Bitcoin Forum

On pretty much every thread about bitcoins I see the majority of people saying that fiat is destined to fail, but that bitcoins are the future. I have to ask, what is it that makes bitcoins such a flawless currency?

I said this in another thread, but the euro (the overall most valuable currency) has been around since 1996, and it is the second most popular currency behind the USD, which admittedly has been around for a few hundred years. I can buy anything I want with the euro (although I live in the US so I don't use it) in multiple countries. Asian and African countries have pegged their currencies to it as well, and the euro and usd are accepted in a lot of countries where they aren't even official.

Bitcoins have been around since 2009, a 1/4 of the Euro's lifespan, and I can't use them to buy even the most basic of things. Looking at bitcoin.travel, there are two places in my state where I could use bitcoins. One is a guitar shop and the other is a Asian (probably Vietnamese) café. I like Vietnamese food, but neither of these are relevant to me whatsoever. I also have to drive an hour to get there, and I need to pay money for gas, so it's a deal breaker.

Looking at these two currencies (let's use the USD for fiat because it's what I'm familiar with) side by side, one is useful and popular, and the other is (currently) useless unless traded as a sort of stock. Bitcoin's value is measured in comparison to fiat on all exchanges. Now, a lot of people bring up the argument "Well, 1 BTC doesn't equal $100, it equals 1 BTC." This is true. 1 BTC does indeed equal 1 BTC. What exactly does this mean? Yes, if I have 1 bitcoin I have 1 bitcoin. But what is the value of this bitcoin, and what is it measured in? Without fiat to back it up, it is worthless. There is nothing for me to buy with it, unless I'm going to pick up playing the guitar. 1 USD = a drink at the gas station. 50 USD = my groceries. 1 BTC = nothing, so far.

As for fiat's supposed instability, where is the evidence? Yes, there is inflation, but bitcoins fluctuate far more than fiat. Bitcoins can drop half their value in one month and then go right back up the next. This does not happen with fiat currencies usually.

It appears as though fiat is more valuable than bitcoins. Don't get me wrong, I want to and I do invest in bitcoins. But I invest to make fiat money, which I can actually spend. However, I would like to see some arguments/evidence that show that fiat is crumbling, and bitcoin is going to overtake it.

Because history repeating.


http://dailyreckoning.com/fiat-currency/

Checkout bitmit.
    I buy homebaked bread for bitcoin from a guy in my city. You can get books, coffee, motorcycles, land, gold, clothes, computers, phones, snacks, medicine and on and on delivered right to your door. Except the land. But you can buy it and hold it as an investment without going there.

    When the dollar fails, the EU economy will collapse because it's dependent on exports to the US. The dollar has been debased for a long time, but its not showing due to demand caused by oil being dollar denominated and its role as reserve world currency. Too big to fail, in other words. When cracks start to show things will move very fast.

While that site is cool, it's far from convenient to have food shipped. I'm not going to order my groceries and wait 3-5 business days to be able to eat.

If the dollar and euro fail, bitcoin will fail because it will have nothing to back it up. 100 BTC is "valuable" because it is worth ~10,000 dollars. If 10,000 dollars were to become virtually worthless, then 100 BTC would be as well, because why would vendors accept something that has no intrinsic value?

You can't order it with gold either, so gold is failure too, right?

Well gold has certainly failed, at least as a form of currency. Nowhere is going to accept your gold instead of money. Gold also is no longer the standard for currency; now currencies are backed by assets and the state of the economy.

First of

Bitcoin is not a flawless exchange currency. (the person who told you that was improperly informed)

Bitcoin cannot give any guarantee about anything. the system is "As is" and it is still under development.

Bitcoin is just a dream of Satoshi Nakamoto and we are playing inside that dream:

If we think of good things and make conscious choices the dream will last.
But if we think of bad things and make unconscious choices there will be chaos.
I can already tell you that this dream has a beginning and it has a end.

Ironically the same applies to our current financial system. Which is someonelses dream
they are diffirent dreams but similar rules apply.

the good thinking and conscious descision making are no longer in balance for current world operating conditions therefore; there is choas.

if your currency remains in chaos long enough, it goes to currency heaven.

This suggests you misunderstand the actual nature of fiat money. I can go into more detail if you like.

You asked two very distinct questions, I'll start with "Why will Bitcoin succeed?"

Obviously, these are still early days, and I wouldn't pretend Bitcoin's success is a guarantee. Since you're looking to invest I'll start by warning you that there's still a lot of risk and unknowns here.

That being said, what is bitcoin good for right now?

- Safe, irreversible online payments, from $0.005-$1G in value, at fees that are flat and a minuscule fraction of those imposed by paypal and credit card companies.
- You don't have to trust the other party with more than what you're spending. With a credit card, any dishonest merchant can start using your card to buy things in your name.
- Completely anonymous (if you're careful), unseizable, no geographical limitations (Half the world pretty much can't use credit cards online right now because they're considered fraud risks)

These are properties inherent in Bitcoin that give it an edge over currencies, right now. Some other cool stuff is coming down the pipeline, but isn't really usable yet.

You'll notice most of your examples as to why Bitcoin isn't better than fiat are not inherent to the respective currencies. Acceptance of currencies does change, sometimes dramatically (Many countries have seen their citizens completely refuse using the national currency, switching to dollars or euros instead). Bitcoiners are betting on the fact that a currency whose properties as a means of exchange are inherently better will eventually displace fiat currency, fixing the acceptance problem. Think of it this way: Bitcoin has barely had a chance to prove itself yet and has no big players (states, companies, banks) backing it in any real way, and already many people around the world are willing to accept it for payment. Doesn't that say something about its practical value?

The only things at which fiat currency is inherently superior is:
- You can pay your taxes with it.
- It doesn't require a network to actually work.

