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Author Topic: Long-Term Bulls  (Read 9447 times)
netrin
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October 10, 2011, 07:07:23 AM
 #41

I have serious concerns regarding bitcoin's susceptibility to price manipulation by a determined entity with deep pockets. I also question its inherent value and scarcity.

Currently the inherent value of a bitcoin is self-reflexive - the cost of producing a bitcoin - determined by the rate at which they are generated. The entire utility of a bitcoin is not the coin but the protocol, neither of which have a utility cost to the user currently. As long as the exchange price decreases (which we should expect with its current inherently massive monetary inflation), the velocity of exchange should reflect its use purely as an exchange of value but not a store of value. In other words, the only immediately rational purpose of a bitcoin today is to exchange for fiat, transact, confirm, then sell the bitcoin as quickly as possible to the next transacting party. With 100-500 million confirmed transactions possible each day, we are not reaching any theoretic limitations. Bitcoins are not scarce and are grossly over bought.

I believe Satoshi was correct to bestow an eventual greater role to transaction fees over block rewards. When a transaction has a cost, then we can measure the market value of a bitcoin transaction. Unfortunately the value of a bitcoin is more difficult to measure because the cost of a transaction is generally independent of the number of bitcoins sent. The inherent value of a bitcoin is not the cost of electricity, it is only the utility value of the secure transactions that bitcoin make possible.

An international bank transfer cost me 5 EUR and took a short week. Apparently I'm willing to give my credit card company 2% of my instantaneous purchases, perhaps 0.5 EUR per transaction. A one hour confirmed bitcoin transaction costs (at most) 0.0005 BTC. Even if bitcoin were used only as a transaction protocol, we never denominated prices in bitcoin, but could be used everywhere credit cards are accepted today, would 1 BTC = 1000 EUR ? I think I'm bullish again!

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October 10, 2011, 08:44:21 AM
 #42

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An international bank transfer cost me 5 EUR and took a short week. Apparently I'm willing to give my credit card company 2% of my instantaneous purchases, perhaps 0.5 EUR per transaction. A one hour confirmed bitcoin transaction costs (at most) 0.0005 BTC. Even if bitcoin were used only as a transaction protocol, we never denominated prices in bitcoin, but could be used everywhere credit cards are accepted today, would 1 BTC = 1000 EUR ? I think I'm bullish again!

+1

This is exactly the point I've been trying to make for ages, when discussing bitcoin and value. Thanks for adding the numbers to it. Then factor in the less waiting time as well for businesses and ordinary peeps and well start seeing even higher numbers.

The main hurdle towards potentially reaching those numbers is legally becoming something token/digital commodity/ currency/ currency overlay/ whatever in just one fairly civilized country once that happens:


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October 10, 2011, 08:51:18 AM
 #43

...
I think I'm bullish again!
Interesting to watch you edit your post multiple times and changing your sentiment during the process Smiley
I often find it helpful myself to express my thoughts in written form, re-reading and editing them a bunch of times until I'm happy with them.

I totally agree with you on the value of Bitcoin as a secure medium of exchange, but remember that it is a secure store of value at the same time. In fact, its probably the most secure store of value in the world (albeit still a very volatile one).

It's this dual-use function of Bitcoin which gives me confidence in the long run, but hey - its an experiment in its infancy. All kinds of things may happen, but if you ask me, its certainly one of the most exciting social/economical and technological experiments to watch.
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October 10, 2011, 09:45:37 AM
 #44

I read somewhere that bitcoin has been declared a curency overlay by one of the European countries. I dont remember who but it was only a couple of weeks ago.

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October 10, 2011, 09:59:10 AM
 #45

I read somewhere that bitcoin has been declared a curency overlay by one of the European countries. I dont remember who but it was only a couple of weeks ago.

