Wall Street struggles to sell Washington on Bitcoin for the masses(politico.com)
politico.com
Wall Street struggles to sell Washington on Bitcoin for the masses
https://www.politico.com/news/2021/05/30/bitcoin-investment-wall-street-lobbying-491399
51 comments
I'm pretty bullish on crypto but the concept of a bitcoin ETF that's managed by Wall Street seems to go against the purpose of decentralised finance to begin with. Why do investors need to go through a middle man when they could just buy something like the crypto20 which is essentially the same thing but without the fees.
Maybe five years ago the argument of "it's sooo hard to buy Bitcoin" was true, but now it's just as easy to buy crypto as stocks through Robinhood. Yet the middle men like Fidelity still want these ETFs for the fees I guess.
I think the ETFs would be more useful if they held the top 25 cryptos at market cap weights. That could be kinda a hassle to do individually.
Can you take your Bitcoin out of Robinhood? Of course not.
You do not actually own any Bitcoin at Robinhood.
There's the "middleman" in your scenario without a middleman...just a different kind of middleman.
You do not actually own any Bitcoin at Robinhood.
There's the "middleman" in your scenario without a middleman...just a different kind of middleman.
True, although an ETF purely in a single crypto seems exactly like what Robin Hood or Coinbase are doing but with extra, presumably non-free, steps.
Supposedly this is coming: https://www.coindesk.com/robinhood-crypto-withdrawals-deposi...
It's still hard to get FDs for crypto because there's distributed credit.
I suppose it's the same reason you might buy an index fund of the S&P 500 rather than buying equal portions of 500 companies and rebalancing them constantly. On top of the tedium, I'm not aware of any tax-advantaged account such as a Roth IRA that would allow you to re-balance your crypto holdings without triggering taxable events each time you re-balance.
I wonder if this has anything to do with the fact that a system of CA certificate encryption has been around forever, and Bitcoin is burning electricity for literally no reason?
> Bitcoin is burning electricity for literally no reason?
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I'd argue it's for a good reason the same way we burn gasoline at a traffic light instead of just going when it's red.
Safety costs money, and Bitcoin burning electricity protects the network.
I'd argue it's for a good reason the same way we burn gasoline at a traffic light instead of just going when it's red.
Safety costs money, and Bitcoin burning electricity protects the network.
And in a perfect analogy to cryptocurrencies, newer, better technologies like hybrid engines (not to mention purely electric vehicles) support shutting off the engine completely at a traffic light and not burning energy idling an engine, and older technologies like bicycles and horses never had this problem in the first place, but people pretend that "safety costs money" is a rule of nature nonetheless.
Seems many (most? all?) modern cars have the idle engine shutoff feature. My 2016 car had the option to permanently disable it with a switch. My 2018 car no longer has that option - only the option to disable it for the current trip. And according to the salesman, all new cars are like that?
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Not all new cars, but many.
> I'd argue it's for a good reason the same way we burn gasoline at a traffic light
Burning gas at a traffic light isn't for a “good reason”, except insofar as the dominance of environmentally hostile technology through the de facto subsidy of externalized costs is a “good reason”.
But I don’t disagree that the analogy being drawn between that pollution and bitcoin is apt.
Burning gas at a traffic light isn't for a “good reason”, except insofar as the dominance of environmentally hostile technology through the de facto subsidy of externalized costs is a “good reason”.
But I don’t disagree that the analogy being drawn between that pollution and bitcoin is apt.
> I don’t disagree that the analogy being drawn between that pollution and bitcoin is apt.
Okay, how about the pollution from SSL on the web? Every device has to have dedicated crypto hardware and we spend CPU cycles on it... because we want secure transactions.
Okay, how about the pollution from SSL on the web? Every device has to have dedicated crypto hardware and we spend CPU cycles on it... because we want secure transactions.
Everybody who's buying that electricity has a reason, and everybody sending those people money has a reason, and so on down the chain.
The reason being the fear of missing out on getting more fiat money back than they paid for. If you buy ETFs you at least indirectly incentivize firms who produce usefull stuff like medicine, food, shelter, insurance or trading (not by itslf useful but it serves an important role in our economy).