I think in the long run (20+ years) the advantages are so stacked in favor of Bitcoin (especially online) that it's a likely outcome that it will be directly competing with (if not replacing) national currencies.

Currencies fail because humans can not be trusted with the power of the mint. Sooner or later, the temptation to use inflation to steal becomes too great and the persons with control over the issuance of the currency indulge. They can get away with it as long as they keep the level of theft below the point at which the average person notices and abandons the currency but human nature being what it is, the thieves can't maintain that level of self control forever.

That is why regimes have to fall. Governments have all the power (and no responsibility) to operate with other peoples money and also pretty much rule their lifes. But corruption is human nature. So how can you stop the harm? Cancel states. People can't misuse something only if they don't have it. So it is with money and power.

As for the question regarding euro and dollar: US have been exporting the green paper all over the world, if somebody didn't want it, they've sent their army to deliver that. Pretty good tactic to spread yur surrency. As for euro, it pretty much the same: if half a bilion ppl forming together one of three largest economies are forced to use it, what can you do if you want to sell them goods? Right, you adapt. That's the principle of (anarcho)capitalism by the way. If ppl weren't forced to it, you bet they'd use everything else incl. bitcoin.

What makes you think the Euro is the most valuable of all fiat currencies?

Good question, isn't sterling still higher?

I love my Euros :) Regardless what many people say - it's the second strongest currency in the world, it gives the holder accept to the biggest market of the world, its strength makes wares from all over the world cheap for euro-holders, cause everybody wants to give his goods against this lovely euro. So you can pay with them in a lot of non-euro countries, because everybody wants it. It's geat, and it's not gonna die, and even if I love and have Bitcoins, the death of the Euro would do really big harm for me and for a lot of people I love, so even in my dirtiest Bitcoin-dreams I don't wish it.

But you don't have to think in this terms: Euro die, Bitcoin live. It's no zero sum game, where one succeeds and the other fails.

What's the problem to have two currencies?

I expect Bitcoin to works better than other currencies in the following fields:
a) something like gold (it is already)
b) the great currency of the internet making the cyperspace the largest free trade zone of the world
c) a tool to overcome currency-crisis

Nothing of this conflicts with the glory of the Euro :)

  Imagine sitting at the cash register with a spoon and a jet lighter trying to divide your .05 oz ingot into a .0124 oz and a .0376 oz ingot.
 Not a problem with bitcoin!

   People seem to often make the mistake of considering or criticizing bitcoin on one level- only as a currency, only as a payment method, only as a means of storing value. It has major advantages not just in one of these categories, but in all of them. Do you know how much money is made just in fees on international wire transfers every year? It's got to be in the billions, and bitcoin offers a 90% improvement on efficiency over traditional methods. This means that naturally businesses dealing with bitcoin will have an edge over companies dealing with traditional banks in the long run. Think the difference between dinosaurs and birds.

Fiat currencies are backed up the unfunded pension and social welfare liabilities of their issuing governments  :D :D :D :D :D

This is the future of all Fiat currencies in the Western world

https://wheresmytbackandotherstories.files.wordpress.com/2012/03/grumpy-old-men1.jpg

As for the banks they're finished because we've reached peak debt. Society on a whole is at the limit of its debt servicing ability. That's why interest rates have crashed. When the market decides that it's time for rates to go back to the mean all of the banks will be insolvent.

The idiot troll arrives to talk "Economics", demanding explanations, lol.   ::)

.... day late and a dollar short? train left the station without you.

That's a rather ridiculous comparison. € was introduced (enforced) top-down and large-scale. BTC has to grow bottom-up by grassroots effort.

Come on, that may be a little harsh. Bitcoin is going to have to be comprehended by much less informed people than the OP down the line. I detect no malice intended in this thread, just lack of research. I'm sure the OP has many valuable qualities and is very intelligent on the right subject. Who knows, with time bitcoin could become such a subject and he/she could help others understand and benefit from bitcoin, but by being insulted he/she might become disillusioned with the bitcoin community, stop researching, and spread misinformation about bitcoin like that contained in the original post.
     I'm just saying having patience with new people will probably benefit us all more in the long run...

Which could make it more stable if it succeeds. And if Bitcoin does succeed, it takes longer than if "introduced (enforced)" top-down.

Generally, I don't think Bitcoin will completely replace fiat currencies. I think it could be large in areas where it is advantageous. But in some areas other alternatives (such as fiat currencies or other digital currencies) will remain successful or will rise. Same with banks. For some services banks might be here to stay (advisory for instance, but then they don't deserve the name "bank" anymore). For many other financial services I am convinced that specialized Bitcoin companies will take over the old banks.

Fiat worth something because people have no other alternative payment medium, now there is bitcoin, people will comapre the two, and  they will realize that bitcoin will not let their wealth stolen by politicians and bankers

Just look at the U.S. national debt since gold standard abolished
http://static2.businessinsider.com/image/4cd00bc24bd7c89768010000/chart.jpg

Things are quite desperate on the top level for many countries, just normal people don't feel it, this is the biggest problem for today's social structure: Government is the single point of failure, if they become insolvent, then almost everything in the society will fail in a very short time. Bitcoin provided a way to diversify such risk

Ok , tl;dr for most of this thread. To answer the OP's questions, that have btw been answered 1000 times already on these forums I'm sure. But anyway.

First of all, the idea of an anonymous decentralized e-cash system was not Satoshi's. This idea has been around for a long time.

Secondly, bitcoin is the only anonymous decentralized e-cash system that has gained traction online - and has not been hacked or anything. This is really the genius of Satoshi, it's in the design & implementation of the idea, not the idea itself.

Thirdly, most of OP's points are due to the currency not having gained enough traction. It takes a critical mass to adopt it before it really gets proper usage. We are only in year 5 of bitcoin - that's very early indeed.