Nothing official it seems, just a rumour on IRC:
https://bitcointalk.org/index.php?topic=41155.40

In other news...

http://edition.cnn.com/2011/10/09/tech/mobile/google-mobile-wallet/index.html

Missed opportunity to get bitcoin mentioned.  Someone go spam the comments section  Cheesy

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October 10, 2011, 10:05:14 AM
 #46

I'm def a long term bull. Or perhaps one of those little bulls, about a foot tall and stampeding in all my cuteness....
Tongue In other words, I own very little share in bitcoin but regularly accumulating more!
The ups and downs don't bother me much, nor do the short term prices of electricity to bitcoin. If In the end I lose out, thats okay, I didn't have much to begin with and I have already found decent use for this lovely coin. However, without a deep flaw in the bitcoin concept and code I don't expect it to fail. Perhaps get down below a dollar again for a few months before the demand catches up with the supply or the supply drops when the rate halves.

If it goes even lower, that just means more opportunity for me to buy in deeper.

This is exactly how I feel too.

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October 10, 2011, 11:56:34 AM
 #47

What is electronic banking?  A bunch of decentralized ledgers with a set of rules for storing and modifying arbitrary numbers associated with routing numbers and account numbers.  When you look at the raw ledgers of the banks, you don't see dollars, you see pieces of data that say which number is associated with what account number and increase that number based upon transactions in or out.

People created ledgers for the purpose of keeping accounts of a good (such as ounces of gold or dollars).  The numbers in electronic banking ledgers do this.  The numbers in bitcoin do not represent any good.
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October 10, 2011, 12:17:46 PM
 #48

People created ledgers for the purpose of keeping accounts of a good (such as ounces of gold or dollars).  The numbers in electronic banking ledgers do this.  The numbers in bitcoin do not represent any good.
Of course they do - whenever I buy something with Bitcoins, the corresponding entry in the Bitcoin ledger is a representation of the value of that good or service at that point in time - what else would it be?
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October 10, 2011, 01:57:47 PM
 #49

How could it be a currency before anyone used it at all (let alone not having widespread use throughout the market) as a currency?
By this definition no currency could ever be created.

All currency was something or was redemable for something. That something may have been later taken away, but log0s statement stands. A currency is a generally accepted medium of exchange. Implied is that a currency was first exchanged, rather than a currency first, then exchanged.
I agree, but the definition is a bit problematic for practical purposes, because when is something _generally_ accepted on the Internet? Would you say Paypal is generally accepted? Credit cards? (yes they are payment systems, but what about WoW gold, Facebook credits etc...) By that definition there will probably never be such a thing as an Internet currency - yet by common terms we have several. My point is that the definition of "generally accepted" is so vague and difficult to apply to the Internet that it doesn't really help as an argument and for most practical purposes, currencies are "created" (ie, nobody disagreed when you called the Euro a currency even before it existed in physical form). But anyway - Satoshi did not introduce an electronic currency but an "electronic cash system" so the argument does not even apply.
WoW gold is pretend currency used in a game.  People value it for it's necessity in gameplay.  This value, however, gives it much more potential than Bitcoin to become a currency, as it could be better argued than Bitcoin that it is a commodity.  If you were to consider it a commodity, it's still not anywhere close to (and almost certainly never will be) as marketable as other commodities that have become money, and therefore is not going to become a real money itself anytime soon.

Facebook credits are merely a dollar substitute (1/10th of a dollar, to be exact).  The numbers in the "facebook credit" ledger are representing dollars, not "facebook credits".

I say: Bitcoin is a currency, because it is generally accepted as a medium of exchange within the Bitcoin community. It was from the beginning, albeit the Bitcoin community was smaller then.
When Satoshi created Bitcoin, he asserted that it was a currency long before one was ever traded for the first time.  Someone else adopted it, probably under the false belief that it was a currency (because that's what Satoshi told them), before the first trade as well (there couldn't be a trade until a second person adopted it).  There is a time-based conflict.  They believed it to be a currency before even the first trade ever, yet if something was never traded, it by definition cannot even be a commodity, let alone a currency.  On top of that, if only two people are trading it, it is certainly only barter, otherwise all goods traded would be considered currency.  Their assertions and beliefs contradicted reality.  Yet why have the vast majority of Bitcoin adopters adopted Bitcoin?  Because they believe it either already is a currency or might become one in the future.  After all, this is what http://bitcoin.org, Satoshi's whitepaper introducing Bitcoin (written and released before the first trade of any Bitcoins occurred), and most other Bitcoin users assert, and it is even implied in the name "Bitcoin".  Without these false beliefs, Bitcoin would almost certainly have never had anywhere even remotely close to the adoption it has seen (which is still minuscule compared to real commodities and money).  Bitcoin prices would most likely be a small fraction of a penny today, assuming people even saw any reason to metaphorically "trade" them at all, when considering the actually implementation of the system (vs. potential more marketable implementations).

