Originally Posted by raymor

What is the value of a dollar based on? Not nothing, actually. Initially, the value was set by the dollar being actually made of gold or silver. That history is important because it established a known value which only had to be roughly maintained. Next, they substituted gold certificates, which coulf be redeemed for gold. That still kept the value penned to gold. Next came treasury notes, which could be redeemed for certificates. The value still indirectly backed by gold. Then the treasury starting issuing a bit more notes than it had gold, but it didn't go crazy, ruining the economy. People came to trust that treasury wouldn't completely devalue the dollar because they EARNED that trust during a gradual transition. The US didn't completely end the holds standard until 1971, by which time the money was well trusted. Based a the entire history of this nation and others, people know that the government, through the fed, will keep the value of the dollar stable, with inflation of a few percent. That's why people a) know what a dollar is worth a b) trust it will be worth the same tomorrow. It's value was set by gold (and the Spanish dollar), maintained by gold for 200 years, and is now maintained by the full faith and credit of the United States. (Greatly devaluing the dollar would be constructive default.)

If bitcoin spent it's first 200 years being backed by gold and being run by an institution with the longevity and accountability of the government, you could trust that it wouldn't lose 90% of it's value in a month.