How should we think about a currency like Bitcoin? The first thing to remember is this: Money is a sort of collective fiction. What money we choose to trust says much about how we see the world.
Above the simplest exchanges, most money has limited use. Gold, the most common historical currency, is almost only good for adornment. To its fans, gold’s uselessness is a value in itself; since the stock of gold is not consumed, it’s reasonably stable, while governments can print all the currency they want.
Paper is, of course, a proxy for the government issuing the money. How much we trust the government’s ability to collect taxes, pay debts, and so on is the collective fiction that gives a country’s money value. Read the rest of this entry »