> if the currency is controlled by those who have most of it, how is this any different from government-issued currency
The difference is, if a cryptocurrency is mismanaged, people can sell their holdings and buy a better-managed currency, decreasing the value for those who have the most to lose.
That provides a selective pressure towards good economic governance, which doesn't exist with too-big-to-fail central banks that can require you to use their product because of legal tender laws and tax payments.
Also, programmable money is inherently more valuable because of new use cases it enables, like smart contracts. That is why diversifying into cryptocurrency is better than simply diversifying into a foreign government-issued currency.
Full disclaimer: I do not own, and have never owned, any cryptocurrency.
The problem is how you define "good economic governance". For instance a controlled amount of inflation is generally considered to be good for a currency, as it incentivizes investing your money instead of hoarding it non-productively.
But if there's one thing that most cryptocurrency investors usually don't want, it's inflation. Actually, the more deflation the better.
And that's the catch really, because there's nothing forcing you to use a cryptocurrency like you have to use a government-issued currency, the cryptocurrency has to reward early adopters if it wants to become popular. This in turn makes cryptocurrencies, IMO, have patently bad economic governance, since the deflationary spiral makes them unusable for anything beyond pyramid schemes.
>Also, programmable money is inherently more valuable because of new use cases it enables, like smart contracts
Meh, smart contracts are not so smart, and not so contractual. It's just a very inefficient scripting mechanism that doesn't really buy you all that much. Suffices to see all the modern cryptocurrency "dapp" that run on centralized, trustful chains just because they're unusably expensive to run on true decentralized blockchains.
See all the stuff running on the BNB chain that's 1/ not decentralized and 2/ just a bunch of pyramid/ponzi schemes with no practical use beyond speculation.
> The difference is, if a cryptocurrency is mismanaged, people can sell their holdings and buy a better-managed currency, decreasing the value for those who have the most to lose.
Selling requires buyers. If everyone decides to dump the currency, who do they sell it to? Maybe someone is willing to take the risk on it, but if so, likely at a small fraction of what many paid to buy in.
No, fair point, I didn't think that through. I suppose I thought that the whales would try to prop up the price (and increase their control) by buying out those who had lost confidence, but you're right that this isn't guaranteed, and nor is a return on investment for those leaving.
> That doesn’t sound like a safety mechanic to me.
Even if the doubters aren't able to exit without taking a loss, the risks of the cryptocurrency losing value should still provide a strong incentive for good management by those who hold a lot of it.
>Even if the doubters aren't able to exit without taking a loss, the risks of the cryptocurrency losing value should still provide a strong incentive for good management by those who hold a lot of it.
Note that the same argument can be used to demonstrate that monarchy works - i.e. kings have no incentive to mismanage their country, as they'd be crippling their own finances.
> The difference is, if a cryptocurrency is mismanaged, people can sell their holdings and buy a better-managed currency, decreasing the value for those who have the most to lose
You can so the same with fiat, which is why people in badly managed countries tend to use USD instead of their worthless currency.
The fact that Americans are not flocking to Euros, British Pounds or what not shows you that only a minority think that dollars are worthless paper. And yes, you need to buy bread and pay taxes, I'm talking about savings which americans keep in dollars.
The difference is, if a cryptocurrency is mismanaged, people can sell their holdings and buy a better-managed currency, decreasing the value for those who have the most to lose.
That provides a selective pressure towards good economic governance, which doesn't exist with too-big-to-fail central banks that can require you to use their product because of legal tender laws and tax payments.
Also, programmable money is inherently more valuable because of new use cases it enables, like smart contracts. That is why diversifying into cryptocurrency is better than simply diversifying into a foreign government-issued currency.
Full disclaimer: I do not own, and have never owned, any cryptocurrency.