Feel free to replace "metaphorical" with "fake" or similar and "non-metaphorical" with "real"...I somehow don't expect there to be many people preferring fake or pretend money over real money.
What is fake and what is real? Are the bits and bytes on the storage system of your bank which happen to correlate with your bank account's balance "real money"?
Again, the numbers in the bank's storage system are representing dollars.  The numbers in the Bitcoin system are not representing anything.

People provide goods and services in exchange for that bits and bytes and that's the only thing that matters.  Again, the distinction between "real" or "metaphorical" money becomes somewhat moot - some people provide goods and services for certain bits and bytes in the blockchain, so where's the problem?
You don't think it matters that people are willing to offer goods and services for Bitcoins under the false belief that it is or will become a money?  This doesn't have the potential to create a Bitcoin bubble?  Have Bitcoin prices been a reflection or reality or a reflection of false beliefs?

I think that as soon as a person that was offering goods for bitcoins understands that Bitcoin is not even a commodity, let alone a money, and that most other Bitcoin users falsely believe it is a money, their plans regarding their trade of Bitcoins are going to change.  They may continue to accept them, because others that falsely believe it is or will become a money (and a few that know better) are willing to pay so much for them.  But their expectations of Bitcoin's future will likely change, and they will adjust their actions and plans accordingly (cash out immediately or when prices are relatively high after selling non-money goods, or be prepared to sell when they see signs of a price crash, or whatever makes sense to them in their situation).

Prices will adjust to reflect reality as more people understand their beliefs were unfounded.

Bitcoin is a decentralized ledger with a set of rules for storing and modifying arbitrary numbers associated with cryptographic keys, is it not?  When you look at the raw block and wallet data, do you see bitcoins anywhere?  (I'm guessing you've never looked.)  No.
Don't worry, I have been working with the Bitcoin code and raw transaction data for quite some time now and you are right, Bitcoin is just a kind of abstract concept - a name we give the balance of the ledger of some cryptographic keys. But you know what - people deal with such abstract concepts all the time.
This isn't about whether or not people can deal with abstract concepts.  This is about people falsely believing a metaphor to be the reality rather than just a metaphor.

Your arguments are highly theoretical and have about the same merit as someone arguing that forests cannot exist because all there really ever is, is a collection of trees and it will take some time until people finally realize they have been wrong all the time when they thought of going for a walk in a forest.
The word "forest" is basically defined as a collection of trees (well, an area with a high density of trees).  Trees are real, and areas of land with a high density of trees are also real.  Comparing my argument to that suggests you do not understand my argument.  My argument is actually similar to the claim that the actions of an organization (such as a government or a business) are metaphorical, as it is really the people that are considered a part of that organization that are taking those actions.

People created ledgers for the purpose of keeping accounts of a good (such as ounces of gold or dollars).  The numbers in electronic banking ledgers do this.  The numbers in bitcoin do not represent any good.
Of course they do - whenever I buy something with Bitcoins, the corresponding entry in the Bitcoin ledger is a representation of the value of that good or service at that point in time - what else would it be?
Entries in your bank's ledger do not represent the value of a good you bought with your dollars.  They represent the dollars deposited and withdrawn from your account.
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October 10, 2011, 02:36:39 PM
 #50

This discussion is getting a sillyness flag from me. The dollar and Bitcoin are no different in terms of "being backed up" or "being real". Both are worth something only because people trust that you can get goods with them, and usually a certain amount of certain goods. Bitcoin, still being very small, additionally requires the trust that you can change it to dollars or euro because it can't be used to buy everything yet. Or it can, in theory, but it's not convenient for most people.

