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Old 3rd January 2018, 09:45 AM   #1381
psionl0
Skeptical about skeptics
 
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Join Date: Sep 2010
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Originally Posted by PartSkeptic View Post
I am researching some of the issues about currency, and taking one issue at a time.

Here is a false claim:

Quote:
https://steemit.com/cryptocurrency/@...itcoin-is-born

The second is even more mind blowing: American dollars are created by debt. In stark contrast, cryptocurrencies are created by work. If there was ever a scam at work in the world of currencies, creating new dollars out of debt would seem pretty high on my list. Mining Bitcoin or curating Steem? Not so much.

When a person buys a house and takes out a loan from the bank, the debt is backed by a physical asset. The house. The bank can ask the Reserve Bank for cash and use the debt/asset. The dollar cash is backed by an asset.

When a bitcoin is created, electricity is used which creates nothing but a number. That is not "work". It is the same as burning down a tree and getting nothing but smoke and carbon dioxide as proof or work.
The claim is not entirely false. It is true that debts must be backed by an asset but it does not have to be a totally physical asset. It could be backed up by somebody else's debt or even just the word of the borrower (think: credit cards).

Fiat currency is ultimately government debt backed up by the liabilities of tax payers.

OTOH crypto currencies are not backed up by anything (except themselves) because they are not debt instruments. They are worth only what somebody is willing to pay for them. They operate as "currencies" in a similar fashion to the way gold and other precious metals used to be currency. The energy used to create crypto currencies is a red herring since this energy is irrelevant to the "value" of a crypto currency.

What I find astounding is the apparently hard core belief the one day all the bitcoin holders will decide that bitcoin is worthless and dump them. It is going to take a lot more than a spontaneous change in public belief about bitcoin to get it off this never ending roller coaster.
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"The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent." - Galbraith, 1975
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