Now that I think about it, maybe you are onto something. Even if crypto is just a fad it was an important signal for governments and the markets.
I can add another reason: Because I want to.
How would a PKI prevent double spending in a distributed network?
If you could solve that problem well without burning the electricity Bitcoin does, you'd revolutionize industries.
If you could solve that problem well without burning the electricity Bitcoin does, you'd revolutionize industries.
I think it’s worth even reading one paragraph past the headline…
“A strong push by Wall Street to open up access to Bitcoin investment is meeting resistance from a bipartisan group of lawmakers and regulators in Washington, setting up a lobbying fight over the future of digital currency.”
…as this article is not so much about creating some sort of central bank crypto, but getting the SEC to allow investment in Bitcoin ETFs.
“A strong push by Wall Street to open up access to Bitcoin investment is meeting resistance from a bipartisan group of lawmakers and regulators in Washington, setting up a lobbying fight over the future of digital currency.”
…as this article is not so much about creating some sort of central bank crypto, but getting the SEC to allow investment in Bitcoin ETFs.
One of my biggest fears of cryptocurrency is that the government adopts it and forces businesses and individuals to use it. Everything is taxed automatically and all the details are retained forever. Want to sell a bike on Craigslist? Now your income and sales tax are applied automatically. All of your purchase information is now centralized in the hands of the government forever.
Exactly. The whole "anonymous, decentralized, peer-to-peer" thing went out the window a long time ago.
Now, Bitcoin is a digital yuan with an infinite history of every purchase made with it (the blockchain). No thanks.
At this point, I'm starting to think the only viable alternative, from a medium-of-exchange perspective, is in commodity money -- metals and other materials that possess intrinsic value.
Now, Bitcoin is a digital yuan with an infinite history of every purchase made with it (the blockchain). No thanks.
At this point, I'm starting to think the only viable alternative, from a medium-of-exchange perspective, is in commodity money -- metals and other materials that possess intrinsic value.
There isn't really only a single viable or perfect system. Each monetary system has different tradeoffs. Commodities work well until liquidity becomes a problem and so governments print fiat commodity-backed currency. Eventually a situation arises and the government needs extra $$$ so they start to inflate the currency and eventually remove the backing once everyone is already using the fiat currency. Credit systems are great for liquidity but have cascading failures once a situation arises requires settling up.
> metals and other materials that possess intrinsic value.
What role do you believe intrinsic value plays?
Intrinsic value is useful if you're trying to "peg" a currency to some other measure of wealth. But that only works for relatively small markets.
Currencies are a representation of wealth in a society. The wealth in a society is necessarily greater than that of any single asset. As such, the value of a currency based on an asset must be surplus to any supposed intrinsic value that asset has.
This means intrinsic value serves no direct useful purpose for a currency - at best, it's a secondary consequence of some more important property, such as scarcity.
What role do you believe intrinsic value plays?
Intrinsic value is useful if you're trying to "peg" a currency to some other measure of wealth. But that only works for relatively small markets.
Currencies are a representation of wealth in a society. The wealth in a society is necessarily greater than that of any single asset. As such, the value of a currency based on an asset must be surplus to any supposed intrinsic value that asset has.
This means intrinsic value serves no direct useful purpose for a currency - at best, it's a secondary consequence of some more important property, such as scarcity.
Is crypto even necessary for that kind transaction monitoring? I don't think so. Most money is essentially electronic, bits flowing through the financial system. Even for exchanges on craigslist, unless you use cash. But that's such a minuscule part of the economy.
Most money is electronic but also not easily accessible to the government. Transaction records from private companies usually require a warrant or a court order. A crypto-dollar would add a layer under that exposing all information directly to the government. No permission necessary.
If you're talking pure financial volume, most of it doesn't concern individuals at all. I'm focused on the privacy rights angle where small cash transactions are absolutely crucial.
If you're talking pure financial volume, most of it doesn't concern individuals at all. I'm focused on the privacy rights angle where small cash transactions are absolutely crucial.
