It's the same when currencies around the world stopped using the gold standard and became floating across each other.
I'd say the value of currencies is that you have to pay your taxes in one that is legal tender. In that case, the value of Eth is that you have to pay transaction fees in Eth. You decided how valuable those transactions are.
Currencies generally have value because people are forced to pay tax in them. I started trying to write something witty, but there really isn't anything else to add.
The value of a currency comes from it being backed by a government, and that government accepting taxes in that currency.
This puts a hard limit on the number of currencies, and how much they'll dillute the dollar (or any other country's currency). Since you'll normally only see a single currency per government.
Cryptocurrencies on the other hand, aren't tied to any country.
There's no hard limit on the amount of them. So every time a new one shows up, they'll they'll take a piece of the cake from the already existing ones, since the space is limited by the number of people willing to invest in them and how much these people have to invest.
It might be useful to explain the difference between 'non-currencies' and 'currencies'.
Regular currencies are also imagined-up things which have only a few practical differences. The one difference is usually various government contracts/taxes are only payable with specific currencies and therefore have value because they are 'needed' to pay obligations.
The entire concept of currency is that there's a single shared medium of value used for exchange. "Competing currencies" is an oxymoron. Plus, once the government decides which currency is used to pay taxes or to pay damages after a civil suit, you're pretty much set.
Why shouldn't they just be considered currencies? It is something a group of people agree have value and they are willing to exchange with each other for goods and services.
The SEC does not care if you bring back Euros from vacation and they are worth more money when you find them in your backpack a year later and exchange them.
What is the the underlying value if a dollar? Or euro?
On first sight, there is none. But when the IRS knocks at your door to collect taxes, you will need to cough up dollars. Or euros when you live in europe. Rubel, yen or gold won't do.
That provides the underlying value of the dollar. Or the euro.
Now what about BTC ?
When the ransomware hacker knocks at your door, you'll have to get bitcoin. Dollars or rubel won't do. That provides the underlying value of the bitcoin.
USD aren't valuable because they have a fundamental value, either. Personally, I think the "you have to pay taxes in USD" argument is stupid; it doesn't factor into my daily thinking and I doubt it does to many other people's.
They're valuable because literally everyone I interact with treats them as if they were valuable. If that changed, I'm sure USD would quickly become worthless.
You can say there's no difference between USD and BTC, but there's some difference between "a million people think they have value" and "three billion people think they have value".
Dollars have value because they force you to pay taxes with them. They used to be valuable to foreign nations, because the oil cartel OPEC used to force them to use U.S. Dollars to buy oil. Nowadays nations can use Dollars, Rubels, and Yuan.
That's nothing like what I said. If you don't understand what I mean just ask. I haven't argued that all national currencies are equivalent in value and interchangeable, nothing I said can reasonably be construed to imply that.
Currency is not given value because people "believe" in it or not.
It has value because the government decided that to operate inside its country, you must use this currency. This is enforced through taxation. It doesn't matter if you believe in the dollar or not, at the end of the day the government will tax you for a dollar amount and you're gonna have to pay in order to keep having access to the US market.
This is why cryptocurrencies have no inherent value, only value as it pertains to actual currencies.
I'd say the value of currencies is that you have to pay your taxes in one that is legal tender. In that case, the value of Eth is that you have to pay transaction fees in Eth. You decided how valuable those transactions are.
reply