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[–][deleted] 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (0 children)

A regular bank may cancel your account for being suspicious. With physical money, they have to catch you to take it away. Cryptocurrencies have the same advantage.

[–]trident765 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (7 children)

A stable money supply is not enough. A currency also needs stable demand in order to prevent prices from fluctuating and be a reliable means to store your wealth. A currency either needs to be subjected to the control of a government that will artificially stabilize its value, or it needs to have some use so that its value will naturally stabilize around what this use is worth to society. A peer to peer currency is by definition not subjected to central control so I think it needs the latter.

What can give an cryptocurrency have intrinsic value? The only valuable thing that computers can produce is useful information, so I think the only thing that can give a cryptocurrency intrinsic value is if the currency can be consumed in exchange for useful information.

One thing that comes to mind are protein folding currencies. I don't know too much about how they work, but I know that mining them somehow produces information useful to medical research. I am not sure if the useful information is revealed when the coins are mined or if it is revealed in response to them being somehow consumed. I believe it would be pointless unless the useful information is revealed in response to the currency being consumed. Otherwise it is not the currency that has value, but the process of mining it.

[–]fschmidt[S] 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (6 children)

Gold has very little intrinsic value. And if you research the history of money, you will see that most things that were used as money had little intrinsic value. The actual value of something as money is how well suited it is to be used as a medium to store and exchange wealth. And for this purpose, having another intrinsic value is actually harmful because it destabilizes the supply. You can see this by comparing rhodium with gold. Rhodium is useful and rarer than gold, but its current price is below gold. It is too unstable to be good for money.

[–]trident765 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (5 children)

I guess it is not the usefulness that matters but the demand. I thought the reason gold has demand is people want gold jewelry because it looks pretty, and this creates natural demand for gold. People want it and it's rare, hence it is valuable.

And if you research the history of money, you will see that most things that were used as money had little intrinsic value.

The US dollar has little material value, but it has demand because if you exchange a house you own for gold, the government will force you to get ahold of US dollars in order to pay taxes. The government has the luxury of assigning a worthless but convenient medium to be its currency, because the government's force alone is enough to create demand for its currency. Has a worthless material not backed by any government ever been a successful medium of exchange?

[–]Zapped 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (0 children)

Gold as jewelry also has its place to show everyone, "look at how rich I am". This is still true in some communities. Also, gold chains were used as a "wallet". One could simply take a link or two to pay for something and close the remaining necklace back together.

I guess it all comes down to the barter system. Currency works as a middle man so people don't have to trade with multiple others to get what they really want. Anything not rare or that which can be easily produced wouldn't work. I always heard the word "faith" and not "force" when explaining the value of the U.S. dollar. The value of the dollar is backed by the faith of the people in the U.S. economy. I like your example better.

Also, I recently watched a documentary on counterfeiting U.S. dollars and they said that half of all counterfeit bills come from Peru. I think Iran has been trying to flood the world market with counterfeit bills as a way to destabilize the U.S. economy.

[–]fschmidt[S] 2 insightful - 1 fun2 insightful - 0 fun3 insightful - 1 fun -  (3 children)

Has a worthless material not backed by any government ever been a successful medium of exchange?

Yes, rare shells and beads were used as money. Probably the most extreme example is rai stones.

[–]trident765 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (2 children)

Why would a farmer sell his cow for some worthless shells?

[–]fschmidt[S] 1 insightful - 1 fun1 insightful - 0 fun2 insightful - 1 fun -  (1 child)

The worth of money is established by social convention. Green pieces of paper have no more intrinsic value than shells.