Defiatize the unit of value

[johnyj]

Judging from most of the threads here, it seems that most of the people are still using fiat currency to measure the value of other things, just like ancient people regarding earth as the center of universe, they think domestic fiat currency is the unit of value

For example, a people living in US will not value other things using Japanese Yen.  Yen has lost 50% value against USD since 2012, means everything's price in Yen has risen at least 50% in 2 years, but no one cares in US, since they do not use Yen as a unit of value. Same for Japanese people, they don't care USD could buy more things, since they only use Yen to measure value. For them, USD appreciation is not their business

Similarly, if there is a bitcoin only economy, where people exclusively use bitcoin to carry out all the transactions, they would also don't care about the exchange rate of bitcoin against other currencies. In such case, bitcoin's exchange rate will only affect those people travel a lot or do lots of trade between different countries

It will take a long time to defiatize the people's unit of value, but people's finance knowledge is improving very quickly by using internet, it will eventually come. By the way, the change will never come from the bottom, it is always the entrepreneur first discover the truth

[jaysabi]

I agree with you in theory, but people don't know the value of an item even in this purely bitcoin economy because it's not a stable store of value, so they have to consult in terms of USD still to see if the value of btc is falling or rising relative to fiat currency. Because btc is not a stable store of value, I don't see "defiatizing" the unit of value as possible.

[worle1bm]

What benefit will leaving fiat give users? The case for abandoning fiat isn't a compelling one, even though people on the internet will be amazed to hear that.

[thejaytiesto]

The dollar supremacy is extremely solid and wordwide. How do you pretend things stop being compared to the mighty dollar? be realistic. Want to defeat the empire? Cool, tell us your cunning plan tho.

[TheButterZone]

Fine, 1 BTC=15 barrels of crude oil.

[Q7]

It will still be a long way to go before we can reach that level. Speculators especially who have been betting on btc-fiat exchange will always maintain that so it will not run away. So i was wondering whether the drop is actually a blessing in disguise for us to untie btc to fiat. That is when speculators are gone

[johnyj]

I agree with you in theory, but people don't know the value of an item even in this purely bitcoin economy because it's not a stable store of value, so they have to consult in terms of USD still to see if the value of btc is falling or rising relative to fiat currency. Because btc is not a stable store of value, I don't see "defiatizing" the unit of value as possible.

Take the people in Japan for example, their currency is very unstable and lost 50% of its value against dollar in 2 years. But in Japan, a hamburger used to cost 100 Yen would not become 150 Yen now, but still cost around 100 Yen (maybe 103 Yen since their central bank said the inflation is less than 2% per year )

Similarly, if a burger in bitcoin economy cost 0.01 bitcoin, it does not matter how much bitcoin worth in other currency, as long as everyone only use bitcoin to purchase the burger at a price of 0.01 bitcoin, the bitcoin's value will be stable

The problem is that currently no one use bitcoin to measure the value, while most of the people use fiat currency to measure the value. The reason? A consensus has not been reached, the bitcoin is not a currency that is forced upon its user by the government, thus the consensus of its value can only be derived from its cost, not like fiat currency, universally circulating in the country thus make it much easier to reach that consensus of its value

FED has printed 6x more USD since 2008 and you don't see anything's price rise by 6x, and you don't see GDP increase by 6x either. But people still think USD's value is stable, since they have a consensus: Today one burger cost $1, and tomorrow it will still be $1, it is that consensus holds fiat currency's value, so that no matter how much currency the FED print, people would still think one burger cost $1.

Some people who learned economics will understand that now USD should only worth 1/6 of its value since 2008 and everything's price should rise by a couple of times. But when they go to the street, they will find out that no one believe them, and almost everyone still think dollar is almost as valuable as 2008. So once the crowd has reached a consensus of USD's value, it will force anyone else to accept their valuation of USD (since they price the same thing using the same dollar amount as 6 years ago)

Similarly, if there is a large enough crowd reached a consensus of bitcoin's value, then they would also force anyone else to accept their valuation of bitcoin through a fixed pricing of their goods/services

[pattu1]

We should use the Big Mac Index.
http://www.economist.com/content/big-mac-index

[johnyj]

Fiat money usually hold its purchasing power relatively stable domestically, just because it is centralized. Although the commercial banks get tons of money from FED, they carefully watch the CPI index and do not let those money flow. They could even create deflation by simply raise the loan requirement (loan is the only way those money could enter circulation)

But for a decentralized system like bitcoin, the money is widely spread among many actors, and can enter the circulation at any time, very unpredictable. There is no way to stabilize the money supply on market, so exchange rate will always fluctuate to find a balance

