Money backed by precious metals is the same fabric with numbers on it, and sure the idea is that you can always exchange it but if the government/bank refuses an exchange what are you gonna do? The exchange guarantee is backed by the state as much as the value guarantee is for fiat.
Say you buy literal gold and use it for transactions, it’s value as a currency is still based on the trust that people will accept it in exchange; gold is not intrinsically valuable to an everyday person the way for example water is, so it’s value comes down to how much you expect to be able to exchange it for later, which is just taking currency faith the long way around, and in addition you need to consider purity concerns and the like.
When you use crypto, you at minimum trust that it won’t be forked, and probably need to trust that the exchange mediator won’t rug pull. You also to some extent trust that the currency will be about as valuable tomorrow as it is today.
Expecting your currency to have a “real backing” based on a physical property is just ignoring the basic fact that all exchanges of goods revolve around a debt relationship between at least two parties, which always requires some level of trust.
When people trust a currency held by a state, it’s not just based on whether the state keeps its word, but also based on the fact that the state will use it’s monopoly on violence to maintain the integrity (large fines/prison for currency fraud) and value (requiring taxes to be paid in the currency) of that currency, which is a guarantee no other medium of exchange can have.
That’s… Always true though?
Money backed by precious metals is the same fabric with numbers on it, and sure the idea is that you can always exchange it but if the government/bank refuses an exchange what are you gonna do? The exchange guarantee is backed by the state as much as the value guarantee is for fiat.
Say you buy literal gold and use it for transactions, it’s value as a currency is still based on the trust that people will accept it in exchange; gold is not intrinsically valuable to an everyday person the way for example water is, so it’s value comes down to how much you expect to be able to exchange it for later, which is just taking currency faith the long way around, and in addition you need to consider purity concerns and the like.
When you use crypto, you at minimum trust that it won’t be forked, and probably need to trust that the exchange mediator won’t rug pull. You also to some extent trust that the currency will be about as valuable tomorrow as it is today.
Expecting your currency to have a “real backing” based on a physical property is just ignoring the basic fact that all exchanges of goods revolve around a debt relationship between at least two parties, which always requires some level of trust.
When people trust a currency held by a state, it’s not just based on whether the state keeps its word, but also based on the fact that the state will use it’s monopoly on violence to maintain the integrity (large fines/prison for currency fraud) and value (requiring taxes to be paid in the currency) of that currency, which is a guarantee no other medium of exchange can have.
Yup. Currencies that use materials not immediately useful to (most) people are always trust/belief based.