what it can do with the ETH is programmed in its code and the users depositing the ETH on it are the ones that decide what to do with it.

Then it looks at the accounts that have the most ETH (https://etherscan.io/accounts), aggregates together all centralize exchange accounts, assumes they also own the ETH. Do some quick math and publish a misinformation article ready to be shared by anyone whose confirmation biases are triggered. Bonus points if you can then exaggerate the numbers further without providing any figures and keep the misinformation going.

Some numbers...

There is currently 39 M ETH locked in DeFI smart contracts (32% of circulating supply). https://defillama.com/chain/Ethereum?currency=ETH

There is 13 M ETH locked in the staking contract (11% of circulating supply).

There is 2.5 M ETH locked in L2s (2% of circulating supply). https://l2beat.com/

So that's 45% of circulating supply not owned by any single entity.

[bombcar]

Why restrict it to circulating supply? Is there some other type of ETH that isn’t circulating?

[pa7x1]

Whenever you do a transaction on the Ethereum network part of the fees (the base fee) are destroyed, this amount goes nowhere not even a special locked account. It just disappears, it's "burnt" as it's commonly referred.

This means that you cannot look simply at total ETH issued from the genesis block as you will be overestimating the amount of ETH in circulation by the total amount of ETH destroyed through base fee burning. Currently around 2.4M ETH has been destroyed in this manner.

The figure I gave above (~120M) includes all other ETH. I.e. All ETH that exists. Including ETH that perhaps has been forever lost due lost keys or sent to wrong addresses or addresses that nobody has the keys for (e.g. https://etherscan.io/address/0x00000000000000000000000000000... or https://etherscan.io/address/0x00000000000000000000000000000...)

So for all intents and purposes circulating supply is total supply.

[aqme28]

Yes. A lot of it has been burned (sent to nonfunctional addresses), for example.

[bufferoverflow]

> Even backing a currency with gold (or any other asset) doesn't solve this problem

It actually does. If the backing is real, the user knows he will always be able to exchange his coin for $1. If the price on an exchange goes under $1, the issuer of the coin can buy it back, making a profit. If the price goes above $1, the issuer can sell. It's a trivial algorithm. Of course, it only works if the backing is real.

Unfortunately having billions in cash is a huge temptation to invest them and make even more profit. That's what Tether did. And now, if their commercial paper is under water, they are insolvent.

[baobabKoodaa]

If you have a backed stablecoin (as opposed to algorithmic stablecoin) that is pegged to the USD without any funny business, then the price of that coin can always be restored to $1. No matter how badly people "lose faith" in the coin.

[vincnetas]

"... without continuous funding "

[baobabKoodaa]

Sounds like you are confusing an algorithmic stablecoin with a fully backed stablecoin. If I am mistaken and you have an actual argument behind that smirk, then please go ahead and present your argument.

[BbzzbB]

GP's last paragraph seems to imply to me too that trust is all that keeps the pegs. I think the billions of dollars in arbitrage opportunity is a bit more powerful than trust as we've seen a few days ago when USDT lost its peg, but what do I know

Trust keeps bank runs away, arbitrage keeps the peg tight (feeding into said trust).

[TomSwirly]

As long as you're willing to expend unlimited amounts of money doing so. But no one is.

[baobabKoodaa]

False. What you're describing applies to algorithmic stablecoin, but it doesn't apply to a backed stablecoin. If I sell 1000 units of BAOBABUSD to people for $1 each, and then they all panic and sell, I can buy all 1000 units of the stablecoin by using the $1000 I already have in the bank. Please explain why you feel that this maneuver requires unlimited amounts of money?

[morpheos137]

Belief is not well defined. The dollar has value because it is useful. Bitcoin may also have value to the extent that it is useful (e.g. for speculating, money laundering, grey/black market transactions). Thus usefulness or utility of a currency is a better measure of value than belief whatever that means.

