Bitcoin Forum

The question is misleading. Bitcoin doesn't have backing. But other things may be backed by bitcoin.

Exactly. My favorite answer is: The same thing gold is backed by.

Aristotle's Qualities of a Good Money
By Gold Investing 101

About 2000 years ago Aristotle defined the characteristics of a good form of money. They were as follows:

1.) It must be durable. Meaning it must stand the test of time and the elements. Money is a medium of exchange and a store of wealth so whatever form it takes, it must be able to handle the wear and tear of constant trading and transactions.

2.) It must be portable. Meaning it should be practical in the sense that it holds a high amount of 'worth' relative to it's weight and size. In other words, it's "worth" must be very dense. Imagine if money was in the form of lead bricks, these bricks would be very dense, but it would be a nightmare and near impossible to constantly exchange large amounts. And you can forget about carrying them around in your pockets.

3.) It must be divisible and consistent. Meaning it should be relatively easy to separate and distribute in smaller forms without affecting it's fundamental characteristics. This concept also works in reverse in that it should be relatively easy to re-combine several divided pieces of the money into a larger, single piece. This makes houses and paintings and cars unpractical as forms of money because taking them apart would affect their fundamental characteristics. An extension of this idea is that the item should be 'fungible'. Dictionary.com describes fungible as:

"(esp. of goods) being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind."

4.) It must have intrinsic value. This characteristic carries a bit of a subjective quality in that everyone views the world through a different lens and what I view as valuable may not necessarily be valuable to my neighbor, but for the sake of argument let's just say that there is a consensus of value given to a certain material. The basic understanding behind intrinsic value is that the material carries 'worth' in and of itself. It does not derive it's value from anything else. It just sits there and is valuable. This is why paper currencies with no backing will not stand the test of time. Paper currencies only derive their "value" from what is known as legal tender laws, which are in essence a threat of legal prosecution, and or force, if they are not accepted as money for payment.

This fourth point brings up the point of scarcity, which is in essence a matter of intrinsic value. Paper currencies in circulation today, such as the dollar, euro, yen, swiss francs, zimbabwe dollars, etc... they are all now purely fiat instruments. (by fiat, I mean that their use is declared by decree and usually by threat of force. Definition of fiat.) The governments that sponsor them have essentially unlimited power in their ability to create new supplies. Because of technology, it is now simply a matter of typing something into a computer and the amounts are instantly credited somewhere. So in theory the supply of dollars for instance is infinite, and it seems like lately the wizards in Washington are trying to see whether this theoretical limit can be reached. Take Zimbabwe as a practical real world example. It now takes trillions of Zimbabwe dollars to buy a roll of toilet paper.
http://www.gold-speculator.com/gold-investing-101/4476-aristotles-qualities-good-money.html

Bitcoin is literally backed by silver and gold.  I can show you several places where you can exchange it for either.

Isn't bitcoin backed by speculation?

It's backed by other people with FIAT currency willing to buy.

No different then anything else in life....

Not exactly.

Bitcoin and gold are both backed by the same thing - their unparalleled utility as a medium of exchange satisfying Aristotle's prerequisites:

I don't think that is a good example.  Surely you can use the dollars?

No, we can set up a LETS (http://en.wikipedia.org/wiki/LETS) where we keep a ledger, and the unit of accounting is work hours.

Bitcoin is backed by math.

Bitcoin is backed by math.

Work hours would make a terrible currency since they are not at all consistent.

ah always those Americans with their gold.

Right, because Europeans, Chinese and Indian people (especially those last two) all hate gold....  ???

we're just not as obsessed as you  :P

I will answer with counter question:What is HTML backed by?

No. You have it backwards. No one would be mining for anything if it didn't have value in the first place.

Bitcoin is backed by demand from greedy geeks.  If you think the world will ever run out of greedy geeks - then you might want to steer clear of Bitcoin.

No. You have it backwards. No one would be mining for anything if it didn't have value in the first place.

short answer: its backed by production costs
EG gold miners sell gold to cover their costs of production and a profit to cover their livelihood. gold is getting more expensive to produce a gold bar, hence the high prices.

long answer: its backed by productions costs and profit dependant on demand
EG if an individual gold miners costs were $1500 to make a weeks worth of gold bar the minimal they would sale for is $1500 plus a weeks wages. that's if their was not much demand and the miner was desperate to sell it just to break even.
but if the demand is high, the miner can sell for higher prices and rake in the profit.

same with bitcoin,  its electricity and computer components mainly, as oppose to excavators and 'washer' machines. bitcoins are getting harder to mine a block hence the higher price. then add on the costs of a few grands worth of rigs the miner has pre-paid for they will want more buck for their BTC. the amount of profit ontop of costs varies depending on the demand for it.

so just wait till ASICS hit the majority. at first there will be a flash flood of BTC hitting the market which may cause a drop, due to too much supply and not enough demand. but once the difficulty changes a few days later the supply amounts will decrease, demand will then increase again which would cause a rise.