Fourthly, a general rant about the gold standard. It is a sign of our times that every politcian or central banker seems to agree that the gold standard was a useless invention and bad economics. NO! The gold standard is what we should be using 90% of the time. Of course, the late 1920s/early 1930s are ALWAYS cited as an excuse as to why the world came off the gold standard. NO again! The gold standard should be used 90% of the time, because it enforces fiscal discipline. This is EXACTLY why politcians don't like it and eventually moved off it. Occasionally I believe, as in the 1930s, there is a case for moving away from the gold standard - for example, in a deflationary spiral. However, it should be reapplied ASAP to prevent exactly the type of crisis we are in now.

Remember in some eras of history, there are dogmas that everybody believes no matter what, even though there is NO logical reason behind it? Like a couple hundred years ago, when everybody believed the world was flat? Or when people believed in creatonism? Or when they believed that women or non-white races were inferior. Etc. Well, the dogma of our age is that we believe that politicians and central bankers can dictate and control the money supply and the economy.

It is unbelievable to hear Bernanke say that countries are not subject to the same fiscal discipline as, say, a company - and can carry on borrowing and running up debt indefinitely. This is INCREDIBLE to hear an educated person saying this, let alone the Fed chairman. To me, it's like somebody saying that 2+2 = 5. But this is exactly what he said in his press conference last week.

If there's one good thing that will come from this period in history, it's that fiat money is ALWAYS a disaster, politicians CANNOT be trusted to manage the economy (or be trusted with pretty much anything), and that the gold standard is the ONLY thing worth using. Unfortunately, as is common in human history, we are going to learn this lesson the hard way. A VERY hard way.

Where does bitcoin come in? Well this is the `economics` section, so please excuse me for ranting on about the economy. However, bitcoin has all the properties of gold - that made people trust gold as an ultimate store of value - but it has even more properties - such as, it is totally digital, transferred instantly to anybody worldwide, easy to store. In short, it was specially designed as a store of value, as a global currency. Gold was not.  So it is totally logical to accept that one day bitcoin will replace gold as the monetary standard. Furthermore, if fiat currencies collapse, it is also totally logical to accept that bitcoin will replace them - because it is a technologically better substitute for gold, as already discussed.


* I am borrowing some things here from some Peter Schiff videos on YouTube admittedly. But I totally agree with what he says, I think he is really spot on about the economy. He is a little crazy though and he comes across as trying to constantly pump up his own investment firm, so I think many people don't trust him - which is a shame.

I agree with you that the gold standard (or systems like it, e. g. Bitcoin) are good as basis of the money.  However I'm not exactly sure how you think that switching off the gold standard for 10% of the time is going to work.  Do you mean that during such a time (deflationary spiral as you mentioned it) the money supply may get inflated beyond the gold backing?  But if you do this, how can you ever get back to a full backing - only by devaluing your currency at the end of this period with respect to the amount of gold you can get for a bank note, right?  IMHO this defeats the whole point of a gold standard in the first place - as soon as people realize their money got worth less (in gold) even though they were promised it is backed by some fixed amount, won't they just stop using it and hold gold?


Nitpick:  Even though this is commonly cited, it is not true that people in the Medieval Age believed the world to be flat.  Already the greeks knew it is not.  The misconception of those times was that it is the center of the universe.  Also, I'm sure still today a lot of people believe in creationism - especially in the modern center of the developed world, aka US, one hears.... ;)

I am a troll? What argument do you have against what I said? It seems like the common argument against anyone who goes against bitcoins is that they are just trolling. And I'm not even against bitcoins. I'm buying as much as I can, and I use them to purchase things. But I also recognize bitcoin's flaws, and I think that until everyone recognizes them bitcoin will never be mainstream. I also think that the currency can't stay stable with this kind of mentality. People want bitcoins to increase in value exponentially, but this type of instability is good for no one but the few people who got in early.

The fact is, no matter what might happen, Bitcoin is nowhere near as successful as any of the supposed "failing" fiat currencies. Maybe in a 100 years it will be just as successful, but none of us are going to live that long. The bitcoin economy isn't as big as a single fiat currency. It also isn't nearly as stable. The value of a bitcoin fluctuates constantly, and prices change to reflect it. What if one day you went to the grocery store and everything was twice as expensive because the price of bitcoins plummeted? The average person will never agree to that kind of system.

It seems you aready one step ahead of us all you seem to know everything.

So now i have a question for you: why did you buy bitcoins ???

Because I see them as a good investment- not because I believe that it will replace fiat (it won't) but because it will hopefully increase in value, at least for a short period of time. Although seeing as major exchanges are either being discontinued or getting more restrictive (at least to US customers), I'm not so sure.

I don't have anything against bitcoins. I just want to know why pretty much everyone on these forums is so sure that it will replace fiat. There have been people here that have, completely seriously, told me and others to invest everything in bitcoins. That is a very risky maneuver, but it seems as though it's one a lot of people are willing to take.

Like I said before, I also don't think that the rampant fervor for bitcoins is positive. Some people on here are almost religious when it comes to bitcoins. Why are they so great? The main arguments are decentralization and deflation. But I fail to see how bitcoins are decentralized when a small amount of people control the majority of the bitcoins (just like with fiat!). The mining pools also have considerable influence. Deflation is not always positive. Stability is much more beneficial than either inflation or deflation.

I just want to know as much as I can about the bitcoin economy before I make a serious investment. So far, I feel like idealism drives the market quite a bit as opposed to rational thought, and this is worrisome. It seems to cause instability in the market unheard of in any other currency.

What exactly does US national debt mean to me, Joe consumer?  My standard of living hasn't gone down as the debt has gone up.  It's in no one's interest to call in the debt.  What do you see happening in case US defaults?  
People are impressed by exponential charts -- "unsustainable" is a word often used.  Population growth is exponential -- economy has to grow on an exponential curve *just to keep even* with human population.  You like scary charts?  Here:
http://www.theoildrum.com/uploads/12/LongTermPopulation.gif
Match this with economy predicated on linear growth.

