Bitcoin Forum

What is a fiat currency's value backed by? It is backed by the economy behind it,  you can use that currency to satisfy certain kind of demand, so it has value

What is bitcoin's value backed by? It is backed by some properties, although those properties do not provide goods/services that satisfy any kind of demand, but they combined together can satisfy an ultimate demand: To get a lot of income quickly, and all the other demand will be satisfied in turn

The problem today is not that your demand can not be fulfilled, it is you don't have enough increase in income and the cost is getting higher every year. So, there will never be a race to bottom phenomenon for bitcoin: Everyone selling their last coin to buy a cup of milk before they starved and bitcoin price crash to 0  ;D

In general people will treat it as a digital asset and hold them in hope of fast price appreciation. Price will rise eventually due to higher and higher difficulty and lower and lower coin supply, and you can buy more and more things with bitcoin throughout the world because many merchants will try to get bitcoin through their sales later

Gavin mentioned an interesting thought: If the coin price double each year, you only need to spend half of your coin each year and your purchase power will stay the same forever. So when you have accumulated a certain amount of bitcoin which worth 2 years' worth of living expense, you can retire

Some one will argue that if everyone is doing this then there will be no one working to provide the goods/services, but currently it is over production and low income enviornment, until we have a shortage of labour force (which is very unlikely due to rising of AI and robots), nothing to worry about

I totally disagree the ultimate demand is "to get a lot of income quickly".

The ultimate value in bitcoin is its ability to disrupt how money is sent round the world, making the process very very quick and very very cheap for anyone on the planet with a smartphone. Its got nothing to do with get-rich-quick schemes....

Bitcoin the currency is backed by blockchain the ledger, with everyone's holdings. The blockchain is in turn is backed by decentralized replication, consensus, advanced cryptography and enormous computing power.

Result: virtual gold.

Although many people do not admit, get-rich-quick is what everyone ultimately want, if there is such an opportunity guaranteed by government and banks, almost everone will join the game, just like housing bubble

The utilities you mentioned is not the reason behind the success of bitcoin, there are many alt-coins provide even quicker confirmation and scalability than bitcoin, but they never made any real sense, because get-rich-quick effect has already been proved on all the existing bitcoin investors, and part of that success comes from bitcoin's ability to be exchanged into other currency, where MTGOX played a vital role in early days of bitcoin's spread

Sorry, I missed one word, it should be "What is bitcoin's value backed by?" Already corrected in the OP. Value is decided by demand and supply, it is less related to technology. Even if you have most advanced technology in the world, if no one want it, it worth nothing. There are some other maybe more advanced coin designs, but since the demand has all been attracted to bitcoin, they did not succeed

I think Bitcoin is back by proof of work

Like all currency, it's backed by your belief that it is worth something to yourself and others. 

Bitcoin is backed by stupidity, just like any other deflationary cryptocurrency is.

PS: 1 BTC can't lose its value just because...

Exactly, and that belief typically comes from a widespread of acceptance by merchant, or, an exchange  ::)

Interestingly, even bitcoin do not have any value, if there is an exchange who can always exchange it to USD at a fixed exchange rate, then suddenly it gained all the values required to work as a payment medium

And to provide a fixed exchange rate to USD is not difficult at all due to limited supply of coins. Currently you need MAXIMUM 1 billion dollars to keep the exchange rate above $100, for many multinational enterprises and banks this is a piece of cake

Backed by the shit-ton of hardware that makes up the network.

It's backed by dreams and wishes: Speculators. :D

Weed

True, being stupid proves that you are still a human  ;D

A smartass alien might find it difficult to live on earth

Isaac Newton: “I can calculate the motion of heavenly bodies but not the madness of people.”

It is backed by collective confidence in an alternative virtual currency.

Do not say "everyone". You do not know what everyone wants. Sure a sector of people (like you clearly) want to get rich quick, but lots of people want the world want a "global currency".

That bitcoin is succeeding where other alt currencies are failing is simply a measure of the brilliance of the bitcoin concept and how that produced the first mover's advantage it enjoys today. Other alt-coint can be exchanged for cash dude. Just go to btc-e.com and you can exchange several alt coins for cash.

I still think the bitcoin's deflative nature decided that it is more likely to be used as an investment tool instead of a transaction medium. For transaction medium you typically want a stable exchange rate, maximum 5% volatility per year, not 1000% per year. To keep a constant value, the money supply must be adjusted all the time, and that is simply not possible for bitcoin

I totally disagree. Widespread use of bitcoin means low volatility, entrepreneurs will take on the stabilizing, and people will generally make sound business decisions.