That ignores cash transactions entirely.
You can also cash a check, of course.
You can also cash a check, of course.
Actually, this is probably the principal goal of anti-decentralized projects like China's digital yuan.
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Rest assured, I don't think even the most die-hard Keynesian statists are willing to build five thousand nuclear plants just so that they can track your bike sale. By its own nature, Bitcoin resists government takeover. /s
Not sure what the scope of your sarcasm covers. But there is no such person as a “Keynesian statist” outside a crypto subreddit.
Only a little part of Keynesianism involves the state, if you take a conventional definition of the theory. The only part that even involves the state isn’t all that controversial: people buying and selling is fine and self supporting, until the buyers don’t want to buy enough to support the sellers, which is the only time the government has to step in a buy stuff.
So Keynesians don’t put the state first. And the people who do put the state first don’t like all that buying and selling on the open market. Really disjoint philosophies.
Only a little part of Keynesianism involves the state, if you take a conventional definition of the theory. The only part that even involves the state isn’t all that controversial: people buying and selling is fine and self supporting, until the buyers don’t want to buy enough to support the sellers, which is the only time the government has to step in a buy stuff.
So Keynesians don’t put the state first. And the people who do put the state first don’t like all that buying and selling on the open market. Really disjoint philosophies.
I think you are underselling both modern Keynesian economists and the original writings of Keynes, and not really following these through to their logical conclusion.
Specifically, Keynes argued for driving down the rate of interest to zero permanently -- he believed this could be done in a single generation:
"On such assumptions I should guess that a properly run community equipped with modern technical resources, of which the population is not increasing rapidly, ought to be able to bring down the marginal efficiency of capital in equilibrium approximately to zero within a single generation; so that we should attain the conditions of a quasi-stationary community where change and progress would result only from changes in technique, taste, population and institutions, with the products of capital selling at a price proportioned to the labour, etc., embodied in them on just the same principles as govern the prices of consumption-goods into which capital-charges enter in an insignificant degree.
If I am right in supposing it to be comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero, this may be the most sensible way of gradually getting rid of many of the objectionable features of capitalism." - General Theory Chapter 17
If you really follow this thread to its logical conclusion, you see an incredible arrogance and desire for state control that is a lot more than just "stimulating the economy during a recession"
Specifically, Keynes argued for driving down the rate of interest to zero permanently -- he believed this could be done in a single generation:
"On such assumptions I should guess that a properly run community equipped with modern technical resources, of which the population is not increasing rapidly, ought to be able to bring down the marginal efficiency of capital in equilibrium approximately to zero within a single generation; so that we should attain the conditions of a quasi-stationary community where change and progress would result only from changes in technique, taste, population and institutions, with the products of capital selling at a price proportioned to the labour, etc., embodied in them on just the same principles as govern the prices of consumption-goods into which capital-charges enter in an insignificant degree.
If I am right in supposing it to be comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero, this may be the most sensible way of gradually getting rid of many of the objectionable features of capitalism." - General Theory Chapter 17
If you really follow this thread to its logical conclusion, you see an incredible arrogance and desire for state control that is a lot more than just "stimulating the economy during a recession"
Your quote proves my point that Keynesians are the opposite of “statists” when he talks about “technique, taste, population and institutions” driving investment decisions. That’s what I want to see in my economy. Do you disagree with that?
Not sure you’re reading the rest as intended either.
This is not a prescription for the government to drive down interest rates to zero so that no investor makes a profit, ever. It just means that when sufficient liquidity, the marginal return on capital should be zero, like any commodity. What’s wrong with that?
Not sure you’re reading the rest as intended either.
This is not a prescription for the government to drive down interest rates to zero so that no investor makes a profit, ever. It just means that when sufficient liquidity, the marginal return on capital should be zero, like any commodity. What’s wrong with that?
You've made the case for the particular category of cryptocurrencies that encrypt transaction details ('privacy coins').
