Confidence Crisis and Collapse

[hugolp]

The original article talks about the dollar being backed by force (specifically since people are coerced into paying obligations to the US government using dollars.)
If bitcoins are in use for a while and legal contracts are written requiring the paying of obligations in bitcoin then bitcoins will have a little bit of the same kind of backing as the dollar. Someone could be coerced (by the courts) into seeking out bitcoins to pay off obligations. In that sense bitcoins will have intrinsic "value".

We could grow into this kind of world because bitcoin has advantages paper dollars don't. Contracts may start to be written denominated in bitcoin.

No. Most countries have legal tender laws which means you dont have freedom of contract. If you write a contract and demand to be payed in bitcoins, gold, blue shoes, whatever... you can not enforce it. If you go to court to demand payment the court will allow the counter part to pay you bank in the legal tender currency (dollar, euros, ...) because by law legal tender means its valid to reapy any debt.

Btw, when you voluntarely sign a contract, it is not initiation of violence if I demand that you fulfill your contract.

[hugolp]

Here's what I posted there:

This obsession with 'backing' demonstrates a gross failure to understand the subjective theory of value.

What backs gold???  Nothing other than the subjective valuations of individuals.  The same is true of fiat currencies, except here individual subjective valuations concern matters such as 'not getting arrested' or 'not getting shot.'  

Bitcoin is a technologic, cryptographically-rooted, informational commodity.  It has unique, desirable properties inherent to its design and structure.  Individuals subjectively value these properties.   Their reasons and value scales differ, but the simple fact that people are already trading Bitcoins proves that it is subjectively valued.

You talk about 'confidence crises.'  This is unique historically only to fiat currencies (and paper currencies built fractionally on commodities like gold).  The subjective valuation of fiat currencies is derived from political considerations.  As such, confidence in them is built on the ever-shifting sands of political perceptions.

When was the last confidence crisis in gold?  There hasn't been one.  People value gold for its physical properties defined by the laws of nature.  Those properties do not change and individuals have continued to subjectively value them.

The same is true of Bitcoin.  Its properties are rooted in our present understanding of cryptographic principles.  As long as individuals continue to value properties such as anonymity, decentralization, finite supply, low transaction fees, ease of digital manipulation, ability to integrate smart contracts, etc... we have no reason to expect a 'confidence crisis.'  

This will be true as long as the cryptographic logic buttressing the system remains sound – just like the laws of physics underlie the desired properties of gold.  Breaking this cryptographic logic (akin to cheap transmutation of lead into gold) would require breakthrough advancements of our knowledge of cryptography and discoveries on hitherto unsolved mathematical problems.  But even in this case, the open-source nature of Bitcoin allows it to evolve new cryptographic implementations that would avoid such problems.

+1

People dont understand value and money.

[grondilu]

I whish a confidence crisis in bitcoin happens soon, so I can buy them all for say, 10 euros a million of bitcoins.