Aristotle's prerequisites:

So you tell me "not exactly" and then you repeat my words? Huh?

Bitcoin is backed by ... magic.

http://www.youtube.com/watch?v=HqhDHznbLVE

A lot of uncertain answers. I am surprised that the backing for bitcoin is not obvious to all.

Bitcoin is backed by the blockchain. (Currently) a 2Gb secure datafile of historical transactions and issuance.

The genius of Satoshi is like a diamond, multi-faceted. He understands the principle of inertia in persistent systems. As the blockchain grows it becomes more important to everyone who relies upon its integrity defining a medium of exchange. If BTC becomes the global currency then the blockchain will be the single most valuable data file in existence. It is already worth $160m. The fact that it is replicated on so many nodes reinforces its value and persistence.

Yes, but no.  You were half right.   ;D

'Not exactly' referred to your assertion that "Bitcoin doesn't have backing."  Bitcoin and gold are backed by their utility as ideal media of exchange.

Oh I see, the problem is actually that you don't understand what the meaning of "being backed by" is.. Tell me, can I cash in my 1btc or 1gram of gold and get utility as ideal medium of exchange out of them? And how does utility as ideal medium of exchange look like?

valued properties != backing, mkay?

Bitcoin is backed by ... mathemagic.

http://www.youtube.com/watch?v=HqhDHznbLVE

A lot of uncertain answers. I am surprised that the backing for bitcoin is not obvious to all.

Bitcoin is backed by the blockchain. (Currently) a 2Gb secure datafile of historical transactions and issuance.

The genius of Satoshi is like a diamond, multi-faceted. He understands the principle of inertia in persistent systems. As the blockchain grows it becomes more important to everyone who relies upon its integrity defining a medium of exchange. If BTC becomes the global currency then the blockchain will be the single most valuable data file in existence. It is already worth $160m. The fact that it is replicated on so many nodes reinforces its value and persistence.

Or science, depending on your viewpoint. Cute illusion, BTW. It doesn't look like a very comfortable contraption.

Yes, but no.  You were half right.   ;D

'Not exactly' referred to your assertion that "Bitcoin doesn't have backing."  Bitcoin and gold are backed by their utility as ideal media of exchange.

Oh I see, the problem is actually that you don't understand what the meaning of "being backed by" is.. Tell me, can I cash in my 1btc or 1gram of gold and get utility as ideal medium of exchange out of them? And how does utility as ideal medium of exchange look like?

valued properties != backing, mkay?

I find that what one should see as ideal depends for some large part on the situation in which the currency is to be used.
Casinos have a different view on what is an ideal medium of exchange than, say, society as a whole.

So how do you define "ideal media of exchange" ?

1: existing as an archetypal idea
2a : existing as a mental image or in fancy or imagination only;

My favorite answer is: The same thing gold is backed by.

Nice suggestions here, but backing has a specific meaning regarding money, and bitcoin is not backed by anything. So drivel along, but use another word.

Most Economically Illiterate Journalist In History Proposes “Gold is Backed by Nothing, but US Dollar Backed by Federal Reserve”
http://maxkeiser.com/2012/09/03/gold-backed-nothing/

Gold can exist without Internet. Bitcoin can't.
Gold can exist without electricity. Bitcoin can't.
Gold can exist without humans. Bitcoin can't.
Gold doesn't depend on SHA 256 algorithm and how NSA breaks cryptographic algos. Bitcoin does.

The blockchain is not 'a data file'.
It is an ubiquitous piece of information that is copied by every user of bitcoin.
The blockchain itself is worthless. Everyone can get the file trivially by using the client.
Moreover, you cannot get a single bitcoin from knowing the information in the chain. You would have to interact with the whole system in a particular way to get to any kind of value.
In fact i would say that it is the exchanges that actually give bitcoin any real-world value at the moment. How much would you value the blockchain if mtgox said: 0.000 0.000 ?

"Value requires a valuer."  -J. Baird Callicott

"The concept ‘value’ is not a primary; it presupposes an answer to the question: of value to whom and for what?”  -Ayn Rand

The concept of "ideal" means completely removed from any particular situation.

From Merriam-Webster:

The word you should have used instead of "ideal" is 'optimal' (most desirable or satisfactory).  Big difference, as you've neatly demonstrated.

Anyway, I can't improve on Aristotle's definition of a good money (ie an ideal exchange medium). 