I don't see how this could work in the long run. The blockchain is immutable and any encryption at some point in civilization will be broken. All transactions using weaker encryption will be retroactively also broken, no?
In other words, to me, it seems like a public transparent blockchain is inevitable, whether you're using encryption or not.
In other words, to me, it seems like a public transparent blockchain is inevitable, whether you're using encryption or not.
Maybe. I'd assume that the encryption used will improve over time, and there will at least be a lag time between a transaction's creation and the day it is cracked, hopefully many years long. This is pretty much the assumption we make about our web browsing over https (albeit the preservation of those encrypted sessions isn't quite so explicit and overt).
I'd wager a guess that if a crypto-dollar emerges it will be a Monero-like currency with an additional set of private read/write keys controlled by the some set of government agencies. The US government doesn't want everyone having the transaction data. Exclusive access is much valuable than a public ledger.
I think that battle is happening now. This is a good time to push for the kind of digital currencies we want, and against the ones we don't.
In terms of how we fight, I don't think any existing cryptocurrency community is providing any help. IMO, the way to help is to empower our democracy such that it represents the will of the common person. Getting people to vote and reversing decisions like Citizens United feels much more potent than any current or proposed protocol.
A government is simply a corporation with a monopoly on the business of violence. Democracy is unique in that it's a corporation owned by the employees. Let's make it work for us instead of trying to beat or force its hand through tech. That won't work.
A government is simply a corporation with a monopoly on the business of violence. Democracy is unique in that it's a corporation owned by the employees. Let's make it work for us instead of trying to beat or force its hand through tech. That won't work.
I wouldn’t mind being able to immediately send my tax to them for every purchase in exchange for not having to file tax returns since it was all tracked.
The Economist published some great coverage about this a couple weeks ago, along with the intersection of players like Stripe and PayPal. Their overall conclusion is that governments have huge incentives to make their own central bank digital currencies (CBDCs).
Currencies are a major lever of control that governments use to run their countries. In small countries, foreign currencies like the US dollar are already used widely for their stability and ease in foreign trade. Imagine if this becomes digital with zero friction, and you can see how a country could lose all demand for its currency.
Larger countries face a similar dilemma with Bitcoin. If Bitcoin is frictionless and reliable, demand for the dollar could drop in favor of Bitcoin, and again, the US government loses a major source of power. Or worse, imagine the digital yuan becomes the new global standard for trade and storing value among China’s new friends.
The Economist’s original coverage also discusses the privacy and tax implications (China already experimented with programmable money that “expired” at a certain time, to make sure it was used for stimulating the economy).
They also talk about how CBDCs could end banks, because there would be no reason for a layer between the central bank and individuals, and the impact this would have on lending. Overall a fascinating topic, and I recommend reading their coverage as a high-level broad introduction to a lot of interesting topics.
Currencies are a major lever of control that governments use to run their countries. In small countries, foreign currencies like the US dollar are already used widely for their stability and ease in foreign trade. Imagine if this becomes digital with zero friction, and you can see how a country could lose all demand for its currency.
Larger countries face a similar dilemma with Bitcoin. If Bitcoin is frictionless and reliable, demand for the dollar could drop in favor of Bitcoin, and again, the US government loses a major source of power. Or worse, imagine the digital yuan becomes the new global standard for trade and storing value among China’s new friends.
The Economist’s original coverage also discusses the privacy and tax implications (China already experimented with programmable money that “expired” at a certain time, to make sure it was used for stimulating the economy).
They also talk about how CBDCs could end banks, because there would be no reason for a layer between the central bank and individuals, and the impact this would have on lending. Overall a fascinating topic, and I recommend reading their coverage as a high-level broad introduction to a lot of interesting topics.
While a libertarian's nightmare, might make filing taxes a dream! All about perspective.
How many institutions that bought in at $50,000-$60,000 are now sitting on huge unrealised losses, and are now trying to offload their positions to retail investors?
SEC Commissioner Hester Peirce, a Republican on the agency’s five-member board, said Gensler’s recent warnings “conveyed the overly conservative approach that has typified the SEC in the crypto arena.” She said the agency should move forward with approval of crypto funds on their merits.