Someone in this thread mentioned that the history of fiat is a history of failure.  By that measure, the history of *everything* is a history of failure.  Gold-backed currency, in particular.  As extinct today as the dinosaur.  

The doomsday prophets of this forum, the ones prognosticating the end of fiat, back up their soothsaying with examples of economic failure.  How absurd to assume, then, that exchanging one currency for another would somehow solve the problem.  Economic collapse is not undone by swapping bad money for good. >:(
 :D

Are you a baby boomer by any chance? Because if not I'd be surprised if your standard of living hasn't been negatively effected by increasing debt levels.

Not a baby boomer, and doing just fine thus far.  Am i bucking the trend, and what makes you think the national debt is a factor?  Also, what will happen to the debt if we switch to bitcoin?  Wouldn't it be smarter to crank up the presses & pay off our dollar-denominated debt? :)

Sure. I accept this, sorry my factual knowledge is not totally there. Probably there are some people who believe the world is flat today, but the point is it's not universally accepted.


RE: gold? Well this is just my personal idea. It's not backed up by any economic theory. The point of the gold standard is that it control the monetary balance, right? It's impossible for governments to run up a deficit with the gold standard. If they spend like crazy, they just loose all their monetary supply / gold. In this case, they experience a huge deflation and have to take their currencies off the gold standard. This is what happened in the 1920s/1930s - in my understanding. What I'm arguing is that, if this were to happen, then a government would have a legitimate case to come off the gold standard - to prevent a deflationary spiral, which is when consumers don't spend -> businesses make falling profits -> businesses fire staff -> consumers don't spend .... It's a feedback loop. To break this, sure - it would be necessary to come off the gold standard. So, the gold standard is not completely perfect. However, what I'm arguing is that the consequences of *not* using the gold standard are 10x worse than using it. At least, a deflationary scenario *can* be fixed, and does prevent governments from taking on debt after a certain point. It also alerts them and the population to the problem. So, it has a preventative effect against running up huge debts.


Ahhh. Yes, of course it's not so simple. You see, you missed out the graph showing an exponential increase in human technology and innovation, and therefore an exponential decrease in the use of natural resources by each individual person. Let's hope it continues, I see no reason for it not to.

In my opinion, the US situation is a simple matter of maths. The country is loosing money at an alarming rate, and is only able to carry on due to the crazyness of its creditors to keep lending. It has no chance of even making a profit with its current indebtedness, let alone repaying the huge debt load that has been accumulated over decades - in the private and public sector. The only way of paying off the debt is to tax the assets of all the citizens within the country, like Cyprus. Given that there are various other serious imbalances in the world, if there is a serious financial crisis or some other event that causes the debt markets to freeze up, it's possible that the citizens may be forced to pay up - ala Cyprus. For me, this is one of the scenarios that could see wide adoption of bitcoin.

I relate to the Austrian school, but one of the criticisms of the Austrian school is that it is too simplistic. It looks at a general overview, without taking account of the huge, complicated picture of macro economics. I do accept that I have a limited knowledge of the situation and I'm sure that there are people who know alot more than me about the USA economic circumstance. However, I have considered all the different scenarios about the path the USA is on, and this one is the only one that seems to check all the boxes.



It is today. But you're talking about a relatively short period in history when it has been disregarded (last 60 years) vs. hundreds of years preceding this, when it was used successfully. Not sure what you mean by history of *everything* is a failure, please clarify.


Fiat is totally different to the way gold money works. It's not absurd at all.

Economic collapse is not undone, but it can be solved by fixing the problems that caused it. IMO, since the last crisis very little was fixed. I don't believe it was *just* loose regulation that caused the housing crisis.

I'm sorry if Im a doomsday prophet, I kind've regret posting a thread called 'The end is near'. I would wipe it if there wasn't so much attention to it. However, in my opinion the majority of people continue to believe a lie about what's going on in the western world, a lie which is perpetuated by those who have an interest in people believing it. There are many more people with an interest in the mass population believing this lie, than there are people with an interest in people believing the truth. Most of the people who like people to believe the truth are people selling gold, silver or pumping currencies like bitcoin. These people are in a huge minority compared to the established elite who would prefer people to believe that a "recovery" is underwzy. I believe that it is only a matter of time before the truth reveals itself, unfortunately it will probably be after those responsible have left office.

Once again, I - and the other prophets - may be wrong about the situation. Maybe things are getting better and debt will eventually be repaid. However, looking back on history, it is unfortunate that things never proceed as straightforwards as this and, unfortunately, when countries are in the economic situation we are in right now, sooner or later there is usually a serious crisis.

Absolute nonsense.  What are you talking about?  Which natural resources?  Oil?  Coal? livingspace? (oh lawdy, i almost fell into Godwin's law on that one :D )wut?  Charts plz. :)


You understand that since the money it is losing is its own fiat, "losing money" is meaningless -- we can print moar!


Saying that US has no chance of making a profit is as absurd as saying US is losing money.  See "losing money" above.


Or continue to accrue debt. 


R U cerial?  Who will do the forcing?  The countries US is in debt to?


What will that solve?  "We no longer use dollars, we swapped them for bitcoinz!  We owe you dollars, not bitcoinz, so we owe you *NOTHING!!11!*   Hahaha!"


The same thing you mean when you say that fiat is a failure.  Only wait...  We still use fiat -- i can buy a pack of smokes & fill up my car with it right now.  Gold standard has been abandoned, like laser disks, floppy disks & VHS tape.  Failed.  Served us fine 'till getting the boot.


If you're concerned about the housing crisis, having fiat money in play had nothing to do with it.  The same thing could have been done with gold-backed money or even bitcoin.  Fractional reserve lending is not dependent on fiat or even inflationary currency.  Please explain why switching to bitcoin would have prevented or will solve any of the housing market problems.