As it is now, the largest companies queue up outside Obama's door, begging for handouts, only turning their heads towards Ben's office to get clues of what is going on. Unsound, ineffective and capital-wasting.

Let's say, the Government need $300 billion to pay the pension funds and social security, how is that possible with bitcoin? Even if they bid a price of $30K per coin, and bitcoin exchange rate rise 300 times, they still won't get enough coin, since some of the coins are not for sale or totally lost

If the USD supply is fixed, if economy grows, the USD's value must rise, means goods and services' price will drop, because there are more goods chasing for the same amount of USD. If a merchant do not have enough USD, then even the demand is big, he won't be able to do all the purchases

If you ever played Fallout 3, you will experience this: When some merchant does not have enough amount of money, even you have lots of precious items, you won't be able to sell them to buy the things you want. And to drop the price for everything in order to utilize the limited amount of money just feels very strange: No one wants to drop their sale price first unless they have no other choices, what if he dropped while others did not drop? So lack of money typically reduced commercial activities, only a severe lacking of money everywhere will cause a price war

Bitcoin is not going to totally replace fiat money, otherwise we will see every merchant drop their sale price constantly and all the projections of future earning are negative. The only occasion that goods/services' price in bitcoin does not change is when economy does not grow at all

Bitcoin is backed by Mathematics, it's like with anything though, as long as even a few people believe Bitcoin or anything else has value, people will be willing to pay a price for it.

Weed

Originally, Bitcoin had a value of zero. But then, a while back someone bought 2 pizzas for 10,000 BTC. This put the value of 2 pizzas into the overall system. It was a tiny amount but it still counted. Others have bought drugs and other contraband with BTC. Some have exchanged work for BTC. Some people bought electronics. All of these tiny amounts add up until a currency that is worth essentially zero begins to have value. A while back, a single BTC only traded for a penny but the "intrinsic" value was in there and it grew.

Others began to see this value and believed the value would continue to go up and, of course, they wanted to speculate on it and make some money. This speculation caused the price to rise as more money was pumped into the system. The intrinsic value hasn't risen nearly as much as the price, due to the speculation. However, the intrinsic value has risen because Bitcoin has gotten more visibility with all of the added speculation. This increased visibility increased the public's awareness of Bitcoin. It caused entrepreneurs and inventors to come up with new ways and new opportunities for people to use the currency. This cycle brings in more inventors, more speculators, and more end users. The speculators, unfortunately, drive the price up and are ultimately responsible for the peaks and valleys. But this isn't such a bad thing because every time the price rises, it creates more awareness and so the intrinsic value continues to slowly rise, even though it looks like the price may be falling today.

Ultimately, Bitcoin is "backed" by its usefulness. As long as you can do things with it, then it has value. The more people can do with it, the more value it has.

Consider this -

What if you could purchase something with complete anonymity? You can already do this with cash but can you do it almost instantaneously across the world with virtually no cost? This feature may not have value to you but it has value to others.

What if you could start accepting payments online and not have to: pay merchant account fees, worry about chargebacks, wait to get paid by the merchant, or have to set up a secure website? These features may not have value to you but they have value to others.

What if you did not like putting money into a bank, for whatever reason (maybe you're afraid the banks will take your money the way they did in Cyprus), and wanted to control your own money but still needed a way to pay others without sending checks, moneygrams, wire transfers, etc.? This feature may not have value to you but it has value to others.

What if you had a factory and wanted to export your products to another country but did not want to wait up to 8 weeks to get paid and purchase letters of credit for upwards of $100,000 each? This feature may not have value to you but it has value to others.

What if you were a world Superpower and were tired of purchasing all of the United States' debt and wanted a new currency to use as your "gold standard"? This feature has a lot of appeal to most countries in the world.

This is just a small sample of the usefulness of Bitcoin. Not everyone is taking advantage of the things Bitcoin can do for them today. Not yet anyway. But the list of things Bitcoin is useful for is growing rapidly and the number of people figuring out how Bitcoin personally benefits them is growing daily.

That's a very good coverage!