What are the "merits" of crypto [funds]?
Separating ever greater fools from their money to enrich early adopters without actually engaging in any real economic activity?
Money laundering?
Tax evasion?
Digital counterfeiting? (i.e. saying 1 USDT = 1 USD)
Ransomware?
Wasting energy?
Here is a fact: Congress' reputation is in the toilet. If it wants to get a modicum of respect back then maybe it should take a firm stand against "crypto." Nothing is economically new or innovative or useful in crypto for legitimate, real world applications. Never in history has a successful government abdicated control of its currency. Control over legal tender is one of the core functions of government.
If bitcoin is a currency then what it aims to do is not different from what Liberty Reserve or eGold aimed to do. At least eGold had some underlying real asset. Bitcoin is just made of air. Sorry "math."
If bitcoin is an asset then its value is akin to underwater swamp land in florida. I.e. it is a fraud.
No, people should not be able to just make a token on a whim and extract economic power in exchange for producing no real economic good.
If Congress wants to take a stand it should firmly ban US banks from interacting with entities that relate to the fraudulent scheme that is Bitcoin, et al.
Hester Pierce (wonder if there is a relation to Brock Pierce) is either really dull or really corrupt. Bitcoin has zero, actually negative economic value. It is ludicrous that an SEC chair would pretend it does simply because number big.
Anybody remember the AAA securitisation of garbage mortgages a decade ago? Just because a financial product is in current market demand or has a high price does not mean that it is legitimate or that it has positive economic value.
The job of congress and regulators is precisely to nip frauds like Bitcoin in the bud before they become bigger and wreck greater damage on the economy when they inevitably collapse or cause serious economic distortions (i.e. making billionaires out of early adopters who did not actually produce anything of value. The transfer of purchasing power from productive individuals to rent seeking individuals (i.e. those lobbying Congress to legitimise their Monopoly money) is a surefire way to harm an economy.
So Ms. Pierce what exactly are the "merits" of Bitcoin? Please tell...
This should not be a partisan issue. Just like printing fake dollars is not a partisan issue.
Maybe Congress can do something right for a change...doubt it though...sadly.
What are the "merits" of crypto [funds]?
Separating ever greater fools from their money to enrich early adopters without actually engaging in any real economic activity?
Money laundering?
Tax evasion?
Digital counterfeiting? (i.e. saying 1 USDT = 1 USD)
Ransomware?
Wasting energy?
Here is a fact: Congress' reputation is in the toilet. If it wants to get a modicum of respect back then maybe it should take a firm stand against "crypto." Nothing is economically new or innovative or useful in crypto for legitimate, real world applications. Never in history has a successful government abdicated control of its currency. Control over legal tender is one of the core functions of government.
If bitcoin is a currency then what it aims to do is not different from what Liberty Reserve or eGold aimed to do. At least eGold had some underlying real asset. Bitcoin is just made of air. Sorry "math."
If bitcoin is an asset then its value is akin to underwater swamp land in florida. I.e. it is a fraud.
No, people should not be able to just make a token on a whim and extract economic power in exchange for producing no real economic good.
If Congress wants to take a stand it should firmly ban US banks from interacting with entities that relate to the fraudulent scheme that is Bitcoin, et al.
Hester Pierce (wonder if there is a relation to Brock Pierce) is either really dull or really corrupt. Bitcoin has zero, actually negative economic value. It is ludicrous that an SEC chair would pretend it does simply because number big.
Anybody remember the AAA securitisation of garbage mortgages a decade ago? Just because a financial product is in current market demand or has a high price does not mean that it is legitimate or that it has positive economic value.
The job of congress and regulators is precisely to nip frauds like Bitcoin in the bud before they become bigger and wreck greater damage on the economy when they inevitably collapse or cause serious economic distortions (i.e. making billionaires out of early adopters who did not actually produce anything of value. The transfer of purchasing power from productive individuals to rent seeking individuals (i.e. those lobbying Congress to legitimise their Monopoly money) is a surefire way to harm an economy.
