Well done for taking on a challenging and complex topic! Am a bit sleep deprived at the moment but might add some additional context for your friend:
In defining 'fiat,' it's useful to think of what existed prior to 1971, in that the US and many other countries were on the 'gold standard' meaning you could take your dollar to the bank and exchange it for the equivalent value in physical gold. So the dollar was backed by the limited global supply of a commodity, in this case gold. (Fun fact: The Wizard of Oz is actually a political allegory from a time when the US was debating to use gold or silver to back its money. The ruby slippers are silver in the book!).
It's also challenging to start with the US when thinking about fiat, because it holds such a unique place in the world, because as you say, it's the global reserve currency to which nearly all commerce is attached at some point. I would start with Venezuela, Argentina, Greece or everyone's favorite, Weimar Germany. Venezuela's economy is largely based on oil, and it began printing money after a change in government and subsequently the US sanctioning the country and its oil exports. Venezuela then experienced severe hyperinflation. Not doing the history full justice here, and the causes are varied and debatable (debt again in Argentina, and post-war sanctions in Germany), but there is a common thread of governments overspending and printing money, usually after an inflection point where the primary driver of GDP takes a downturn in value due to one of those causes.
I think it's easier to see how a smaller country/economy/government can fail, and then contrast that to the US which is not only a global economic engine, but also inextricably tied to the fundamental functioning of the global financial system and international trade. I think this is a problem that Bitcoin maxi's conveniently ignore when talking about Bitcoin as future money - one of these (USA) is not like the others. Full disclosure: I own BTC but more from an asset class/commodity investment perspective than the future money use case, though I do think that has merit for smaller countries, e.g. Ecuador, though they may be too early.
With #2 above, it's also important to point out that the change in value of gold is driven by an important additional factor outside of inflation/dollar devaluation, namely supply. Since 1971, a great deal more gold has been mined, but at the same time there are new industrial use cases for the metal, e.g. cell phones. This in part explains why the value deltas in 1 and 2 are not the same - it's not just about buying power deflation, but those economic fundamentals of supply & demand. Also, with #3 see also, commodity use case for an asset with fixed supply :)
That song bangs! Thank you for introducing me to the group back in December - ending up adding that song to an important playlist :)
Thanks for the thoughtful comment, Austin. I did not know that Wizard of Oz anecdote; nice one. I agree with your reflection about the present day use case for bitcoin in many countries around the world, especially those that have recently been; are currently or will soon be victims of hyper-inflation. Assuming they have an onramp, for these folks bitcoin may already be a better store of value versus their respective fiat currency. In case you don't already know of the site you may find this one interesting -> https://wtfhappenedin1971.com/
Well done for taking on a challenging and complex topic! Am a bit sleep deprived at the moment but might add some additional context for your friend:
In defining 'fiat,' it's useful to think of what existed prior to 1971, in that the US and many other countries were on the 'gold standard' meaning you could take your dollar to the bank and exchange it for the equivalent value in physical gold. So the dollar was backed by the limited global supply of a commodity, in this case gold. (Fun fact: The Wizard of Oz is actually a political allegory from a time when the US was debating to use gold or silver to back its money. The ruby slippers are silver in the book!).
It's also challenging to start with the US when thinking about fiat, because it holds such a unique place in the world, because as you say, it's the global reserve currency to which nearly all commerce is attached at some point. I would start with Venezuela, Argentina, Greece or everyone's favorite, Weimar Germany. Venezuela's economy is largely based on oil, and it began printing money after a change in government and subsequently the US sanctioning the country and its oil exports. Venezuela then experienced severe hyperinflation. Not doing the history full justice here, and the causes are varied and debatable (debt again in Argentina, and post-war sanctions in Germany), but there is a common thread of governments overspending and printing money, usually after an inflection point where the primary driver of GDP takes a downturn in value due to one of those causes.
I think it's easier to see how a smaller country/economy/government can fail, and then contrast that to the US which is not only a global economic engine, but also inextricably tied to the fundamental functioning of the global financial system and international trade. I think this is a problem that Bitcoin maxi's conveniently ignore when talking about Bitcoin as future money - one of these (USA) is not like the others. Full disclosure: I own BTC but more from an asset class/commodity investment perspective than the future money use case, though I do think that has merit for smaller countries, e.g. Ecuador, though they may be too early.
With #2 above, it's also important to point out that the change in value of gold is driven by an important additional factor outside of inflation/dollar devaluation, namely supply. Since 1971, a great deal more gold has been mined, but at the same time there are new industrial use cases for the metal, e.g. cell phones. This in part explains why the value deltas in 1 and 2 are not the same - it's not just about buying power deflation, but those economic fundamentals of supply & demand. Also, with #3 see also, commodity use case for an asset with fixed supply :)
That song bangs! Thank you for introducing me to the group back in December - ending up adding that song to an important playlist :)
Engaging read - Thank you!
Thanks for the thoughtful comment, Austin. I did not know that Wizard of Oz anecdote; nice one. I agree with your reflection about the present day use case for bitcoin in many countries around the world, especially those that have recently been; are currently or will soon be victims of hyper-inflation. Assuming they have an onramp, for these folks bitcoin may already be a better store of value versus their respective fiat currency. In case you don't already know of the site you may find this one interesting -> https://wtfhappenedin1971.com/