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What backs the dollar and cryptocurrencies?

This analysis posted on LinkedIn is representative of a prevailing misunderstanding about the monetary system.  It is a misunderstanding that the US dollar (or any fiat money) is backed by the central bank, and a further misunderstanding that cryptocurrencies are backed by anything of more substance than what backs the dollar.

First, there is an important distinction between money and currency to be made (see Money & Currency). Money is backed by value, while currency is backed by technology. 

Under the gold standard, gold was money, US dollar was a currency. But after the gold standard, the US dollar is both money and currency.  More ambitious, but on a shakier ground. 

As money, the dollar is backed by governmental credibility (which in turn is backed by both military and economic powers). But how much real value is there is for the world to decide. Any fiat money is a deviation from the true market-value-backed money, because it is a kind of value imposed through extra-market forces.

As a currency, the dollar has evolved with digital technology and has been vastly benefited by the digital efficiency, yet hampered by an inefficient banking system. 

The central bank only meddles in between.  

In comparison, cryptocurrencies are not money, because they are not backed by any real value at all (and people confuse price for value). Cryptos try to be a currency but have not shown adequate technology to back it up yet.  

Technology backing a currency always means efficiency (scalability and low cost), for efficiency is what justifies the existence of a currency in the first place. But other than the original bitcoin which is designed as peer-to-peer cash (not BTC, but Bitcoin SV), I don’t see any cryptocurrency that has the kind of efficiency to justify its role as a currency.  

This is not meant to praise the US dollar though, because I also believe that the central bank system has so much ill that it can no longer justify itself in its current form.

But any system that wishes to replace the dollar need to be at least 10 times better to be justified and accepted socially and politically.

And to “replace” has two aspects, namely money and currency, as they are separate and different.

Bitcoin SV possesses convincing qualities to replace fiats as a currency, because it is vastly more efficient – with unbounded the scalability and transactional costs thousands of times lower.

But at the present time, no digital asset, including BTC and BSV, possesses the quality and power to replace a major fiat as money, that is, money backed by actual value.  This will remain the case until an asset becomes a commodity having true utility and attains a real market value determined by actual market demand for such utility, rather than psychologically self-referencing speculative trading. At the present time, no digital asset currently has such qualifications, not even BSV. It would require the real-utility transaction level to increase at least a thousand times from the current level to attain such qualities.

With other digital assets, not even a theoretical possibility exists, let alone a reality. With BSV, however, the status of money is attainable in the future, as its unbounded scalability can support transaction levels thousands and even millions of times the current level.