It's actually lots of aspects chained together and they support each other,  over time users established a consensus. Comparing with the value of fiat money, it is not backed by any government, but voluntarily by many users and merchants around the world

And, without value, even it has all of the functions, it won't work, so the establishment of the consensus of its value is the key. And that consensus is reached by the mining cost, which is usually the lowest possible cost to get coins

In History, the value we known is based by gold and silver. Now, it is just only trust and firearms so the supply . The design of bitcoin, is just trying to bring the old concept back plus better management. The value comes from there

Bitcoins are backed by demand, just like any other currency.

Just like bitcoin, the value of fiat is not backed by government, it is backed by a consensus. Government can not give you anything in return if you bring fiat to government, you can only pay tax with fiat

It's backed by confidence.  The only reason I'll accept a bitcoin to send you a lamp is because I believe I can use that bitcoin to buy myself a table. 

In a way you could say that it is backed by Fiat Currencies...
Think about it you can buy and sell things with bitcoins and what do people do with those bitcoins when they have them? Buy things with them ? Maybe, but the majority of them will eventually exchange it for Fiat. Because lets face it in the physical world there's not alot of places where you can use Bitcoin.

Even though i think it's backed by Fiat I personally believe imho that this is still great. Because even though Bitcoin can not replace fiat it provides so many great features for E-Commerce. Bitcoin to me is Virtual Cash and I will be very happy to use in when it stabilizes in the end because of that. ;D

All it takes is one or two supermarket accept bitcoin payment, nowadays large supermarket almost has everything people want in daily life. And the supermarket can pay their employee and sub-contractors with bitcoin

Fiat money has been existing for a long time, so most of people don't ask why it still has value after the gold that used to back them were removed 1971

If you are a merchant and everyone have both bitcoin and fiat, you will definitely welcome bitcoin over fiat, but people might want to spend inflative fiat and save deflative bitcoin, so anyway bitcoin will not be used at large scale, it's like some kind of high powered money which seldom used to do the payment, although it has the payment function

If bitcoin value always double each year, who will spend them? They will more likely to mortgage them and get a fiat loan to spend

Weed

(-and when did we go back to arguing the value of coins come from the cost to mine? Didn't we realize how ass-backwards that was two years ago?)

Weed

In a perfect world Bitcoin would replace fiat. But I think it's gunna take more than 1 or 2 supermarkets for people to use bitcoins.

The American currency is backed on Petrodollars.

https://i.imgur.com/A23EH.png


In a similar sense, the Silk Road is backed by Bitcoin.

Based on data from February 3, 2012 to until July 24, 2012, Christin (2013) estimated $15 million in transactions are made annually on Silk Road. Buyers and sellers conduct all transactions with bitcoins (BTC), a cryptocurrency that provides a certain amount of anonymity.

The transactions are mostly for weed so Bitcoin is backed by weed.

bitcoin is backed by Extraordinary Popular Delusions and the Madness of Crowds.

Bitcoin is the biggest decentralized transaction network in the world. As there is only a limited supply of BTC every unit in BTC can be seen as one share of this network.

At least part of the value is backed by how much such a network is worth. In it's current state ~250.000 Members (assumption) the Value of this network is surely not $1 Billion.

Great view! Currently so many people want to get a share of this economy before the economy itself fully developed :D

In another post of similar topic, I looked at the gold, even it does not have payment function today(you can't buy anything with gold directly), and it does not have some real practical use, it still holds significant exchange value. That value is basically decided by the speculation in the gold exchange, those speculations are affected by fiat money supply and sentiment

Bitcoin's value is also basically decided by speculators, no big difference than gold, but at least bitcoin can provide payment function, that's better than gold

If the gold exchange value dropped below the production cost, the gold miners will shutdown the machine to reduce loss, thus reduce the gold supply, establish an equilibrium. But for bitcoin, the supply is always constant in a 4 year period, so volatility is guaranteed

The Bitcoin is backed on the full faith and trust on Cryptology.

The definitive answer: Nothing, it is unbacked.

Or rather the criminalization of it, and the rest?

Heh, I'll back it.

One ounce of silver for every bitcoin.  I have my 21,000,000 ounces here.  Redemption on demand.

In a market based economy, anything's value is backed by the power between the buyers and sellers

For example, if everyone takes out their gold and sell them in the market to exchange for USD, the gold price will immediately crash more than 90%, because the seller's power is much stronger than buyer's power

But, if you take one Picasso's paint and sell it in the market, it will always have a high price, since the supply is only 1, seller's power can be ignored

The value backed by trust. There are many ways to modify the demand and supply. It is not easy to follow but it is.