So Ms. Pierce what exactly are the "merits" of Bitcoin? Please tell...
This should not be a partisan issue. Just like printing fake dollars is not a partisan issue.
Maybe Congress can do something right for a change...doubt it though...sadly.
> At least eGold had some underlying real asset. Bitcoin is just made of air. Sorry "math."
eGold needed an underlying asset because it was a single company, and it needed to prove it was good for the obligations it was taking on, essentially.
Bitcoin, by contrast, is more like a government fiat currency, except government fiat (theoretically backed by democratic mandate) is replaced by the voluntary choice of a large enough group of people to use it.
The value of fiat currency comes purely from the wealth that it represents, with a stability guarantee provided by things like tax revenues being denominated in that currency.
The value of cryptocurrency similarly comes from the wealth it represents, which is why ordinary users have to exchange fiat currencies to get crypto - it's a transfer of wealth from one system to another. And similarly, a certain amount of stability (but not nearly as much) is provided by the demand for the currency due notoriously to money laundering, the drug trade, evasion of capital controls, and probably even the odd above-board transactions.
I'm not arguing for or against crypto, I'm just pointing out that this whole "made of air" argument applies equally to any currency, really. Even for currencies that are backed by some asset with supposed "intrinsic value", any asset with a finite quantity can't have enough value to represent all the wealth in a society, by definition, because its own value is included in that amount. The actual value represented by a wide-scale currency must be surplus to any intrinsic value. "Intrinsic value" and "asset backed" are essentially red herrings in all but the smallest contexts ( like eGold, which never got big enough for this to matter.)
eGold needed an underlying asset because it was a single company, and it needed to prove it was good for the obligations it was taking on, essentially.
Bitcoin, by contrast, is more like a government fiat currency, except government fiat (theoretically backed by democratic mandate) is replaced by the voluntary choice of a large enough group of people to use it.
The value of fiat currency comes purely from the wealth that it represents, with a stability guarantee provided by things like tax revenues being denominated in that currency.
The value of cryptocurrency similarly comes from the wealth it represents, which is why ordinary users have to exchange fiat currencies to get crypto - it's a transfer of wealth from one system to another. And similarly, a certain amount of stability (but not nearly as much) is provided by the demand for the currency due notoriously to money laundering, the drug trade, evasion of capital controls, and probably even the odd above-board transactions.
I'm not arguing for or against crypto, I'm just pointing out that this whole "made of air" argument applies equally to any currency, really. Even for currencies that are backed by some asset with supposed "intrinsic value", any asset with a finite quantity can't have enough value to represent all the wealth in a society, by definition, because its own value is included in that amount. The actual value represented by a wide-scale currency must be surplus to any intrinsic value. "Intrinsic value" and "asset backed" are essentially red herrings in all but the smallest contexts ( like eGold, which never got big enough for this to matter.)
>The value of fiat currency comes purely from the wealth that it represents, with a stability guarantee provided by things like tax revenues being denominated in that currency.
This is wrong or at least woefully incomplete. The value of a fiat (or any) currency comes from its utility as (1) a medium of exchange (2) a store of value and (3) a unit of account. If few people use a currency for buying or selling real (and legal) goods or services then it is a ineffective medium of exchange. If a currency is not legal tender (to your point) it may also be ineffective as a medium of exchange. Try paying your taxes with Bitcoin. Won't work. Bitcoin is not a stable store of value. (so 2 is not satisfied). You can not reliably store a certain fixed amount of purchasing power in your Bitcoin savings (Hodlings) for future use at an arbitrary future time. (3) Bitcoin is not a unit of account in any general sense. Goods and services are not priced in Bitcoin units.
Thus Bitcoin fails the three prong test of whether an instrument may be considered a currency. If Bitcoin is not a currency, which it manifestly is not why don't we stop calling it one?