[Kinrany]

We need a crypto that builds the network on trust between real people. If A and B know each other and B and C know each other, then A and C can trade or give credit to each other by going through B. No need for a global consensus.

[dgb23]

Vouching systems are generally very solid if you also have some way to expell parts of your network after the fact. You need some way to slow down and curate your network or all the benefits are lost.

The benefit of these: it mimics in person interactions and describes a simple process.

But The trade off is that they only work if they grow slowly and organically, which seems to be contrary to what the crypto space is trying to do.

[BlueTemplar]

Hawala is widely used, but since it does the same job as a cryptocurrency (decentralized ledger), what would be gained by adding a cryptocurrency on top of it ?

[Kinrany]

This is indeed the same principle, it just needs better UX.

[pyrryh]

This is the case where the worse UX is just a better security in disguise (note: "better", not "perfect"; see multiple US reports on trying to investigate the terrorist funding through hawala). No electronic transactions cuts a lot of SIGINT (though not all, people carry their phones with them, call each other, satellites make images, etc.) and sometimes HUMINT is more difficult in countries like Afghanistan or Pakistan.

[Kinrany]

Security can be improved later, the same way Monero came out after Bitcoin. Having the option to transact without intermediaries and locally is enough of an improvement, the same way Bitcoin is Pareto-optimal when compared to SWIFT.

[pyrryh]

Hawala has kinda been out there for a long time, and I'm not sure that there is a space for incremental improvement since, as I already mentioned, its main security properties lie in hawala being out of modern fully electronic systems. This is the case when we are talking about the general mechanism, of course; a group of 2, 5, 10, N people | N < some abstract big number where we can't tailor solutions easily and need to scale, there some customization may surely be devised as an improvement.

[candiddevmike]

https://www.gnu.org/software/gnu-crypto/

[rglullis]

https://trustlines.network

[Kinrany]

Huh! The marketing materials look like exactly the same thing so far.

> However, since Trustlines is designed to be implemented on a public blockchain, making transactions requires the use of a native cryptocurrency to pay transaction fees.

But this one part seems wrong. With such a design there should be no need for global consensus. :(

[rglullis]

You still need to avoid double-spending issues.

[Kinrany]

Why? Everyone is only ever dealing with people they trust. And every single agent is in charge of confirming or rejecting every operation they agree to.

[rglullis]

Alice trusts Bob, who trusts Charlie. Alice has no idea who Charlie is.

Now Charlie gets $10 dollars as credit (not the same as cash) from Alice (mediated through Bob) and wants to buy $10 items from David and Eve. He shows the letter saying that Alice is good for the cash. Without a distributed consensus method, how can David or Eve confirm that they will be able to go to Alice to collect the cash? How can they even know that Alice has the cash in the first place? What if something happens to Bob?

The only way to do this without a blockchain would require something like Paxos, but Paxos only works if the participants are selected a priori. Every new participant would have to be vetted by everyone else, or everyone else would have to follow some central authority that can grant access to the system. If you are going this route, you are just re-inventing a credit cooperative.

[Siira]

This is just reverse foolery. A gun is valuable whether people believe in it or not. Same with a hamburger.

[random_comment]

> The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency.

Hello jmyeet! Unfortunately, I believe this statement, as you have given it, is untrue.

I hear it often, as it is continually and frequently asserted by crypto enthusiasts (and I am not suggesting you are one of those).

-----

For assets, value is grounded in utility (whether to do some useful function, generate some feeling, etc).

Asset price, on the other hand, could be almost anything depending on supply/demand and may be affected by beliefs at times.

It's important to disambiguate price and value. I can buy a superb pair of shoes from a desperate seller for $1, but that doesn't make their 'value' $1 to me or other people. Value can be personal, it can also be societal i.e. averaged over many people.

Indeed if price and value were the same thing, there would be no buyers or sellers, because you would have little reason to go to the effort of swapping two things of identical value to you.