I'm just glad to see it instantiated in Bitcoin.  It's been a long wait for the Holy Grail of digital cash for us impatient fiat money haters.   8)

The blockchain is logically a single file, and the fact that it can be copied so easily adds to its value, not reduces it, (by enhancing its utility).
The question of valuing the blockchain is to ask "How easy is it to construct another, different one, of similar size, from scratch?"
The answer is - nearly impossible. In terms of Information Theory the blockchain is probably the most information dense object in the world. It is so dense that not even a single byte can be changed without it being degraded. Making another requires enormous amounts of computing power, and not only that, a new one would lack the real-world connections to thousands of individual people with discrete personal holdings represented by entries in the blockchain.

This is the backing for bitcoin.

Mt.Gox provides a mechanism for the valuation of this phenomenon in a "wisdom of the crowd" manner.

http://www.youtube.com/watch?v=iOucwX7Z1HU

The blockchain is logically a single file, and the fact that it can be copied so easily adds to its value, not reduces it, (by enhancing its utility).
The question of valuing the blockchain is to ask "How easy is it to construct another, different one, of similar size, from scratch?"
The answer is - nearly impossible. In terms of Information Theory the blockchain is probably the most information dense object in the world. It is so dense that not even a single byte can be changed without it being degraded. Making another requires enormous amounts of computing power, and not only that, a new one would lack the real-world connections to thousands of individual people with discrete personal holdings represented by entries in the blockchain.

This is the backing for bitcoin.

Mt.Gox provides a mechanism for the valuation of this phenomenon in a "wisdom of the crowd" manner.

http://www.youtube.com/watch?v=iOucwX7Z1HU

+1 for this answer by Solex

I disagree with those who loosely state that bitcoins have no intrinsic value.  Bitcoins have the ability to transfer economic value to a designated address anywhere in the world practically at no cost and it can do so almost instantly.  No other commodity, that I know of, has this ability.  I expect the perceived value of this unique capability to increase dramatically as people come to recognize more and more productive uses for this new means of unparalleled economic efficiency.

The question is misleading. Bitcoin doesn't haverequire backing. But other things may be backed by bitcoin.

Long story short, if we really have to come up with something about its backing, then Bitcoin is backed by the common effort of the world-wide community, its incentive to keep the system running, and the passion to build upon its unique features. Unlike money today, Bitcoin is not backed by force, it's backed by love.  :-*

We are leaving our physical world people, don't stay attached to it...

You have to ask yourself, what is bitcoin worth without being used as a currency.
That would give you its intrinsic value.

Maybe you are confusing 'intrinsic value' with 'economic value' ?

Nothing has intrinsic value. All valuation is the product of subjective preferences. Even some people prefer not to have food (think forced feeding in prison)

I disagree with those who loosely state that bitcoins have no intrinsic value.  Bitcoins have the ability to transfer economic value to a designated address anywhere in the world practically at no cost and it can do so almost instantly.  No other commodity, that I know of, has this ability.  I expect the perceived value of this unique capability to increase dramatically as people come to recognize more and more productive uses for this new means of unparalleled economic efficiency.

I say it's backed by math not gold and math is better then gold because:

• Smiling lying bastards in silk suits can't deceive you about the amount of your math in the vault
  
• The Govt can't reach up it's ass and pull out tons of math to give to the pigs on Wall Street, thereby debasing your math.
  
• Burglars can't swipe your math while you're at the movies.
  
• The 'we buy your math' creeps won't offer you peanuts for your math
  
• Your math really is math and not tungsten with a math coating
  
• And most important - The Govt can't send men with guns to take your math
  

What's backing up the US Dollar? or other currencies for that matter?
it's offer and demand, the more BTC is accepted and recognized worldwide, the more demand for BTC. The more people believe in the currency, the more support and more value. People call it a pyramid scheme because the early adopters got to make more BTC by mining them, but regardless of that, the total distribution will eventually start to even out.
My concern is what happens with the "lost money" The US dollar can be re-printed, but BTC can't.. so wouldn't be BTC eventually run out? meaning, there's always people losing their BTC by not backing up a wallet, HDD crashes, etc, etc... so those BTC cannot be reclaimed can't they?

There’s been all kinds of speculation about what Bitcoin is and how it works. What about where it fits, in our insane, worldwide dynamic?

Since many of the same arguments involving Bitcoin have applied to gold as well, such as debate over whether either of them are commodities or currencies, let’s just classify them by their most basic properties.

Gold is a physical element. Bitcoin is an abstract protocol.

On one hand, gold can act as currency, but it can never be a purely abstracted item. From the other side, Bitcoin has functioned similar to a commodity, but it will never have a true physical presence.

Now, the currently assumed position of gold is at the very base of the financial world, according to John Exter. This representation can be seen in updated form with Trace Mayer‘s version of Exter’s Pyramid.

This is a powerful concept, highlighting the basis of financial development and gold’s role as the supreme intermediary between the abstract and real components of an economy. What’s curious is that gold is the closest thing to a purely independent financial instrument – it is an approximation of a monetary ideal. In other words: human utilisation of gold has placed it in a position where it straddles the two worlds of abstract monetary concepts and real, physical objects.