You are misunderstanding what intrinsic value is. You're talking about market value. There is no intrinsic value to bitcoin, only market value. Intrinsic value is typically calculated in finance by looking at the sum of the future income that's generated by that asset, in terms of discounted present value.

What you describe in your post is entirely about market value, which is the only value an unbacked currency has.

Backed by one thing, and one thing only.....

FUCK THE BANKERS!!!!

I will support that any day, that means..... it's backed by my full faith and credit I give it.

While one is at it, one might also ask "What is email's value backed by?", well we are now a world based on digital information.

Also I would argue that Bitcoin is actually physically backed - by hard disks.

Found this : http://www.whyisntbitcoinworthless.com/

Based on your definition, it is a calculation based on future income, how would you know the future if you are not an oracle?  The calculation about the future typically based on an assumption that the current environment do not change, and it only works very short term

There is no such thing as intrinsic value, in most of the today's economics the value is only decided by supply and demand.

Maybe some food/shelter that satisfy the basic requirement of living have intrinsic value, but obviously gold is not among this kind of things but still have intrinsic value

Bitcoin is backed by the number of people who host the blockchain on their PCs at their home, or some other kind of bitcoin software. Ultimately, everyone who has a wallet is a bitcoin backer.

It's a bit like a religion. If many people believe in something, that thing just gets real.

That might be more supported than backed though.

http://en.wikipedia.org/wiki/Private_currency#Currency_backing

~code writers , mathematicians and lawyers !  8)

What is gold's value backed by? Utility. Bitcoin is no different. What if everyone stops using bitcoin? Who cares. What if everyone stops using gold?

Gold is the "backing".  It is different.  Is the difference not obvious?
Bitcoin has an exchange value.  It has value based on the value folks give it, what they will exchange for it, but it is not a thing on its own. 
Gold is a thing, substantial, with elemental properties.  Perhaps the difference is less subtle when you walk away from your computer.

OK then by that rationale, what is the US dollar backed by? Do you think it is a thing, substantial, with elemental properties? The US dollar is a mostly digital currency already today. It is backed by....well....it's simply worth something because the US government says it is. The paper that dollars floating around are made from are worth as much as the value of wiping your ass with them...not much. Likewise, gold has some utility for use in jewelry and sometimes expensive electronics but it's value as a commodity is far less than what it is trading for right now. The biggest and most substantial difference between Bitcoin and the US Dollar is not the fact that you can hold one in your hand and not the other, it is the fact that one's supply is controlled by a single entity with ultimate power while the other's supply is limited and controlled by no one.

pics?  8)

Requiring tax be paid in a currency creates a demand for that currency.

Pics are in the link in my sig.

But, as it happens, since I have been asked to do so, I will be announcing a new silver and gold set designed uniquely to appeal to the Bitcoin community.
Many elements of the new piece were suggested by some members here, and along with our expert numismatic designers, we will have a piece (hopefully in time for delivery to retailers before the 5th anniversary of the Satoshi White Paper in Oct).

lmao have you ever hears of the rainmaker?  8)

One ounce of silver for every bitcoin.  I have my 21,000,000 ounces here.  Redemption on demand.

http://newlibertydollar.com/



^^^^^^^^^^^^^^^^^^

my bad I don't see any photograohs there especially of 21,000,000 ounces of silver like you said!  8)

Ha, that's the point!

I think actually everyone who did a little bit research on bitcoin will back it with their own labour/wealth, since it is transparently generated and have fixed limited supply, you know how much exactly it will cost you to back the system

No one dares to back a fiat currency with their labour/products, since you never know how much more fiat the central banks will print and the fact that they could buy everything from you with printed money just sounds ridiculous

bitcoin is backed into a corner at the local prison shower area as bernanke and his friends enter the premises.

Yes. the US Federal Reserve Note Dollar is backed by.. US Dollars. (or full faith and credit if you prefer)
FRN Dollars is an unbacked fiat currency.
Do not mistake the idea of a currency being unbacked with it being valueless.

For a bit of history, the US used to have a backed currency, redeemable for gold and silver.  When the Federal Reserve was misbegotten, it did the wondrous thing of creating these Federal Reserve Notes that looked almost exactly like the silver and gold backed notes, and they circulated side by side in the biggest con game of the 20th century.


We agree on this. (Though I might swap "ultimate power" with "the claim on the monopoly of the right to kill within its geography" the two are close enough)

Bernanke is a prison thug?  Who knew?

