A third way?

Straight from www.dummies.com we have the following two excellent definitions of money:

<quote>A fiat system is based on a government’s mandate that the paper currency it prints is legal tender for making financial transactions. Legal tender means that the money is backed by the full faith and credit of the government that issues it. In other words, the government promises to be good for it.

Fiat money is the opposite of commodity money, which is money that’s based on a valuable commodity, a method of valuation that was used in the past. At times, the commodity itself actually was used as money. For instance, the use of gold, grain, and even furs and other animal products as commodity money preceded the current fiat system.</quote>

OK so far?

But it now seems that crypto$ is a third way, neither backed by confidence in a government or by an actual valuable thing.

So why is it valuable? It’s speculative in my opinion for sure. But underlying that I think is the confidence of the people who buy it that it will be around for a long time as an alternative to the fiat system described above.

So, it’s like fiat currency but the “confidence” element is in the hands of the users and not in the hands of governments and their central banks. And like the popular Brexit and Trump “revolutions” people are fed up with governments and their confidence in them is therefore low.

Which may be another reason why crypto$ has been so successful (to date)

The “bubble” that people are talking about is overblown I think. The stable valuation of a bitcoin is really what is in question. And on the basis that one bitcoin is divisible by 8 decimal places the current price of over $11,000 doesn’t seem too rash.

As always, please do not treat this post as financial advice. Crypto$ is very volatile and you could lose all of your investment!