I think you'll find that true with all lies :D


No, those are the people trying to make money.  "Selling" is the clue you've missed :)


What countries were in the economic situation we (US?) are in today?

 
   That was a lot of information exchanged above... very interesting discussion. Just one point stands out to me.

  You say the US debt is unsustainable and that the maintenance of this debt will make the US as an entity unprofitable. The way I see it, the US is still in a dominant position only due to the "Too big to fail" principle. The debt is being serviced by expansion of the money supply, and hoarding+artifically high demand for dollars due to status as world reserve currency and oil being denominated in dollars+china keeps buying US bonds because if they stop their biggest export market will collapse leading to massive unemployment and insurrection is keeping inflation from getting out of control.

In other words, everyone who has dollars, from the Chinese government to Congolese diamond miners to retirees, is being scammed.

    Inflation is no problem for the US- they can pay of debts with freshly minted money, and the resulting inflation just means that the remaining debt is less valuable in real terms. So if the US has 80 billion tons of soya in debt, worth, say, 8 trillion dollars, and they expand the money supply by 1 trillion dollars, devaluing the currency by 10%, they now have 7 trillion in debt, but since a dollar now buys 10% less soya, they only owe 63 billion tons of soya. In other words, by paying debt down by 1 trillion NOMINAL dollars, they paid down 1.7 trillion in REAL dollars. The people who have dollars, aka China, lose, and the people who OWE dollars, aka the US, win.

       Of course, the poor lose too since food, heating, gas get more expensive. The rich don't care, because by virtue of being rich they already have unlimited lines of credit based on their assets.

       Bitcoin is like the valve on the pressure cooker that keeps the whole thing from blowing. Yeah, that's right, bitcoin could prevent world war 3 from happening. I said it. There.

   

     

Perhaps "scammed" is not the right word.  How about "complicit"?  You're not suggesting that Chinese government is ignorant of the facts you posses, or that your reasoning is news to them?  Status quo is simply in everyone's best interest, once all things are considered.  Granted solutions to problems like the Prisoner's Dilemma & the Keynesian Beauty Contest are intuitively unsatisfying, but they're all there is. (i think those problems are handy models for modeling many aspects of finance, if the last sentence made you think "wtf?")


Nicely put.  +1.
 

The thing is, the poor don't have savings (my definition of poor), so as long as their income matches inflation, their living standard remains the same.  In other words, if a gallon of milk costs double of what it did a year ago, and wages are also doubled, the paycheck buying power remains the same. 


How so?

There's nothing wrong with two currencies, it's just that the Euro is flawed.  It's far too fragmented in terms of policy and too many serial defaulting countries were let in, which makes it very easy to cause a systemic crisis.  Portugal, Italy, Greece, Ireland, and Spain are all on very shaky ground and the EU and ECB do not have the capacity nor the authority to step in as a lender of last resort like the Fed.  Read up on the number of times these countries have defaulted, do you honestly think it won't happen again?  There's a reason the UK stayed away from the Euro.  If it weren't for countries like Germany propping the Euro up, it would have collapsed by now.

But what about if the Chinese use some of their trillions in foreign reserves to buy US assets, thereby injecting more US dollars into circulation?

At trillions of dollars the inflation could be damaging, no? A crippled dollar leads to loss of trust which is one of the best things it still has going for it.

It's a threat that is common written of on the interwebs, that if the US continues to debase then China should just let its reserves destroy the US economy through inflation. I do realise that this action benefits no one but I have read that china is buying up Big US companies recently??

Do you mean like Fannie Mae & Freddie Mac?  Are you talking about THIS (http://en.wikipedia.org/wiki/Foreign_exchange_reserves_of_the_People%27s_Republic_of_China) or something else?

   I don't know that much about it to be honest, but I do get a hunch that China is trying hard right now to end the dollar as world reserve currency and avoid getting stuck with a pile of worthless dollars. There's definitely been more and more Chinese buying up real estate in the US (first hand experience), there's been the controls on the Yuan lifted so it can be held in foreign reserves and purchased by parties outside of China, and there's been the dropping of the dollar in trade in the Western pacific region in favor of the Yuan... of course, this is all happening very slowly and quietly because any sudden move could trigger panic selling.

    If the dollar does go into free fall it could cause untold damage to global productivity as things get reorganized, but with a bitcoin standard, the dollar could just become just a currency on equal footing with the Euro, Yen, Yuan and Pound, that is, a currency that has some relevance in foreign reserve holdings.

I suggest everyone to read that story about John Law's paper money scheme 300 years ago, it is the origin of the central banks and fiat money today
https://bitcointalk.org/index.php?topic=263267.0

The main reason that his grand scheme failed is because people still had other alternative payment medium like gold and silver coins. When there was an over supply of fiat money, people just ran for gold/silver coins

Currently the fiat system did not fail because the fiat money is the only medium of transaction and its flow are carefully controlled to not cause inflation. Even you know that FED has printed 4x more money since 2008, you have to use dollar anyway because you have no other alternative

It works like this: 99% of newly printed money goes to those 1% people, who in turn hoard them and keep the inflation in check (Offshore bank accounts holds amount of USD equals to 2x US GDP )

On the other end of the spectrum, are those people who have to work hard but never be able to payback the debt which is used to create those new money

How come such kind of a slavery system could continue to operate if everyone knows how it works?

http://www.npg.org/facts/world_pop_year.htm

Population increase average 1.2% per year and the rate is decreasing year over year, but the US debt increase average 9% per year and the rate is accelerating year over year. Of course average Joe will always be the last one to feel the problem, and when he did its already too late

And, exchanging one currency for another is the result of the collapsing of current monetary system, not the remedy

Exactly.  That's why switching to bitcoin is pointless.

Depends if the very currency you switch to has the same or different attributes.

