@spenvo: Thanks for reaching out to This Week in Law for me. I am a bit busy studying for finals and getting ready to move at this point, but I will reach out to her in a month or so. I also want to make sure I have done my research on one of the most important set of legal issues -- money transmitter registration, money laundering regulations, etc.

@forever-d: You make a very cogent and persuasive case. (BTW, has Satoshi actually dropped out? Can you post a link to something on the forums that confirms that?). I will incorporate your arguments into my next draft, although I'm still not convinced.

@moa: When I said that bitcoin is "meant to circulate broadly and to be used to buy real goods," I was looking at what people are actually doing with bitcoin (trading bitcoins for actual goods and services on bidding pond, the OTC market, and with businesses that take bitcoin) and what people are advocating for bitcoin on these forums and elsewhere (many are trying to encourage businesses to accept bitcoin; someone is taking a cross-country trip trying to use only bitcoins; someone else is working on a bitcoin-based point-of-sale system). Furthermore, I think if you look at Wei Dai's b-money proposal and statements attributed to Satoshi, you'll find that they evince an intent that bitcoin be used as competitor for fiat currencies in general, and not just, say, online.

I don't know if it would be useful or not, but you may be able to draw some legal parallels between bitcoin and the recent development of an emerging market for IPv4 addresses.  See http://www.networkworld.com/news/2011/042511-ipv4-sales.html?hpg1=bn .

IPv4 addresses are starting to gain monetary value on their own, even though they are a purely virtual commodity, because they are in demand and there is a limited supply of them.  There will never be any more IPv4 addresses created, and the world has essentially run out of unassigned ones.

All value is imputed by human action.  Nothing has intrinsic value in the economic sense of the word.  Gold has value because human desires give it value.  This is the diamond/water paradox.

You are mistaken.

Bitcoin is a fiat currency.  Call it software fiat, as I do.  Or satoshi-fiat.  Or community-fiat.  Or miner fiat.

But it is definitely fiat currency.

What exactly is your definition of fiat currency?

People are using two different definitions of the term - "currency given value by government decree" or "currency not backed by specie". Unless you can prove that your definition is the only correct one, why not try a little less arrogance?

The word fiat, on the other hand, is pretty unambiguous. Literally translated, it is "let it be done", and it implies the imposition of will by some sort of authority, such as a government. Fiat currency then implies to me a currency backed by threats of violence, such as government issued paper money. Even if you make an agreement with an individual that payment for services will be made by gold, he can still take you to court and force you to accept federal reserve notes. That is fiat.

I can't kind of see how "let it be done" could be taken to mean anyone declaring that something is of value, but if that is the case, everything has value only by fiat. Gold is fiat, Bitcoin is fiat, sea shells are fiat, and yap stones are fiat. Seems like kind of pointless stance.

I don't see how that has anything to do with the question of the source of Bitcoin's value, which is at the heart of the fiat question. Still, does the imposition of the rules of nature make gold a fiat currency?

The software development group isn't an authority in the manner in which you think.  They are only an authority in the sense that people have a certain amount of trust in the software they produce.  Also, there is no one software development group...there is different bitcoin related software and different bitcoin clients that completely unaffiliated people are creating.  They do not possess any unique position to influence the operation of bitcoins than anyone else.  The software development group does not have the ability to unilaterally change the bitcoin protocols without convincing the network of people using bitcoins of the merits of such a change.

It is in fact mathematics and physics that govern the bitcoin system.  You only have to trust that your computer runs the code correctly, that the mathematics are sound and that there aren't major flaws in the code.  And, you don't necessarily have to trust those things...to the extent you are knowledgeable in those subjects, you can verify it.

And, here are a few definitions of fiat money in case you are still unconvinced:
http://en.wikipedia.org/wiki/Fiat_money ("Fiat money is money that has value only because of government regulation or law.")
http://www.investopedia.com/terms/f/fiatmoney.asp  ("Currency that a government has declared to be legal tender")
http://dictionary.reference.com/browse/fiat+money ("paper currency made legal tender by a fiat of the government")
http://www.answers.com/topic/fiat-money ("Legal tender, especially paper currency, authorized by a government")
http://www.thefreedictionary.com/fiat+money ("Legal tender, especially paper currency, authorized by a government")

I think it would be a shame if you didn't at least devote a paragraph to the definition of fiat money (and preferably go on to explain how bitcoin is not a fiat currency, but has no commodity backing...but at a minimum, mention that there are many that would vehemently disagree with its characterization as a fiat money).

Many convincing arguments here that Bitcoin is neither fiat nor commodity backed. I'll let them speak for themselves. But I would like to underline that regardless of the definition of fiat, I would be careful about using it because there is a large group of people who connect fiat and 'debt based money' or 'inflate at will money' and specifically use the term to denote this inflation weakness.

Since BitCoin does not have the inflation weakness, it muddies the water a little bit to describe it as fiat, whether that's technically correct or not. Better to refrain from that particular term at all and just be explicit for maximal clarity in writing.

I should perhaps have said "easily inflate at will" rather than just "inflate at will" - indeed, if there was large and widespread will, BitCoin could inflate. None the less I am fairly sure "easily inflate at will" is what people think of when they hear fiat.

Hi all,

Thanks for the continued discussion and sorry I haven't responded promptly. I'm in the middle of studying for finals.

Let me say that although I think there's a good argument calling bitcoin "fiat" (as I mentioned in an earlier post), that word seems to confuse more than clarify. I will probably not use that term in the next draft and may allude to the discussion (of fiat vs. not) in the footnote.

Best,
Reuben