But beyond this dollar is actually more worthless than Bitcoin, because Bitcoin at least has cryptography and a strong p2p network behind it. The dollar has nothing but a broken, centralized banking system based on exponential debt that tries hard as hell to hide the fact that they're printing so much money that would cause hyperinflation right now if people knew about it, but don't. That hiding is just delaying the inevitable though.

Sources: http://inflationdata.com/inflation/inflation_articles/m3_money_supply.asp

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October 10, 2011, 02:45:47 PM
 #51

The bottom line is that fundamentally Bitcoin is no less a currency than the dollar and I believe that in some ways it's actually more of a currency. Consider what currency has been, for most of human history. The current type of fiat currency was adopted in the 70's and it's not backed by anything and the rules for creating more and more money (through debt) have become more and more loose to support ever increasing debt based "growth".

Bitcoin however is scarce, decentralized, can't be controlled and is secure. It only requires that people trust it as a currency, just like any currency does. It's very rare that a currency is actually worth something for something else than the scarcity needed for it to work as a medium of exchange. Gold is used heavily by the industry though and it isn't used as a medium of exchange very much, not anymore.

Gold and silver have always been valued and are good stores of value, not because they are useful for much in themselves (traditionally at least), but mostly because they have known scarcity and are impossible to replicate. And of course the beauty of these metals has also been one reason why they are so highly valued.

What is funny with the dollar is that we don't even know the total amount of dollars in existence anymore, it's unknown. This is a very good recipe for disaster. It's quite possibly more important than anything else, for a currency, that we know how much of it there is and how much more is created or found. With Bitcoins this is very clear, with dollars it certainly isn't.


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October 10, 2011, 03:04:51 PM
 #52

...
I think I'm bullish again!
Interesting to watch you edit your post multiple times and changing your sentiment during the process Smiley
I often find it helpful myself to express my thoughts in written form, re-reading and editing them a bunch of times until I'm happy with them.

Ha ha ha ha... You saw that? It also didn't help that it was 04:00 in the morning my time.

Log0s, while no money has (to my knowledge) been a currency first then a commodity with utility, I don't think the chronology of suspended disbelief is relevant. However related, what is relevant in my opinion, is that a money has a base value. Gold can never hyperinflate for two reasons: not only predictable scarcity, but an inherent base utility and value.

However, as Wareen witnessed in my previous masturbation of calculus, I believe a bitcoin transaction's only inherent value is its utility as a superior transaction. Unfortunately the value of each bitcoin is only supported by the friction of its transaction rate, which if you followed my masterpiece above, is practically unlimited.

Wareen, it is arguable whether bitcoin is a good INHERENT store of value.  You've certainly got two years of history on the side of your argument. However, what prevents a sufficiently determined central bank from maintaining a bitcoin exchange rate plunge? Could this central bank maintain the plunge even with a growing user base? I posit yes, but I am at a loss to quantify the cost (you can bet I've already re-edited this post several times trying Cheesy).

Technomage, the collapse of M3 appreciates M0 dollars, sufficiently that tripling M0 has had no net effect on the gross money supply. All money is faith, it's just the level of abstraction people are willing to accept or ignore.

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October 10, 2011, 03:07:09 PM
 #53

This discussion is getting a sillyness flag from me. The dollar and Bitcoin are no different in terms of "being backed up" or "being real". Both are worth something only because people trust that you can get goods with them, and usually a certain amount of certain goods.
Contrary to popular belief, the dollar is backed by something. If you are a citizen of the United States, there is a certain currency you need to pay taxes in. There is no way to avoid purchasing the USD in some way without being punished. Therefore, your USD will always be exchangable for "protection" and "non-punishment". This is why the USD is refered as "fiat" currency, because it is backed by and only by law.

Therefore, the dollar is effectively backed at the moment by the law enacted by the Government of the United States.

Bitcoin is currently not backed by any law, so it cannot yet be considered "fiat" currency. There is no promise of any goods exchangable for Bitcoin at the moment, as it has been demonstrated numerous times when sellers renege on their prices. There is also no promise of safety from holding bitcoins. This is not to say Bitcoin is unable to be backed, as it fully can be.