I would welcome a day when these pesky banks are out of business :)

If the problem is national debt, as the posters here have suggested, then shifting from an inflationary currency to one that is non-inflationary will only aggravate the problem :)
Assuming the debt is unmanageable now (impossible to pay it back with inflationary currency), it will become *more* unmanageable (impossible++ :D) with a currency that can not be inflated (printing your way out of the problem is no longer on the table).

*Assuming that national debt is a problem (unclear), and that there is a practical method for a country to convert its currency into bitcoin (there isn't).

In my opinion debt is only a tool for maintaining slavery.

It's not about switching. I think everyone is delusional who expect a quick transition. I can imagine that the current system will die very slowly.

I do understand that bitcoin is not compatible with todays economy, mainstream world view and mentality - it doesn't need to be - I for one strongly believe that the current system is fundamentally flawed and it's not just a matter of used currencies but the sustainability of our civilization.

Don't get me wrong, I don't think that bitcoin in itself can achieve anything. For me it's just a tool. It can be used for positive and negative things alike. I think it's a small step into the right direction though as I find the idea behind it fascinating.
It shows us many things: the importance of money; we don't necessarily need leeches like the banking world (we need "independent" money); and the potential effect on the war on drugs/censorship and similar subjects.

Having said that, I come from a place where politicians and bankers lured most of our population to questionable mortgage deals which caused mass defaults creating a situation where the brighter folks are fleeing abroad to have a chance of better living standards. In the mean time the damage done is very transparent everywhere, you can experience how entropy works first hand ;-)

That John Law's scheme is worth studying. He successfully erased nations debt by exchange those government bonds using stocks of a state owned company, since those stocks had higher dividend, those previous bond holders happily gave up their bonds in exchange for stocks

Same could happen for bitcoin, if somehow the government claim the bitcoin will be officially supported in all transaction and establish a state owned investment company to invest in bitcoins, that investment company will have superior return. Those government bonds will all flow back into this state owned investment company, and the state can happily destroy these collected bonds

Didn't John Law die penniless?  I remember reading about him a while back, i thought his scheme imploded in the end?  I'm pretty ignorant when it comes to history, but i think he started something very similar to a bank issuing fiat, and when things began to fall apart he was already guzzling his own kool aid.  If i'm dead-wrong, sorry -- i'll try to google him now.

Edit:  Pretty much.  Wikip names his venture "[France's] first central bank." :)

    Um, in the past kings debased their currency by mixing tin into the silver coins or copper into the gold so they could issue more coins. They also waged monetary warfare by counterfeiting neighboring countries coins with lower gold and silver content.

    The john law scheme, as I understand it, was basically the origin of fractional reserve bamking, and can't work for the following reason: there has to be enough output of export products that people want to keep your currency afloat, otherwise they will make a run on it and try to exchange it for land or whatever the underlying commodity is and it will become worthless. If you try to fix the price of the currency to a commodity, you have to issue way more currency than you have of the underlying commodity, or else there won't be enough in circulation to act as an effective means of exchange.

     There is not enough gold in the world to back even 10% of the volume of trade that goes on, so the gold standard is not viable because people will eventually make a run on the currency as soon as the slightest crisis is perceived, leading to panic dumping and mass unemployment and freeze in trade. Fiat solves this problem by making available enough money so everyone can trade with eachother, including labor, so people can be employed, buy the products they need, trade, etc., without a bunch of productivity being lost due to a shortage of the medium of exchange causing people to not work, or people having to haggle about how many potatos a sheep is worth on a given day. In short it makes everyone wealthier by enhancing productivity and efficiency.
Of course people can and do make runs on fiat currency, see the asian crisis 16 years ago. They do so when they perceive that the economy of a country may not be able to sustain growth. It means that country may not be able to pay debt down, which may lead to a credit downgrade, which may lead to less foreign direct investment, which may lead to reduction in exports, which may lead to a decline in demand for the currency, which may lead to devaluation in the currency, and if one whale thinks this and sells, it can set off a feedback loop that crashes the currency as others see the price dropping and panic sell, even if the country's economy is fine. The dollar is immune to this because of the demand for dollars as world reserve currency and the trade in oil being mostly dollar denominated. So the fed is gleefully buying up 80 billion of debt a month even though the current account(trade) balance is way in the negative and the budget is getting tighter all the time. They call this expansionary monetary polic or quantitative easing, some call it printing money. This is sort of like congress voting to raise their own salaries- it means the US is in a position of power and trust as the issuer of the world currency, and they are printing more to pay off their own debts and maintain totally unsustainanle spending habits, thereby devaluing the currency which doesn't go into hyperinflation mainly because of hoarding and international demand. The international demand is there because people have to buy dollars in places like the congo, somalia, ecuador, panama, and everywhere where oil is being bought with dollars.

      This system was set up at bretton woods at the end of the second world war. The english wanted a single international currency but the US decided to make the international currency the dollar. An international currency probably would't have worked because it would make the playing field more level and put huge power in the hands of whoever issued it. A level playing field would mean no unfair advantages in trade with africa and layin america, which would mean a levelling of global income- which would mean a reduction in income growth in Europe and the US which would translate to less political support from the populace. The US set up the system as would be most beneficial to them, as we see now by the seemingly unlimited line of credit.
         
     The problem with international currency until bitcoin was who issues it- look at the euro, they are issuing a currency for a block of 17 countries(or something, i dont know how many), and they are barely keeping it together because of disparities among the countries and political resentment that comes from the so called freeloader problem. That means people in souther europe are relaxing, hanging out in cafes and eating antipasti while people in northern europe work more and carry the burden of propping up the value of the euro with exports.