However, if merchants use a fixed universal bitcoin price for their product/services around the globe, then it is possible to stabilize its usage. A hamburger will be 0.01 bitcoin anywhere in the world, when people get used to this, they will forget about the exchange rate of bitcoin and start to use bitcoin as a unit of value

[brian_23452]

Fiat money usually hold its purchasing power relatively stable domestically, just because it is centralized. Although the commercial banks get tons of money from FED, they carefully watch the CPI index and do not let those money flow. They could even create deflation by simply raise the loan requirement (loan is the only way those money could enter circulation)

But for a decentralized system like bitcoin, the money is widely spread among many actors, and can enter the circulation at any time, very unpredictable. There is no way to stabilize the money supply on market, so exchange rate will always fluctuate to find a balance

However, if merchants use a fixed universal bitcoin price for their product/services around the globe, then it is possible to stabilize its usage. A hamburger will be 0.01 bitcoin anywhere in the world, when people get used to this, they will forget about the exchange rate of bitcoin and start to use bitcoin as a unit of value

Well that's all well and good, but who is going to dictate the prices, and who is going to enforce compliance?

[jaysabi]

Take the people in Japan for example, their currency is very unstable and lost 50% of its value against dollar in 2 years. But in Japan, a hamburger used to cost 100 Yen would not become 150 Yen now, but still cost around 100 Yen (maybe 103 Yen since their central bank said the inflation is less than 2% per year )

Actually, yeah, that's how it would work. If the Yen lost 50% of it's purchasing power, a hamburger that used to cost 100 Yen would be more expensive. That's how you know it lost purchasing power, the price inflation of the things it buys.

Similarly, if a burger in bitcoin economy cost 0.01 bitcoin, it does not matter how much bitcoin worth in other currency, as long as everyone only use bitcoin to purchase the burger at a price of 0.01 bitcoin, the bitcoin's value will be stable

People don't only deal in btc, or USD, or Yen, or Euros. And they never will. And even if they did, the value of the currency wouldn't necessarily be stable. Money is only a store of value, not value itself. It's a representation of the value of all the goods and services mankind produces. If bitcoin was the only currency, the value of a bitcoin would rise and fall based on how much stuff it could purchase, which would be dictated by how much stuff is on the market. It will never be practical to "defiatize" btc.

[oblivi]

How are you supossed to give value to something without being compared to anything?
what dictates BTC purchasing power? i never understood that.

[ffe]

One problem is incomes are defined in Fiat. Valuing everything in Bitcoin is not useful when you can't tell if you can afford to buy something.

Your mind automatically goes to Fiat to compare to your income.

[johnyj]

Take the people in Japan for example, their currency is very unstable and lost 50% of its value against dollar in 2 years. But in Japan, a hamburger used to cost 100 Yen would not become 150 Yen now, but still cost around 100 Yen (maybe 103 Yen since their central bank said the inflation is less than 2% per year )

Actually, yeah, that's how it would work. If the Yen lost 50% of it's purchasing power, a hamburger that used to cost 100 Yen would be more expensive. That's how you know it lost purchasing power, the price inflation of the things it buys.

The economy text book said it should work that way, but it did not. The exchange rate might reflect real change of the currency's value, but domestically the currency's value is not correlated to money supply. I could print one billion dollar and raise the stock market without change a single cent in milk's price

Similarly, if a burger in bitcoin economy cost 0.01 bitcoin, it does not matter how much bitcoin worth in other currency, as long as everyone only use bitcoin to purchase the burger at a price of 0.01 bitcoin, the bitcoin's value will be stable

People don't only deal in btc, or USD, or Yen, or Euros. And they never will. And even if they did, the value of the currency wouldn't necessarily be stable. Money is only a store of value, not value itself. It's a representation of the value of all the goods and services mankind produces. If bitcoin was the only currency, the value of a bitcoin would rise and fall based on how much stuff it could purchase, which would be dictated by how much stuff is on the market. It will never be practical to "defiatize" btc.

People only deal with their own currencies domestically. By defiatize I mean people should abandon the habbit to measure value in fiat currency, maybe using electricity or energy is a better unit of value, since anyone will always have some use of energy

[johnyj]

How are you supossed to give value to something without being compared to anything?
what dictates BTC purchasing power? i never understood that.

The purchasing power is simply set by merchants. For example, if most of the merchant set the price of one humburger at $5, then $5 will have the purchase power of one hamburger. Similarly, if most of the merchant set the price of one hamburger to 0.01 bitcoin, then 0.01 bitcoin can buy you a hamburger anywhere

And this has nothing to do with exchange rate, only the merchants' willingness to fix the price at 0.01 bitcoin

[johnyj]

One problem is incomes are defined in Fiat. Valuing everything in Bitcoin is not useful when you can't tell if you can afford to buy something.