HARDWARE

Value,  to its root is decided by the desire. A sustainable and fast price appreciation definitely will call out the biggest desire inside every human ;D

Short Answer:
Backed by "the block chain"

Long answer(s):
http://www.runtogold.com/2012/12/during-2012-fiat-currencies-and-gold-collapse-against-bitcoin/
and
https://docs.google.com/document/d/18MCw4nuKZ9rZpXMFfh_lypJQVNbJwzVAg2Us5IaR-XM/edit

-Technologov

YES. I can't understand why this is a mystery to most bitcoiners

It's valuation in USD is backed by the willingness of USD holders to continually exchange USD for newly minted Bitcoins.  
If people ever stop or even slowdown in their buying then the valuation falls, it's as simple as that.

It blows my mind that no one seems to understand that its the hashing HARDWARE backing bitcoin.

If everyone stopped mining today, how much would bitcoin be worth?

Backing generally means that the currency is redeemable on demand for a specific quantity of the backing asset.

I might more readily say the price is supported by the mining, and supported by the desire.

Though mining hardware is generally priced in BTC, the prices are not static.

Still arguing about that ?



http://gnovisjournal.org/wp-content/uploads/2012/09/silk-road.jpg
D   r   u   g   s

The ultimate value of bitcoin is the bitcoin payment system. If you have 1000 mBTC, you have the right to send someone 1000 mBTC.

The debate around this topic is often distorted by a fundamental misunderstanding of what is a natural commodity in statements like:
"Bitcoin is not linked to anything physical."

Bitcoin is linked to something physical, namely numbers.
Prime numbers are a commodity in unlimited supply (although the greater the prime number, the harder it is to find).
Bitcoins are a commodity in limited supply.
The fact that you cannot see a number (one can only see a representation of it when writing it down or looking at an enumerable set - if its an integer ) does not make a number any less physical.

Just like the force of gravitation is an invisible yet very real, physical force: one can describe it with formulas.
Note that a gold coin value is derived form its substance (gold) AND its weight..

In short, Bitcoin is a representative money system, backed by cryptographic formulas.

Well, there's at least half a dozen suggestion in this thread, and I'm inclined to agree with most of them. So, Bitcoin has a multitude of backings:

- Market value (supply v.s. demand)
- Utility/Acceptance
- Design
- Infrastructure
- The most common commodity that it is used to purchase (the consensus appears to be marijuana, but that's just a straw poll!)


Sounds like some fairly powerful winds in our sails! Just need to improve the utility/acceptance factor that little bit more...

These are all examples of elements supporting bitcoin value, none of these are backing.
Backing is for redeemable currencies.  If a currency is a promise from an institution that issued it, that the institution would give the holder of the currency a specific amount of a specific good from the institution's stockpile, then it is redeemable, and backed by that quantity of goods.

So, when someone claims that modern fiat is "backed by the legislation of the issuer", or "backed by state coercion", these are false statements. Redeeming the equivalent quantity of legislation or coercion in exchange for your fiat is also a physical/logical impossibility. Does any modern state run a redeemable fiat system these days?

Someone said much earlier in the thread that Bitcoin is backed by "proof of work" which I think is closest to true but not very illuminating. Rather than being backed by a good such as gold, Bitcoin is backed by a set of services: authentication, transmission, and confirmation of financial transactions. If you don't think those services are worth anything, walk into a bank and see how much they'll charge you to wire money to another country in a way that can't be intercepted or lost.

It's not backed by the hardware, it's backed by the work that the hardware does. Maybe I'm splitting hairs there but I think the distinction is important.

Now, the above services are what Bitcoin does so the benefit may seem invisible. But the benefit is intrinsic—that's why it's less visible. Saying "yeah, but bitcoin already does that, so what is it backed by?" is a bit like looking at a gold coin and saying, "yeah, I can see it's round, but is it backed by gold?" So I'll amend my statement: Bitcoin isn't backed by extrinsic value; it's value is intrinsic.

You don't go around asking whether the price of steel is backed by gold, do you? No, you just build buildings and cars and bicycles and other things with it. Like steel, whose value is dependent on how many people want to build stuff with it, Bitcoin's value is in what can be done with it.

No, none are backed by anything more than debt  (full faith and credit).  The US$ was the last and ended with Nixon.
Arguably there are some nations that could... maybe...
http://www.businessinsider.com/are-there-any-currencies-backed-by-gold-2012-3

But BASEL III takes us  further away rather than closer.  (It classifies the best risk-free asset as other countries money and reduces the ranking of physical assets)

Yes, so by the proper definition of "backing" as you described, modern fiat does not fulfill it. There is no way to exchange the units for the debt "backing" (the units effectively are the debt itself). Christ, the value really is completely imaginary, and I knew that already but this way of looking at it really drives that home. It's like a circular argument to define the value of something that is inherently worthless.

