But when I keep hearing about this company and that government/state/town "accepting" Bitcoin for payments of random stuff or taxes, I can't help but wonder to myself: Who in their right mind would be wasting their hard-earned Bitcoins like that? Why would they not pay taxes/stuff with fiat and hold on to their BTC?
Why wouldn't I pay my taxes with my used tissues? I don't want to keep them at all. And yet I pay my taxes with my hard earned dollars. Why?
Abstractly, it makes sense to use for payments whatever the person you are paying most wants. If I go to a car dealership and offer to pay them with dollars or toilet paper, they might be willing to accept either. But they're sure not going to give me a great deal if I pay with toilet paper because they don't want it as much.
So if everyone really wants to hold bitcoin, then it makes the most sense to use bitcoin as a means of payment. Sure, I could hold bitcoin and eventually benefit from its appreciation. But I can also use that bitcoin to pay right now and still benefit from its appreciation because I am giving that benefit to the seller in exchange for its full, current value.
Also, because bitcoin is easy to buy and sell, it makes sense to be fairly indifferent to what asset you buy with or sell with. If you pay with me dollars and I want bitcoin, I can buy them. If you really want bitcoin and I'd prefer to pay with dollars, I can just buy them.
So if you really like bitcoin, it makes sense to use them for payments whenever you can because that reduce the amount of dollars you have to hold.
The important thing to understand is that future appreciation is always already priced in if it is reliable. If bitcoin is sure to be worth $50,000 in a year, nobody will sell it for $25,000 today because it will be easy to find people who will pay more than that. Bitcoin has the price today because that is a fair consensus estimate of the present value of its future value.
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