For example, in theory it is possible to sustainably back Bitcoin with gold. Since only $21000000 will be produced, if I obtain 21000oz of gold I can back every 1000 bitcoins with 1 oz of gold. This is a promise, and therefore a backing of Bitcoin.
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October 10, 2011, 03:16:06 PM
 #54

Contrary to popular belief, the dollar is backed by something. If you are a citizen of the United States, there is a certain currency you need to pay taxes in.
Both dollars and bitcoin are backed by a mutable value denominated in that same value.

If the value of a dollar was reduced to the value of a grain of salt, then taxes would be similarly related to a grain of salt.

Bitcoin value is backed by the electricity cost while the electricity cost maintains a strong correlation to the value of a bitcoin. If a bitcoin were worth one grain of salt, the electricity cost would be roughly one grain of salt.

However, bitcoin transactions have a utility value, and the value of a bitcoin will eventually be determined by the market's assertion of a transaction fee. But we haven't seen real market values because we have not met any practical limits.

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October 10, 2011, 03:41:26 PM
 #55

It's a valid point that the dollar is legal tender, and I'm well aware of this. But I don't really consider that the same kind of backing. That only means that if you are a merchant in the US you have to accept USD, right? It has nothing to do with the kind of backing I was talking about. The amount of dollars in existence and the expansions of the money supply aren't really backed by anything. From that perspective Bitcoin is backed, by cryptography and the network.

The trust required for commerce can form regardless of what the state decides is official, it can form even without a state. Considering most of human history, the issue of legal tender is not that significant. A medium of exchange is a medium of exchange if both the seller and buyer agree that it is.

But I do get the point. Bitcoin is less regulated in many ways but this makes it no less of a currency, just makes it more unreliable in some cases. This can be considered a bad thing and I do agree in part. This is why I've already suggested many times that we need to get community sites going where we actively review all BTC merchants so that the trust required for proper commerce can form.

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October 10, 2011, 04:10:07 PM
 #56

I've already suggested many times that we need to get community sites going where we actively review all BTC merchants so that the trust required for proper commerce can form.
+1
Yes. I think merchants rating merchants would also be beneficial.

I think the discussion of 'backing' is nonsense. The cryptography and hash difficulty of bitcoin is analogous to anti-counterfeiting measures. Neither of these say anything of the exchange value of the currency. Only the authenticity of each unit.

The unique properties of gold make it difficult to fake and these add to its utility value as a money, it's scarcity only speaks of stability, but neither say anything of its exchange value. Only supply and demand. Same with bitcoins and dollars. Each provide different utilities as money with very different supply rates and demand.

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October 10, 2011, 04:18:02 PM
 #57

...
I think I'm bullish again!
Interesting to watch you edit your post multiple times and changing your sentiment during the process Smiley
Ha ha ha ha... You saw that? It also didn't help that it was 04:00 in the morning my time.
Yep - made me smile while I was having breakfast Wink

Wareen, it is arguable whether bitcoin is a good INHERENT store of value.  You've certainly got two years of history on the side of your argument. However, what prevents a sufficiently determined central bank from maintaining a bitcoin exchange rate plunge? Could this central bank maintain the plunge even with a growing user base? I posit yes, but I am at a loss to quantify the cost (you can bet I've already re-edited this post several times trying Cheesy).
While I'm not 100% sure I understand what you mean by a bank maintaining a Bitcoin exchange rate plunge, I think anybody with sufficient capital could repeatedly crash the market, trying to make people lose confidence - but only at an ever increasing cost. If Bitcoin were to be outlawed however, that would surely give its value a big blow.

My case for Bitcoin as a unique store of value however was, that it has never before been possible to put a considerable amount of money in a form (encrypted Bitcoin wallet) that is absolutely safe from theft, has no storage costs, is usable no matter where you are on the globe and cannot even be detected by anyone.

I realize that this is no inherent value and of course depends on the exchange rate, but with a sufficiently mature economy on hopefully sound legal foundations, I see that store of value function becoming increasingly appreciated.