Ok so it is an asset then? Right? Not really. An asset is something of tangible use and durable value something that can be subject to property rights. What is the use of Bitcoin? Can you live on the block chain? Can you sue other people if they steal your Bitcoin (e.g. is Bitcoin intellectual property?). No actually the only value in Bitcoin is that maybe you can find somebody who will pay a higher price (in dollars) than what you paid. Thus if Bitcoin claims to be an asset it is a fraudulent asset. Fundamental since Bitcoin has no physical underlying asset it is just a number. Nobody can own numbers. Nothing prevents anybody from duplicating a number. In fact this has happened multiple times when the blockchain forks. See Bitcoin Cash, etc.
This is wrong or at least woefully incomplete. The value of a fiat (or any) currency comes from its utility as (1) a medium of exchange (2) a store of value and (3) a unit of account. If few people use a currency for buying or selling real (and legal) goods or services then it is a ineffective medium of exchange. If a currency is not legal tender (to your point) it may also be ineffective as a medium of exchange. Try paying your taxes with Bitcoin. Won't work. Bitcoin is not a stable store of value. (so 2 is not satisfied). You can not reliably store a certain fixed amount of purchasing power in your Bitcoin savings (Hodlings) for future use at an arbitrary future time. (3) Bitcoin is not a unit of account in any general sense. Goods and services are not priced in Bitcoin units.
Thus Bitcoin fails the three prong test of whether an instrument may be considered a currency. If Bitcoin is not a currency, which it manifestly is not why don't we stop calling it one?
Ok so it is an asset then? Right? Not really. An asset is something of tangible use and durable value something that can be subject to property rights. What is the use of Bitcoin? Can you live on the block chain? Can you sue other people if they steal your Bitcoin (e.g. is Bitcoin intellectual property?). No actually the only value in Bitcoin is that maybe you can find somebody who will pay a higher price (in dollars) than what you paid. Thus if Bitcoin claims to be an asset it is a fraudulent asset. Fundamental since Bitcoin has no physical underlying asset it is just a number. Nobody can own numbers. Nothing prevents anybody from duplicating a number. In fact this has happened multiple times when the blockchain forks. See Bitcoin Cash, etc.
> The value of a fiat (or any) currency comes from...
You're incorrectly parroting a definition without understanding it.
The items you listed are the functions that a currency needs to provide. They are not the source of its value, they're preconditions for it being able to have value in the first place.
The only possible source for the value of a widely-used currency is the wealth that it represents. That's what money is: an abstract representation of wealth, that can be used in all the ways you described. Once you understand that fundamental fact, you'll find it much easier to understand other things about money, and you'll be better able to understand why the "intrinsic value" or "underlying real asset" of a currency is an essentially irrelevant property.
The rest of your comment goes off at a tangent about what Bitcoin is. For that discussion, try r/bitcoin on reddit.
You're incorrectly parroting a definition without understanding it.
The items you listed are the functions that a currency needs to provide. They are not the source of its value, they're preconditions for it being able to have value in the first place.
The only possible source for the value of a widely-used currency is the wealth that it represents. That's what money is: an abstract representation of wealth, that can be used in all the ways you described. Once you understand that fundamental fact, you'll find it much easier to understand other things about money, and you'll be better able to understand why the "intrinsic value" or "underlying real asset" of a currency is an essentially irrelevant property.
The rest of your comment goes off at a tangent about what Bitcoin is. For that discussion, try r/bitcoin on reddit.
>The only possible source for the value of a widely-used currency is the wealth that it represents.
I disagree and I think most economists would too. You provided a tautologic "definition."
I would say a currency has value as a currency iff it meets the three criteria that define a currency. These have to do with utility or fungibility not representation. A currency has value because it is useful as (1), (2), (3). A currency is defined by its use and functions. You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful.
I think you don't understand what a currency is.
I disagree and I think most economists would too. You provided a tautologic "definition."
I would say a currency has value as a currency iff it meets the three criteria that define a currency. These have to do with utility or fungibility not representation. A currency has value because it is useful as (1), (2), (3). A currency is defined by its use and functions. You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful.
I think you don't understand what a currency is.
What I'm describing is what any economist would tell you. You made your misunderstanding clear when you write this:
> You provided a tautologic "definition."