It would be worth almost double the price. Instead of 21M only 11M would exist, so much scarier.

Actually, if no one mined, how would new transactions get recorded and confirmed?

And of course, if there is just one miner running (ignoring the "51% problem" so maybe lets say seven miners running) the number of Bitcoin would increase at exactly the same rate as it does now.

1 US Dollar is redeemable for 1 US Dollar worth of Tax burden fulfillment, in fact it's the ONLY thing that can be used to fulfill tax burdens.  So while this is not 'backing' in the traditional sense of it is a key reason why fiat currency has value.  Instances of states that try to issue fiat currency but fail to tax (The Confederacy in the American Civil war is a prime example) invariably have a collapse in their currencies valuation.

excellent analysis. representative value! love it.

yup, if the hardware goes down, then bitcoin goes down: viva la miners!

hardware + agreements, since we agree that we will trade with BTC

No, and BASEL III puts us even further from redeem-ability, for better or worse, richer or poorer, we are married to it.

The computer MMORPG models do this through a variety of drains and still get interesting inflationary effects.

It looks like the next move IRL is to create ever greater too-big-to-fail issuers.  IMF Special Depository Rights may become the new global interchange currency.
For the US, the alternative is to let it fail like the USSR and break into many different states.  The number of those that hyper-inflated in Eastern Europe or had other currency failures and unrest exacerbated by currency games may prove instructive to avoid that in the other direction and enlarge the problem to SDRs.
That could provide another 30 years, by which time Bitcoin may also be in full swing.

Bitcoin works like a lottery ticket. IF it becomes the standard international currency, each bitcoin unit will be worth many many times its current value. So, even though the chance of success is very small, people gamble on it.

You could say bitcoin's value is backed by dreams of getting rich with a lot of luck.

That's not value, that's anticipation of future value.

True :D

This is an interesting view. Recently I'm researching that John Law's money creation scheme and he hold a similar view that money's value is decided by people's consensus and belief. People's belief used to be religion related, but now science and mathematics have become most of the people's belief

It is not necessary for bitcoin to become a standard international currency to make dream come true, just become a quality medium of saving is enough to raise its value constantly, since more and more savings from all over the planet will enter bitcoin system. Today, government can not fulfill their promise of pension payment, so many people will save for their retirement privately using bitcoin

If enough people accept bitcoin as a medium of payment, then its value will be established like fiat money. All it need to hold people's belief is the trust or credit rating, and in principle bitcoin has the highest credit rating among all currencies due to it is based on mathematics and networks

lol, bitcoins as a retirement plan.
Gold had value for 1000's of years, fiat for century's and bitcoins lifespan will be decades. The speed at which technology moves anyone has to be the ultimate dreamer to believe bitcoin is the leading crypto in 90 years time. Its not a matter if a superior crypto will emerge but when. Could be days, weeks, months years.  Steam engines and bitcoins are similar in the sense as world changing, revolutionary but then replaced by better concepts. What is the confirmation speed again?

You'd be better to ask what the reason for the confirmation speed is. It was not a mistake or an oversight, it was a very deliberate design decision. Making it shorter also increases the amount of stale blocks produced by the whole network, and so adds more to the burden of discerning the longest chain.

You could say it.
But that would not make it true.  :)

Value <> Backing
These two concepts are too often confused. 

Captain Pedantic to the rescue:
"The value is supported by dreams of getting rich with a lot of luck." yes, true.

But you can not redeem any amount of bitcoin for a specific amount of "dreams of getting rich" from anyone that I am aware of...
http://en.wikipedia.org/wiki/Private_currency#Currency_backing

If I use "value" like you apparently do, then I should say the right/license to mine a site issued by a government has no value because whatever you may or may not be able to dig up from that site, and whatever price you may be able to sell those things for are in the future and anticipation of future value is not value?

You're of course free to create your personalized jargon but whenever you read economics writing, value calculation always includes any return anticipated in the future.

Well, if we were talking economics jargon, we wouldn't ever use the word "value" without prefacing it to specify whether we mean nominal, real, future, present etc value. But any present valuation based on future value must also incorporate risk into the formula. Otherwise, to take your example, every lottery ticket would be valued in the millions of dollars.