As for the backing: why not set up a "Bitcoin floor fund" (credits for the idea and the term go to apetersson) to finally put that discussion to a rest.
Everybody really believing in Bitcoin could contribute to a collective promise to pay a certain amount of gold/USD/EUR/... for Bitcoin in the event of its failure. Henceforth, Bitcoin would be backed by the value of that fund Smiley

Although I'd personally contribute to such an endeavor, I don't think it's necessary - Bitcoin is already "backed by" all the things people are ready to do for it.

As this discussion seems to get more and more theoretical/philosophical, I don't think I can contribute much more. As for my practical purposes: I regularly buy some Bitcoins, spend some and save some. Call me ignorant, but I don't really care if it is metaphorical-money or not-a-true-currency or only-some-bits-on-a-ledger or not-even-backed-by-anything etc... I'm just happy with the way Bitcoin works and how I can use it. I know I trust the technological foundations - that's what I understand and can be certain of. As for the rest: who knows - it's an experiment and we'll see how it turns out. I for one just use Bitcoin and try to have fun Smiley
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October 10, 2011, 04:32:58 PM
 #58

It's a valid point that the dollar is legal tender, and I'm well aware of this. But I don't really consider that the same kind of backing. That only means that if you are a merchant in the US you have to accept USD, right?

Legal tender means that form of payment must be accepted for payment of a debt.

I'm not an American so 'dollar' has no real value to me - no one where I am has to accept dollars - I've never actually seen a real dollar except on Miami Vice (or was it Kojak). 
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October 10, 2011, 04:39:01 PM
 #59

Wareen, it is arguable whether bitcoin is a good INHERENT store of value.  You've certainly got two years of history on the side of your argument. However, what prevents a sufficiently determined central bank from maintaining a bitcoin exchange rate plunge? Could this central bank maintain the plunge even with a growing user base? I posit yes, but I am at a loss to quantify the cost (you can bet I've already re-edited this post several times trying Cheesy).
I think anybody with sufficient capital could repeatedly crash the market, trying to make people lose confidence - but only at an ever increasing cost.
I would think the cost gets smaller as the price decreases and confidence diminishes. I have dreamed up numerous strategies, but I honestly don't know, and I'd love to see an intelligent discussion on the topic.

My case for Bitcoin as a unique store of value however was, that it has never before been possible to put a considerable amount of money in a form (encrypted Bitcoin wallet) that is absolutely safe from theft, has no storage costs, is usable no matter where you are on the globe and cannot even be detected by anyone.

I realize that this is no inherent value and of course depends on the exchange rate, but with a sufficiently mature economy on hopefully sound legal foundations, I see that store of value function becoming increasingly appreciated.
That IS an inherent utility value! However, I question whether it is a scarce utility. Numerous (even inferior) alternate chains can provide these utilities. Perhaps the bitcoin network will make it more secure and its size will make transactions more obscure, such that its network effect will make alternatives worthless, but I am not yet sure.

As for the backing: why not set up a "Bitcoin floor fund" (credits for the idea and the term go to apetersson) to finally put that discussion to a rest.
I don't give that any chance of being implemented, effective, nor trusted.

I'm not an American so 'dollar' has no real value to me - no one where I am has to accept dollars - I've never actually seen a real dollar except on Miami Vice (or was it Kojak).
You are being silly. Perhaps exchanging a dollar has extra costs, but I promise if $1000 landed in your pocket, it would be worth several fine dinners and toys where ever you are. I don't use dollars every day either, but I won't pretend it has no value to me today.

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October 10, 2011, 04:39:48 PM
 #60

It's a valid point that the dollar is legal tender, and I'm well aware of this. But I don't really consider that the same kind of backing. That only means that if you are a merchant in the US you have to accept USD, right?

Legal tender means that form of payment must be accepted for payment of a debt.

I'm not an American so 'dollar' has no real value to me - no one where I am has to accept dollars - I've never actually seen a real dollar except on Miami Vice (or was it Kojak). 

You don't have legal tender where you live either?

I currently live in China - a wink is legal tender here.
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