“Bitcoin is just another fiat currency.”

Initial claim:
@14:20 - 15:36

Anthony Pompliano: "Money is just a belief system, right? So a "medium of exchange" is simply valuable because both parties agree [that it's valuable], right?"

Peter Schiff: "Not real money. You're talking about fiat money. You're talking about paper currency that governments create out of thin air. There, [with paper currencies] the value's derived from faith and confidence, but it also has the backing of the government that issued it, and the fact that each government demands that its citizens pay taxes in that currency that it creates, which means that there is a demand among the citizens to accumulate that currency in order to pay those taxes.

And because of that, all of the contracts are denominated in that - employment contracts, rental agreements, bonds, insurance contracts - so everybody starts using it, but ultimately if the government abuses the privilege of creating it, and it creates too much, it collapses in value because the confidence is destroyed.

And Bitcoin has much more in common with a fiat currency than it does with gold, because gold's value is derived from its physical properties that make it desirable and make it useful, whereas Bitcoin's value is derived from the confidence that people are going to want it in the future even though it has no physical properties or any other properties that you could use it for."

P1. If a "medium of exchange" derives its value from its physical properties, then it is "real money."

P2. Gold is a medium of exchange that derives its value from its physical properties.

Therefore:

C3. Gold is "real money."

Evaluation:

P1. There's a lot to clarify here, but such clarification is not essential to the main argument, so let's assume that I Agree with this Premise.

P2. Again, we could clarify this, but it's not essential, so let's assume that I Agree with this Premise.

Therefore:

C3. Agree. Gold is "real money."

P4. If a "medium of exchange" derives its value solely from the "confidence" that people are going to want it in the future, then it is "fake money."

P5. Bitcoin is a medium of exchange that derives its value solely from the "confidence" that people are going to want it in the future.

Therefore:

C6. Bitcoin is "fake money."

Evaluation:

P4. Let's suppose I Agree.

P5. Disagree, but if we include a very important addition, I would Agree:

Bitcoin is a medium of exchange that derives some of its value from the "confidence" that people are going to want it in the future.

Consider that a holder of any non-consumable asset - e.g. stocks and bonds, but also gold and Bitcoin - is reasonably "confident" that people are going to want that asset in the future.

This confidence is a component, but not the entirety, of each asset's value.

  • A stock typically entitles you to a share of a company's profits, and perhaps voting rights on future corporate actions, AND you're "confident" that people will want that stock from you in the future.
  • A bond typically entitles you to a stream of future interest payments from a counter-party that you believe to be creditworthy, AND you're "confident" that people will want that bond from you in the future.
  • Gold can be used in numerous commercial and industrial applications, AND you're "confident" that people will want that gold from you in the future.
  • Bitcoin can be used to prove ownership, protect ownership, and transfer ownership without permissions or restrictions (resulting in economic equality and self-sovereignty among participants), AND you're "confident" that people will want that Bitcoin from you in the future.

Bitcoin is a medium of exchange that derives some of its value from the "confidence" that people are going to want it in the future.

Therefore:

C6. Disagree. Bitcoin is not "fake money."

P7. Eventually, the value of "fake money" will collapse when confidence is destroyed.

P6. Bitcoin is "fake money."

Therefore:

C8. Eventually, the value of Bitcoin will collapse when confidence is destroyed.

Evaluation:

P7. Agree. Eventually, the value of "fake money" will collapse when confidence is destroyed.

P6. As we discussed above, Disagree. Bitcoin is not "fake money."

Therefore:

C8. Disagree, but if we include a very important addition, I would Agree:

Eventually, the value of Bitcoin will collapse when (1) its utility disappears AND (2) confidence is destroyed.

In the short term, macro and micro factors will increase and decrease the overall "confidence" in the Bitcoin network, while the "utility" of a Bitcoin remains unchanged.

In the long term, something will undermine the integrity of the Bitcoin network (e.g. breaking the hashing algorithm, a 51% attack, etc.), and the "utility" (i.e. security) of the Bitcoin network will disappear. When this occurs, people will lose confidence in Bitcoin rapidly, and the value of Bitcoin will collapse.

The same process will unfold in other asset classes (e.g. stocks, bonds, and gold), but on very different time scales (e.g. decades, centuries, or millennia).

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