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Old 3rd January 2018, 10:56 PM   #1386
Tippit
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Join Date: Jul 2007
Location: Florida
Posts: 4,038
Originally Posted by psionl0 View Post
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).
It's not true that debts have to be "backed" by an asset. see unsecured versus secured loans.

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Fiat currency is ultimately government debt backed up by the liabilities of tax payers.
Fiat currency is not debt, nor is it always conjured ex nihilo in exchange for debt. It could theoretically be created for any reason what-so-ever, or in exchange for anything (not just government bonds).

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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.
The energy isn't irrelevant to the value, because it represents that which was expended in the proof of work according to the difficulty in order to create scarcity and thus, an important aspect of bitcoin's value. While bitcoin is speculative, the proof-of-work offers the bitcoin speculator a limited guarantee that the supply of the underlying won't be counterfeited or duplicated, unlike fiat currencies.

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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.
It could happen if some kind of tail risk manifests itself, such as quantum computers rendering elliptic curve crypto useless, etc... but it seems unlikely for the intermediate term, and there are even fail safe measures in the bitcoin protocol to completely swap out the underlying crypto, as i understand.
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