An updated copy of this post is maintained here.
A common argument against the value of cryptocurrencies goes as follows (quotation my own):
For an asset to have value, there must be an underlying physical commodity (e.g. gold) or an associated stream of future cash flows (e.g. stocks). Should neither of these conditions be true, legitimacy can only be provided by the full backing of a centralised authority that wields physical power (e.g. the United States backing the US dollar).
This argument goes against the history of money because there are significant historical periods where virtual money existed with no underlying physical commodity, no stream of cash flows, and no backstop from a centralised authority.
One simple example of this - provided by David Graeber in his book “Debt: The First 5,000 Years” - is the use of Roman currency as a unit of account even after the fall of the Roman Empire:
“... a glance at the “barbarian law codes” reveals that even at the height of the Dark Ages, people were still keeping accounts in Roman money as they calculated interest rates, contracts and mortgages.”
Once established as a norm, money can persist as a unit of account without intrinsic value and without centralised support.