No, I didn't. Money itself is not "real" wealth. It's an agreed-on abstraction which is used to represent wealth. It's a measure of wealth, in the "unit of account" sense. Wealth exists in the form of things like property, other tangible assets, the output of services, etc.
To understand this better, consider a barter economy. Someone might trade a cow for some swords or whatever. The cow and the swords are assets which have value because they're useful to someone. But not every asset is useful to everyone. I have no use for a cow or a sword, but some people do. This makes it difficult for pure barter systems to work well, because the assets I have may be of no use to the people who have assets that I want to trade for, and vice versa.
Money solves this problem. It is used to represent wealth. Typically via a market system, assets are valued in terms of an amount of money. This allows people to trade assets for money without having to match assets that both sides are interested in.
Once you understand this basic fact, a lot of economics follows quite obviously. For example, it become clear that the amount of money in a society needs to grow to match the underlying wealth (total assets) in that society, otherwise the value of money will either increase (deflation - prices drop making money more valuable) or decrease (inflation - prices increases making money less valuable). This is why central banks pay attention to, and manage, the money supply.
Bringing this back to crypto, we can use this fundamental understanding to understand why cryptos like Bitcoin are deflationary: since they have a limited supply, as the amount of wealth they represent increases, the value of the currency has to increase.
> I would say a currency has value as a currency iff it meets the three criteria that define a currency.
You can say that, but it's pointless because you're not using "value" in the economic sense. It's more accurate and less misleading just to say that some instrument can serve as a currency if it meets those criteria.
Your description doesn't help explain how much actual economic value a currency has. To find that out, you need to look at how much underlying wealth it represents.
> A currency has value because it is useful as (1), (2), (3).
You could say "it is possible for a currency to have value because..." But that doesn't help you identify how valuable it is.
> You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful.
That's the point. Money has to actually represent real wealth for it to have value. Its value is largely determined by how much real, non-money wealth it represents.
> I think you don't understand what a currency is.
You've been reading definitions without a full understanding of the bigger picture.
> You provided a tautologic "definition."
No, I didn't. Money itself is not "real" wealth. It's an agreed-on abstraction which is used to represent wealth. It's a measure of wealth, in the "unit of account" sense. Wealth exists in the form of things like property, other tangible assets, the output of services, etc.
To understand this better, consider a barter economy. Someone might trade a cow for some swords or whatever. The cow and the swords are assets which have value because they're useful to someone. But not every asset is useful to everyone. I have no use for a cow or a sword, but some people do. This makes it difficult for pure barter systems to work well, because the assets I have may be of no use to the people who have assets that I want to trade for, and vice versa.
Money solves this problem. It is used to represent wealth. Typically via a market system, assets are valued in terms of an amount of money. This allows people to trade assets for money without having to match assets that both sides are interested in.
Once you understand this basic fact, a lot of economics follows quite obviously. For example, it become clear that the amount of money in a society needs to grow to match the underlying wealth (total assets) in that society, otherwise the value of money will either increase (deflation - prices drop making money more valuable) or decrease (inflation - prices increases making money less valuable). This is why central banks pay attention to, and manage, the money supply.
Bringing this back to crypto, we can use this fundamental understanding to understand why cryptos like Bitcoin are deflationary: since they have a limited supply, as the amount of wealth they represent increases, the value of the currency has to increase.
> I would say a currency has value as a currency iff it meets the three criteria that define a currency.
You can say that, but it's pointless because you're not using "value" in the economic sense. It's more accurate and less misleading just to say that some instrument can serve as a currency if it meets those criteria.
Your description doesn't help explain how much actual economic value a currency has. To find that out, you need to look at how much underlying wealth it represents.
> A currency has value because it is useful as (1), (2), (3).
You could say "it is possible for a currency to have value because..." But that doesn't help you identify how valuable it is.
> You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful.
That's the point. Money has to actually represent real wealth for it to have value. Its value is largely determined by how much real, non-money wealth it represents.
> I think you don't understand what a currency is.
You've been reading definitions without a full understanding of the bigger picture.