I don't have a background in finance and am trying to understand the whole concept of bitcoin/cryptocurrency.
I understand that the U.S. dollar is fiat money. It is not backed by any physical commodity but only the full faith and credit of the U.S.
Bitcoin similarly is not backed by any physical commodity. It's value is derived from it's limited supply and faith that parties can use it as a means of exchange.
But when we speak of the U.S. dollar, isn't it in fact backed by the power of the U.S. In other words, the U.S. has power over people, businesses, and institutions - power that it can utilize to compel production, sales, purchases, and exchanges . . . and power that it can, in theory, exercise over limited physical commodities. Isn't that, in the end, what really allows people to have faith in the U.S. dollar?
But bitcoin lacks that power, correct?
Also, isn't there the risk that a country like the U.S. could undercut the value of bitcoin if it was in its own self interest? Is there the threat that if the U.S. dollar was diminishing in value too much, and people started using bitcoin instead, the U.S. could step in and regulate/limit the use of bitcoin through its power? Perhaps tax it? Doesn't this lack of government backing ultimately present a problem for the ultimate value/reliability of bitcoin?
Maybe I'm totally off on these things but I'd be interested in people's thoughts.
I understand that the U.S. dollar is fiat money. It is not backed by any physical commodity but only the full faith and credit of the U.S.
Bitcoin similarly is not backed by any physical commodity. It's value is derived from it's limited supply and faith that parties can use it as a means of exchange.
But when we speak of the U.S. dollar, isn't it in fact backed by the power of the U.S. In other words, the U.S. has power over people, businesses, and institutions - power that it can utilize to compel production, sales, purchases, and exchanges . . . and power that it can, in theory, exercise over limited physical commodities. Isn't that, in the end, what really allows people to have faith in the U.S. dollar?
But bitcoin lacks that power, correct?
Also, isn't there the risk that a country like the U.S. could undercut the value of bitcoin if it was in its own self interest? Is there the threat that if the U.S. dollar was diminishing in value too much, and people started using bitcoin instead, the U.S. could step in and regulate/limit the use of bitcoin through its power? Perhaps tax it? Doesn't this lack of government backing ultimately present a problem for the ultimate value/reliability of bitcoin?
Maybe I'm totally off on these things but I'd be interested in people's thoughts.
