[RussianCow]

Currencies aren't backed by anything physical; they're backed by the confidence that you will actually be able to buy something with them. Bitcoin doesn't yet have that confidence, so it basically has no inherent value. (Technically, fiat currencies don't have truly inherent value either, but I don't want to argue about semantics.) The value of Bitcoin today is purely speculative, because it doesn't actually have much of a practical use. Those investing in Bitcoin are betting that it's going to become a currency you can use as confidently as US dollars, but no one can accurately predict whether that will ever happen; it's all a gamble at this point.

[umanwizard]

Fiat currencies (at least those that are the official currency of one or more sovereign states) actually do have intrinsic value beyond people's beliefs.

USD is valuable not only because people trust you'll always be able to buy things with USD, but also because the US. government collects USD-denominated tax. As long as the government continues to have the firepower to enforce the tax code, there will always be a demand for USD, irrespective of how confident people are in its viability.

[mrb]

No. You don't understand what "intrinsic value" and "fiat money" mean. These two terms have literally opposite meanings! (Seriously, look them up.)

The USD has had zero intrinsic value since the end of the gold standard. That's why, by definition, it is called a fiat currency.

The USD has value solely because it is demanded (and the biggest demander is the US government, via taxes) and because people believe it will remain demanded.

The USD, or any fiat currency, has no value beyond this "belief". And this is not inherently wrong. Most of the world economies run on fiat currencies. Even Bitcoin is, technically, fiat.

[haakon]

> The USD has had zero intrinsic value since the end of the gold standard. That's why, by definition, it is called a fiat currency.

The definition of "fiat money" depends on who defines it, but in my eyes the most correct definition is "any money declared by a government to be legal tender". Fiat literally means "let it be done", as in a declaration. The U.S. dollar is fiat because the U.S. government says it is money, and it was fiat under the gold standard as well.

Even under the gold standard, U.S. dollars did not have "intrinsic value" the way I understand it, which is to say value that comes from the physical properties of the object in question. There is a very tiny intrinsic value because you can burn U.S. bank notes for heat and things like that, but nothing else - gold standard or not. Gold may have some intrinsic value because it can aid industrial processes and fill teeth and make jewelry, but that is probably far away from explaining gold's market price today.

Bitcoin, on the other hand, is not fiat, because no legal authority has declared that it shall be money.

[mrb]

Your definition of fiat is overly strict and unusual.

By law, the USD used to be convertible to gold at a legally defined USD-per-ounces rate. This legal rate is what gave it intrinsic value. All economist will agree with this statement. Any literature about the USD explains clearly that "the USD transitioned from the gold standard to a fiat currency".

[iSnow]

>The USD has had zero intrinsic value since the end of the gold standard.

That's not entirely true. As long as it is the only legal tender in the US and taxes are paid in USD, it has intrinsic value.

[mrb]

No. Precious metals have intrinsic value. Fiat money does not. The fact USD is legal tender makes it legal tender but that's it. It does not give it intrinsic value. (Or, pedantically, the paper the USD is printed on has some intrinsic value, about $100/ton.)

"Fiat money, such as paper dollars, is money without intrinsic value: It would be worthless if it were not used as money." -- from Principles of Economics, Volume 1, http://books.google.com/books?id=oRgQ2goeFzwC&pg=PA659&q=fia...

I don't mean to be rude, but I am always surprised by discussions about money. They reveal that people have no idea what money is and what gives it value.