Granted, you did use and even emphasize the word "if" which makes a premise of the increase in value. Yes. If you determine with certainty that the value will increase, you should include that value. But to take that and turn it around and say that that uncertain future increase (which could just as easily be a decrease) is the what gives the currency present value, well, you're not describing any kind of value, you're describing what I believe the economists like to call irrational exuberance.

So, smscotten, would you say the "right to mine" in my example has value? Do you think newspaper would say such a right "has no value"? Do you think economics literature would say such a right to mine "has no value"?

What do you think is the value of source materials from which people can make desireable things people consume? They are valuable only because people anticipate they can be converted into some things they can sell at some future time. There is also uncertainty involved in how the conversion process will go and whether people will actually buy from you etc.

Value is derived from the final act of consumption which is often in the uncertain future. If we want to get numerical, we do need to be more clear about how things like uncertainty are handled (or not  ;)). However, that's very far from dismissing anticipation of the future as the basis of value with which people use to make decisions now, like buy or sell.

You haven't given me enough information about the mine. I would say that the mining rights anywhere have some value. Whether that value exceeds the cost of bringing that value to market is an open question. I don't know enough about geology to frame an example properly but if there are 20 other lots which are near to the one you're offering (near enough to have similar mineral properties but far enough that we wouldn't be chasing after the same of whatever mineral it is we're mining for) and three of those hundred mined a billion dollars worth of whatever it is in a year while the other 17 each mined 10 million dollars' worth, I'd estimate that plot's value at 158.5 million dollars. If I knew that it would cost 200 million dollars to mine that land, yeah, I'd say it was basically a worthless stake, though clearly it has value, simply value that does not meet the cost to get it.

I'm not dismissing future value, I'm saying that you can't count as "value" the highest possible profit, ignoring risk. Without having some hypothesis about the measure of the risks of profit or loss, there isn't any set of numbers from the future that you can attach to current value to modify that. If you have some piece of information about factors that increase the likelihood of higher value over time, then you can count it. But in this nebulous example the added value comes from whatever those factors are. The added value does not come from the increase in value. The increase in value doesn't just cause itself.

Just like anything else that is accepted as payment it is backed by people's confidence. Yes SHA256 is so far been secure it is people's confidence that backs it which is then backed by peoples money, time, efforts, talent, etc.

Bitcoin's value is supported by people's confidence etc, but that is different than being backed.
The world is so unaccustomed to a backed currency, that the meaning of backing is at risk of being lost to time.

smscotten, I was not ignoring risk. Why would I say it "Works like a lottery ticket" and "the chance of success is very small, people gamble on it" if I were? (That bitcoin will most likely fail and have it's market price crash to 0 in the next decade or so is in fact my guess, but that's not important here.) The market price right now is a reflection of both the very small chance of success and very high payoff just in case a miracle happens.

In fact, market price is often the most convenient way to estimate value because it's readily available. Value of any asset naturally involves future events which are uncertain, and as such, we usually can only use educated guesses to come up with an numerical answer. Market price is a kind summary of market participant's guesses, often as reliable (or not) as other complicated methods people come up with.

Regarding my "right to mine" example, the point is any value you can attribute to it, be it very high or very low, positive or otherwise, is neccessarily derived from what may happen in the uncertain future. You shouldn't need further information to see that. Whatever you may or may not find in that site, whatever prices those things may or may not sell for, and whether the government collapse or not or just reneage on their promise to screw you, are uncertain future events. When a government auctions such a right, people use their educated guess to estimate their numerical answer for value and use that to work out how much to bid.

Different people will have different estimations and that's just the nature of it. Value in this context is a variable people estimate to help with their decision making. It's not some kind of idealistic concept, or for moral commentary. It's a pragmatic concept that is involved in decision making.



Relating back to the actual topic of this thread, bitcoin's value hinges on the future. Part of it is the long term success as a currency system, and part of it is whether someone may buy your bitcoin off your hands at some profitable price in the next few months etc. For people who are not buying food or some such with it, it's value is entirely derived from future events. Therefore, people can only come up with their estimate by guessing now. Since the big payoff contingency is extremely unlikely (my guess and market participants mostly seem to agree), I whimsically said it's "backed by dreams of getting rich with a lot of luck."

Arros, I just don't buy the proposition that Bitcoin will be more valuable in the future because it will be more valuable in the future therefore the price will be higher in the future therefore the value is higher now, without first asserting some cause for the future rise in value or some cause for the present value.