       Bitcoin is a solution to the problem that people don't feel that the sum of commodities in the world are enough to back all of the currency needed to cover all trade in goods and services. Especially considering the value of the information economy, commodities or commodity backed currency just doesn't cut it. Bitcoin also solves the problem of the dollar- or the problem of abuse of the world currency for personal gain. By being apolitical and infinitely divisible, and revolutionizing payments to incentivize adoption, it easily, as a concept, can offer major improvements to the fiat system. If you think about how much email, skype, and facebook have changed the world, and they were just revolutionizing the post office and telecom, think about the importance of the global financial system in relation to the post office.

    So in summary, dear sir or madam, switching to bitcoin is not pointless. It offers efficiency gains and increases in wealth on so many levels, and while it doesn't fix human nature, it shifts the balance of power to the hands of much younger people which could revitalize the global economy by lowering the average age of the elite. The implications are truly mind boggling.

      So while there is no reason for fiat to crash right away since old habits die hard and there is a lot of technical catching up that needs to happen for bitcoin to be more widely adopted, I think people with dollars need to look out for the yuan. The Chinese have been keeping it artifically low to keep exporrs high, and they are making moves right now to unleash it onto the world stage as a competitor to the dollar. They could destroy the dollar right now, but are holding back because they have 3 trillion of them. Their civilization is like 5000 years old, they are not going to make any hasty decisions. Anyway... in conclusion, people also said those ridiculous, stinking, noisy, horseless carriages would never catch on. They're expensive, ugly, no one knows how to use them, they break down all the time and on and on. But they offered major improvements in efficiency, so eventually they just caught on because people who used them outcompeted those who didn't. History repeats.
     The extent to which fiat crashes right now will affect how quickly bitcoin is adopted, and how quickly bitcoin is adopted will affect how much fiat crashes.
   
     

This is the first time we have a monetary system that can be accessed at the push of a button by anyone, anywhere with a computer or phone.

I have reorganized some of the Adam Smith's view on him here:
https://bitcointalk.org/index.php?topic=263267.0

I can imagine that the whole scheme is well planned, at some point on the way, people thought that he created the financial miracle of France and there were booms around Paris area

There are different reasons for his failure, but I think the main reason is that there were silver/gold coins in circulation, so when there was a panic, people would run for silver/gold coins and create a bank run for his central bank. He is the first one bring out the idea of fiat money, people don't trust it enough. But today, fiat money is the only medium of transaction in any country (until we have bitcoin), so the possibility of that kind of bank run on central bank is permemantly eliminated

"There is not enough gold for the world economy to grow" is the same as "There is not enough bitcoin to carry the world's trade", it is simply not true, you can always use a fraction of a gold coin to represent its previous value, and there is silver too, which has much higher quantity for trades

The reason that central banks always lift this excuse is because they want to totally eliminate the obligation of exchanging of gold for each fiat dollar, so that they won't have a risk of bank run any more

But the interesting thing is, after the gold that backed the USD have been removed, the USD did not crash, it still worth something. This proved Law's theory that money's value could be arbitrary set by law or contract, as long as there is a consensus about its value in trading, it will keep its value

    The reason the gold standard was lifted was so the US could produce more money to finance the viet nam war. There was the threat at the time that France was going to start cashing out dollars for gold, so they just decided not to honor that obligation anymore.

     Sure, all currency could be backed by gold if gold was considered valuable enough. People just don't consider it valuable enough though, relative to other commodities like land, agricultural produce, and services, like trade and software. People would have to agree that the amount of gold in the world is more valuable than the sum of all real estate transactions, all rents, all opera tickets, all computers, all pharmaceutical patents, all copyrights on songs, all fish, all oil and gas, all water, and so on and so forth, and they just don't.

      Bitcoin has the advantage of gold of being outside of government manipulation, and the advantage of fiat of being basically infinite in terms of circulation. It serves just as a better medium of exchange like asset backed fiat was originally supposed to, while still having a fixed supply. So I think just based on that property bitcoin can be assigned more value than gold ever can.

10% at the current prices, which would skyrocket if the gold standard was readopted. Gold prices, as we all know, fluctuate over time.  


Free market at work -- a thing of beauty.  I hope you're not suggesting tighter regulations on successful businesses like the FED.


Another enthralling instance of free market.  Might is yet again shown to be right.


That's why we have fiat :)


What i assume you're saying is "bitcoin attempts to solve," since the dollar & its associated problems are still with us today.  If the people controlling and abusing the dollar choose to give up their advantages & agree to level the playing field, then bitcoin may become a solution.  Since that's not likely to happen, it's not.


Global financial system is crucial to mankind.  The nations of the world live & die by it.  It caused wars and brought peace.  Not a single aspect of our lives remains unaffected by it.  I get it.


There's nothing to sum up yet, other than a history lesson & an unsubstantiated claim that "bitcoin solves the problem of the dollar."


Thus far it hasn't done much shifting, but the shifting that has been done was into the hands of SR, SD, petty scammers & currency speculators.
Adopting monopoly money would lower the average age of the elite even further, if that's the sort of thing you find mind boggling.


The Chinese.  Scheming, sneaky orientals...  Got it. "Don't let the dollar become a chink in the US armor."  :D


Sure.  They said atomic La-Z-Boys wouldn't catch on.  I'm still waitin'.

The problem is today bank runs still happen, and trust in bitcoin is represented by its fluctuating price. 

If you compare with Law's scheme, USD had a very different fate after the gold backing it was removed. Law also tried to stop pay back gold/silver coin for his notes, but then his notes lost their value overnight, no one accept them anymore

What is the difference between Law's failure and USD's success? Is it because USD has a much longer history than Law's experimental paper?

Offhand, i would say the difference is faith in the backers (US vs John Law) & political stability.  As i understand it, he played his hand very fast & hard, exaggerating the wealth of Louisiana & the success of the Mississippi  Company.  Even smoke & mirrors fail if there's too much smoke & too many mirrors.  He may have succeeded with a slower, more artful approach.  But i'm completely out of my depth here -- it's presumptuous of me to voice an opinion.  I'll embarrass myself after i do some reading :D

   What is the problem of the dollar?