Your mind automatically goes to Fiat to compare to your income.

It takes time to change. I have already received income in bitcoin's form like 4 bitcoins for a small project (20 days full time work). If one hamburger cost 0.01 btc, I won't argue

[jaysabi]

How are you supossed to give value to something without being compared to anything?
what dictates BTC purchasing power? i never understood that.

The purchasing power is simply set by merchants. For example, if most of the merchant set the price of one humburger at $5, then $5 will have the purchase power of one hamburger. Similarly, if most of the merchant set the price of one hamburger to 0.01 bitcoin, then 0.01 bitcoin can buy you a hamburger anywhere

And this has nothing to do with exchange rate, only the merchants' willingness to fix the price at 0.01 bitcoin

That ignores profit margin and cost of ingredients. It's arbitrary and not practical to just decide a burger = .01 btc and then make your mind not to change it. Plus bitcoin isn't a stable store of value, the value fluctuates. This problem would not be solved by setting the cost of a burger at .01 btc. It would drive the merchant into losses if he didn't change his prices with the changing price of btc.

[johnyj]

How are you supossed to give value to something without being compared to anything?
what dictates BTC purchasing power? i never understood that.

The purchasing power is simply set by merchants. For example, if most of the merchant set the price of one humburger at $5, then $5 will have the purchase power of one hamburger. Similarly, if most of the merchant set the price of one hamburger to 0.01 bitcoin, then 0.01 bitcoin can buy you a hamburger anywhere

And this has nothing to do with exchange rate, only the merchants' willingness to fix the price at 0.01 bitcoin

That ignores profit margin and cost of ingredients. It's arbitrary and not practical to just decide a burger = .01 btc and then make your mind not to change it. Plus bitcoin isn't a stable store of value, the value fluctuates. This problem would not be solved by setting the cost of a burger at .01 btc. It would drive the merchant into losses if he didn't change his prices with the changing price of btc.

The value of Japanese Yen dropped so much against USD, while Japanese people seldom feel any price change, and none of the Japanese merchant were driven into losses, because everything's price in that economy is presented in Japanese Yen, unless all of them change at the same time, they will become sticky altogether

In fact, I'm selling products at a fixed bitcoin price (updated every 6 months). As a result, sometimes they become more expensive fiat wise, sometimes cheaper. But since my profit margin usually is more than 100%, the exchange rate will not affect my profit too much. In fact, many business's profit margin is bigger than 100%, unless that is a large multinational corporation

The benefit is: From short term view, my profit might fluctuate, sometimes even goes into negative, but from long run, it will give bitcoin exchange rate support so that it will have less volatility

For example, if the bitcoin exchange rate suddenly dropped 50% against USD, while all products priced in bitcoin does not change, people will find out that all the products become cheaper if purchased using bitcoin, then they will purchase bitcoin to buy the products. That purchase will raise the exchange rate back to the point where they think it does not worth the effort. If bitcoin economy become very large and many merchants set a fixed bitcoin price for their goods/services, then the power of those purchase will be enormous and can push the exchange rate right back into the normal value range

It is similar the other way, if exchange rate rise 50%, while all products' bitcoin price do not change, people will find out it is much more expensive to purchase products using bitcoin, they will not use bitcoin to purchase, or even sell bitcoin to get USD to purchase goods

[MelodyRowell]

How are you supossed to give value to something without being compared to anything?
what dictates BTC purchasing power? i never understood that.

The purchasing power is simply set by merchants. For example, if most of the merchant set the price of one humburger at $5, then $5 will have the purchase power of one hamburger. Similarly, if most of the merchant set the price of one hamburger to 0.01 bitcoin, then 0.01 bitcoin can buy you a hamburger anywhere

And this has nothing to do with exchange rate, only the merchants' willingness to fix the price at 0.01 bitcoin

The cost of goods is ultimately set by the fact that a merchant's costs are a certain amount plus a certain amount of profit that the merchant wants to earn. The fact that merchants do not have costs in terms of bitcoin means that they should not price items in terms of bitcoin

[DhaniBoy]

deviation could occur in bitcoin because bitcoin value depends on the value of fiat currencies prevailing in each country, bitcoin is still hanging by a fiat currency because there are very few people using bitcoin as a medium of exchange in trade, in the future when bitcoin can be as a tool of trade , probably will not happen deviation in bitcoin

hopefully this can happen immediately, so that government regulation will not mempegaruhi value of bitcoin ...