Enter Bitcoin. The structure of this phenomenon is such that it is functionally similar to gold, but has no absolute corporeal presence. Its abstract, intangible nature secures it firmly in the monetary realm. This means that a shift in thinking may be in order, adjusting the arrangement of Exter’s Pyramid yet again.

http://web.archive.org/web/20120502132636/http://bitcoinmedia.com/gold-is-a-physical-element-bitcoin-is-an-abstract-protocol/

Are you sure about that or you just believe in what you want to believe in? Did you check all the math yourself or you just prefer to believe in what tungsten mathematicians tell you?

But other things may be backed by bitcoin.

There is a connection between Bitcoin price and energy required for mining Bitcoin.  So, there exist a Bitcoin price point where world's total energy output is consumed by Bitcoin mining.

So, could we say that Bitcoin has intrinsic anti-value?

You could, if the total number of Bitcoins were unlimited and if the block reward didn't decrease over time.  But, since it does decrease, we will never reach that point.

This has nothing to do with Bitcoins being limited, or fixed block reward halving.  Besides, mining rewards are 25 atm, plus the transaction fees.  Awards to be made from Bitcoin mining are unlimited.

If the price of Bitcoin went to $20.000 overnight (from $20 at this moment), you would see a 1000-fold increase in mining, simply because it would be so profitable.  So, there is a price point, where all the energy in the world is used.  (Of course I'm simplifying because, at some point the energy prices as well would go up, due to Bitcoin mining.)

See now what I mean by intrinsic anti-value?  The more the price of Bitcoin is, the more energy it (indirectly) uses.

What is bitcoin backed by?

Yes, I understood your point.  Did you understand mine?

The "intrinsic anti-value" that you point out is a direct consequence of Bitcoin's current inflationary state, and will cease to exist once that inflation ceases. 

At that point, the energy used will be limited by Bitcoin's utility as a means of value transfer. 

Regardless, the theoretical maximum energy use is actually only 50% of the total economy, not 100%. 

ore, this is a feature of all inflationary currencies, not just Bitcoin. 

It's not what Bitcoin IS backed by that makes it great, but rather what it ISN'T backed by  ;)

Don't ask what Bitcoin can back for you. Ask how you can back Bitcoin.  ;D

Don't ask what Bitcoin can back for you. Ask how you can back Bitcoin.  ;D

+1 LOL  :D

You said that point can't ever be reached.  I say it can be reached tomorrow. 

"What is Bitcoin backed by?"

It is backed by value.
Value is created by people, it is not intrinsic to anything except ideas (opinions).
Certain resources (gold, dollars, real estate, stocks, etc) have great monetary value in our society because we look for, or create, certain properties in them when following a particular - the most popular - economic theory at the time.
As an example, if we all started to adopt the theory of resource-based economics, widely promoted by Peter Joseph who created the Zeitgeist movie-series, we would value resources very differently.
So what makes Bitcoin valuable to people (adopters) in a capitalistic economy?
It can be a multitude of reasons:

• Deflation is better than inflation
• It is better to have a decentralized power
• Transactions in Bitcoin are cheaper, easier in a digital world
• The Blockchain: a PUBLIC record of every transaction
• I hate Ben Bernanke or the Federal Reserve System
• The security of Bitcoin's cryptography
• Irreversible transactions
• A new economy to start a bushiness in
• Anonymity (if done properly)
• Dude, I can buy drugs like I buy shit on Amazon... awesome
• I don't know, my friend uses it and I just follow whatever they does cause I think they're cool (majority of people)
• I like code
• I like turtle
• Miner: "Free money man!"
• we can win a major battle in the arms race and gain a new territory of freedom for several years
• Etc...

1) A lack of faith in central banks and their long-term control over government currencies

2) A desire to hold currency that has positive expected value when more efficient means of production are discovered.

That is all.

-bgc

1) A lack of faith in central banks and their long-term control over government currencies

2) A desire to hold currency that has positive expected value when more efficient means of production are discovered.

That is all.

-bgc

Me.

Good answer  haha. It is backed by all of us. All people investing in it.  :) And we are backed by bitcoin back. It  is the reason why I don't have trust issues anymore lol. Just saying. Bitcoin is also backed by Not being deceived by the untrustworthy banks and government.

1) A lack of faith in central banks and their long-term control over government currencies

2) A desire to hold currency that has positive expected value when more efficient means of production are discovered.

That is all.

-bgc

1) A lack of faith in central banks and their long-term control over government currencies

2) A desire to hold currency that has positive expected value when more efficient means of production are discovered.

That is all.

-bgc

Bitcoin is backed by POW. Yes, if you contribute to the netwrok you will get some bitcoins. Unlike banks and government bitcoin is not minted meaninglessly.