-----

For currency, specifically, national currency where you are living in that nation - the value (and relative price) of a unit of a currency is grounded in taxation enforced by, well... force, by the state.

Taxation generates continual demand for units of currency regardless of individual or collective beliefs.

And in trust in the currency, again, is enforced by... force, by the state. Which prevents unlimited supply (by random people), again, regardless of individual or collective beliefs.

Thus, both supply and demand for the units of currency are set by the state, and supply/demand is what it takes to generate a stable price and mandatory use.

I note you mention trust, and 'backed by...' and 'might'.

However, discussing currency in terms of only trust and not in terms of taxation, misses half the argument. Both halves are essential for the argument to make sense.

Absent a mandatory minimum demand, control of supply of currency (and trust in that control) is meaningless.

In computing terms, you can see taxation + limited supply as a technique to 'bootstrap' an initial price for a currency without needing any shared or individual beliefs at all. It also underwrites the price in the long term, again, without any need for beliefs.

None of this is to say that a currency can't have its price/value shifted around by collective beliefs once bootstrapping / underwriting is in place. Of course it can. But what maintains, inescapably, a certain minimum price (your own words: maintain, inescapable), is enforced taxation.

-----

Going back to the price of assets. Well, you can believe all you want about, say, oil, and your whole country may have a collective belief, or even the planet, but since there is X units of oil needed and Y units of oil in supply, the price will be set by ongoing auction as always, or you can freeze/be stuck in your garage/factory shutdown. Supply and demand. Beliefs can affect supply and demand, of course. But supply and demand are primary, beliefs are secondary and they sit alongside necessity and physical reality.

-----

(Finally - again without wishing to imply you are a crypto enthusiast - a lot of crypto enthusiasts seem to imagine that mathematics has a similar 'force' to states, 'there can only be X coins', ignoring that a) chain algorithms/limits can be changed by widespread consensus b) no one is forcing anyone to use the crypto at all i.e. no physically enforced taxation c) it's trivial to substitute a chain with a duplicate chain (again consensus), as e.g. dogecoin proved rather effectively. They also invariably neglect the issue of needing 'mandatory demand' via taxation. I would speculate this is because the essential need for tax in currency systems, completely undermines the ponzi's disguise as a currency.)

(I use the word 'ponzi' casually here; technically ponzis are zero-sum, whereas crypto is worse - negative-sum, especially for the environment).

[BlueTemplar]

I guess it's kind of the point of TFA "not proving enough", everything is a "Ponzi" : can't escape the law of thermodynamics !

[random_comment]

If you genuinely think taxes are not a sufficiently 'proven' way of forcing demand for a currency, see what happens when someone stops paying them.

[Geee]

What you're saying is wildly untrue. You are redefining words. Trust is completely different thing than valuation in markets.

You don't need to trust gold or bitcoin. They are verifiable. Don't trust, verify.

Also, the US dollar doesn't work very well, so you're redefining reality. They're constantly abusing that trust and creating way more money than would be necessary or moral.

[ozim]

Gold standard fetishist forget that if there is a food shortage even tons of gold won't help them.

In scenario where financial system collapses only real currency is skill - if you can make food from something available locally or be helpful like being a medic.

Why would I trade a chicken that I can eat for piece of gold when I can trade chicken for sewing my wounds after being bitten by a stray dog.

[zarzavat]

There is a spectrum between everything going smoothly and complete government collapse. Most people worry about a Turkey or Argentina where the currency loses most of its value but the government still functions.

Even in failed states gold maintains value. For example in Somalia’s recent past, not only was gold still fully exchangeable but the existing Somali currency continued to work with counterfeit currency filling the vacuum.

What stops gold exchange is not non-existent government but any particularly strong and draconian government that decides that alternative forms of money are a risk to the regime (e.g. North Korea).

[koalala]

My grandfather who lived through the Dutch famine in world war 2 did fine buying food with gold while people were eating flower bulbs and grass, so in that case at least it worked.