Critical Look at Cryptos Backing Fiat
To first understand what is currently backing fiat (dollar). The US dollar is backed by the good faith of the US government. Even though I am addressing the US dollar, the same is true for all country’s currencies. In a nutshell, the dollar is backed by people’s belief that they will be given (at the very least) back the value they invested in the fiat currency. For instance, if you value 8 hours of work at say $80. I assume if you didn’t, you wouldn’t be working that job and you would try to find a job that paid you more. You agree to accept $80 in currency with the idea that you will be able to use that to buy other things that will be equivalent to $80. But if you actually looked at the $80, you would see that it is just paper. So the value is based on your belief not what it actually is. This was not true when the dollar was backed by precious metal. The concept was still the same but precious metal has a history as a store of value where as fiat has a history of collapsing.
Looking at cryptos, what is backing cryptos? Again it is the people’s belief that is has value and in this case there is nothing tangible that you can hold. In the case of fiat, you at least have a slip of paper. The idea to back fiat with cryptos is ludicrous when you give it some thought. You are transferring the value of something with little to no value to something with no value, both are based on the ‘belief’ of value.
Money was created to facilitate trade, the money in and of itself was not meant to hold value. It was just a vehicle to make value portable, thus the saying ‘you can’t eat gold’. The end result is for one to have the ability to trade the money for a meal. To store say food, is impractical because food spoils and you can only eat so much. It is logical to store future food in a vehicle that will hold the value until you require food. At that future time, you will have the ability to trade your store of value for a tangible which you can use (or consume).
The bottom line is that all currencies are not consumables and should be treated as they were meant to be used not as an investment.