       The US, since they can take on more and more debt all the time, doesn't have any incentive to fix the current account deficit because making reforms would cause political upheaval, and simply going deeper into debt is a much easier political solution. If the US was not the issuer of the world currency, they would actually have to get their act together and bite the bullet of adapting to a globalization.
        The new money that is being injected concentrates into the hands of fewer people leading to increased tension. Inflation shifts wealth from creditors to debtors, leading to resentment from creditors who have no control over the debasement of the currency. China openly criticized the fed for quantitative easing, and since quantitative easing continued after the criticism they have been making moves to internationalize the Yuan and reduce the trade in dollars in the Western Pacific.
   So there is a problem with the dollar- it is the problem of a politicized global currency and it leads to decadence and complacency as the country issuing the world currency grows fat and loses its flexibility and vitality, then leading them to abuse their position as the manager of the global economy, leading to resentment from competitors and conflict and possibly all out war. This is the flaw of the dollar.
   
     Bitcoin is apolitical and avoids this because it combines the advantages of fiat with the advantages of gold- it has a limited supply and cannot be debased, and it is easy to divide and transfer as a medium of exchange. In a free market it will win out over fiat by means of simple competitive advantage. If you try to regulate it it will just flee to the fringes and continue to erode the value of fiat. Bitcoin adoption is not a matter of if, it is a matter of when and how fast.

I agree with everything you say, with a few qualifications:
1.  If there is one country USD is not a problem for, it is US.  It's only reasonable for US to do everything in its power to maintain status quo.
2.  China's economy is dependent on US; destabilizing the USD makes as much sense as cutting off the nose to spite the face.
3.  Money will never be apolitical, even when the currency for all nations is the same.  Those who have it will control those who do not, those who do not will resent those who have it.  This is not a USD problem, it's a money problem.
4.  Bitcoin does not have the primary advantage (and the primary flaw) of fiat -- elasticity.
5.  As far as adoption, $1bil. worth with next to no velocity (excluding speculation) -- too early to tell.

I want to point out that the OP's question was whether Bitcoin could or should replace FIAT.

The answer is a resounding no.  Bitcoin is a substitute or alternative currency.  It is a global currency and an online currency, very much unlike any of the current forms of FIAT.  This is where it's primary strengths lie.  As the economies of the globe become significantly intertwined it makes sense to share a simple and easy way to make transactions and spend between countries. No other currency allows for this in a simplistic manner.
 
FIAT of other countries will remain the base for determining the exchange rates between countries....  Bitcoin is no where near large enough to operate as a currency of scale on a stand alone basis.  It's value is going to be derived from the other currencies of the world as it changes hands.

Bitcoin is significantly less expensive for businesses. There is no risk of chargeback and the fees are exceptionally lower than standard payment methods.  You can't ship cash to pay for something online. There is also a very low risk of fraud.  Without more research, it is hard to say if it is a safer form of payment for businesses than accepting credit cards but I would venture to say there is far less fraudulent activity in bitcoin purchases than credit card purchases.

The benefits for business, the ability to be used globally, as well asthe low risk of theft and ease of use on the internet are all factors to promote the adoption of bitcoin AS an onlien currency.  Not necessarily a replacement for FIAT....

That being said, Bitcoin isn't even large enough to support replacing a FIAT.  If it has a $1billion market cap, then 10 million people could each hold $100.  That is not enough to support a population in standard trade.  The market cap would have to exceed $500b to $1 trillion to service a large portion of the global population.

The "market cap" of Bitcoin is not currently greater than $1 trillion. Therefore it will never be greater than $1 trillion. Therefore Bitcoin will always be an alternative currency. Q.E.D.

http://www.automizeit.com/blog/wp-content/uploads/2012/10/guinness-brilliant.jpeg

Bitcoin's market cap could absolutely exceed $1trillion.  It isn't a near term goal but 10-20 years from now, who is to say it isn't possible? The market cap is a direct reflection of the value it's holder's give it.  If the market cap isn't large enough for individual holder's to maintain a sizeable portion in their wallets (i.e. enough to make daily purchases, receive wages, pay taxes, pay your mortgage, have a savings, etc) then it cannot ever replace FIAT.  There are other obstacles mentioned in this thread as well.

If 15 years from now, bitcoin is worth $40,000 USD per coin, the market cap will be roughly 750 billion.  That means 1 billion people could hold $750 each, or 10m people could hold $75,000 each to put it in perspective.

Today's bank run is caused by FRB, but that is more or less a management of reserve ratio thing, a 50% reserve ratio will avoid all bank runs. But in John Law's case, even if he had 100% reserve ratio for his paper money, people would still run for gold/silver coin

I'm probably missing the point, but had he 100% reserve ratio, the run would be meaningless (he'd have the metal to back all of his notes).  And nothing short of 100% backing guarantees that bank runs will not happen, or be inconsequential if they do.
The reason for central banks -- the reason that perfectly intelligent ruling elite allow a seeming parasite to feed on them & the plebes below -- is it performs many necessary & difficult tasks.  In short, that's why central banks are allowed to exist. I'll quote wikip: (http://en.wikipedia.org/wiki/Fractional_reserve_banking)

"To mitigate the risks of bank runs (when a large proportion of depositors seek withdrawal of their demand deposits at the same time) or, when problems are extreme and widespread, systemic crises, the governments of most countries regulate and oversee commercial banks, provide deposit insurance and act as lender of last resort to commercial banks.[2][3] In most countries, the central bank (or other monetary authority) regulates bank credit creation, imposing reserve requirements and other capital adequacy ratios. This limits the amount of money creation that occurs in the commercial banking system, and helps ensure that banks have enough funds to meet the demand for withdrawals.[3]
Fractional-reserve banking is the current form of banking in all countries worldwide.[4]"