That reason for the rise in value doesn't even have to be substantial or valid because we can have another conversation about that. Bitcoin will be more valuable in the future because people love words with the letters "B" and "T" in them? OK fine, I'll accept that or at least argue it as a separate point. Bitcoin will be more popular because people want to believe that they will get rich and can delude themselves into believing that it will go up whether it will or not, which is likely to become a self-fulfilling prophecy bubble market? Well, that's something too.

What isn't something (alcohol poisoning? that's a thing?) is to claim that it is valuable today because it will be worth more tomorrow than it is today without establishing either that it *is* worth something today or that it might go up. If you're asking where the value is coming from, the answer can't be that the value is coming from its value. That just doesn't mean anything, that's all.

This is from the perspective of a speculator, who just want to make some quick profit in fiat money. Admittedly, speculation always affect the short term price discovery

People will gain much more confident in bitcoin if they understand why today's fiat money system is fundamentally flawed. Unfortunately they were born into this established system and they seldom question the rationality of its current design

Most of the children think the sun goes around the earth, since they feel that earth is static and sun is moving. Same, most of people think fiat money has a constant value but anything else's price is fluctuating. This misbelief has costed them a fortune, they will sooner or later realize this, it is just a matter of time

Dollars are designed to always be decreasing in value, to encourage investment say the Keynesians.  So measure the market in something that isn't changing it's worth, such as gold.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/03/20130305_dow2.jpg

Since the "bottom" of the market at the last crash, the market has gone down.  But in nominal dollars it seems higher, doubled!  But the Dollar is not worth as much.
Still due to dollar inflation, market investors owe a lot of money in capital gains taxes, because the stock prices are hitting new highs, so selling them is a "profit".

I'm not much for currency investment, but I do respect Gresham's law when it applies.  Yes I would rather spend my dollars and would rather accept bitcoin payments.  Am not so worried about the carry risk with bitcoin, the average has been in my favor.  I also enjoy spending my bitcoin, but I do so preferentially with those with whom I have some personal compassion or ongoing business relationship, because I want them to still be around if there is some currency crisis.

I also like to spend bitcoin with folks that are new to bitcoin or just curious.  It provides a great way to introduce someone who is just contemplating it.  For every new person we bring into the new monetary economy, we do each other a favor that will never be forgotten.

Who among us does not remember their first bitcoin transaction?

It's not an asset "will be more valuable in the future because it will be more valuable in the future". What I mean is whatever number you come up with as a value for it now, has to involve estimating/guessing the uncertain future. Of course, if an asset is doing useful work right now, that also has to be counted.

In bitcoin's case, since it isn't really doing much important now (unless you count safeguarding the share of early adopters as important), it's usefulness to the world isn't realized in the present, but only in some possible future.

Look at this statement: USD will have a relatively stable value in the future because it have a relatively stable value in the past and now therefore the price will be relatively stable in the future

The value of money is decided by a consensus, and when people reached a consensus, it will just hold that value even the supply and demand changes. In USD's case, that consensus is reached through people's historical experience, so even the gold that originally backed USD have been removed, its value still kept relatively stable (In theory when the gold back it was removed, it should drop to zero)

In bitcoin's case, the consensus will be that this money will always rise in value because of its limited supply and unlimited demand. People won't reach such consensus if they don't know about supply and demand theory in economics, but I suppose that more and more people will gain such basic economy knowledge over time

So, the consensus about USD's value is reached by historical experience, while the consensus about bitcoin's value is reached by economics theory, they are both psychological phenomenon but that's what essentially drives people's behavior

Not to zero, there is no theory that suggests unbacked currency are always worth zero (or bitcoin would be zero as well)... The dollar plunged by a third during the '70s, though.

At about the time the gold backing for the dollar was removed, there was also the establishment of the EPA, and massive federal government appropriation of land and land use rights associated with that.  This was a genius move by Nixon to co-opt his hippy opponents into giving him a new backing other than gold, by taking much land into the government treasury. December 2, 1970 The wilderness Act seized a bit over 9 million acres. (Now over 100 million, and growing).
To end the effect of Gresham's law on the dollar vs gold, and to prevent a run on the dollar, stabilize the economy, and decrease unemployment and inflation rates, on August 15, 1971, Nixon issued Executive Order 11615, pursuant to the Economic Stabilization Act of 1970, which imposed a 90-day maximum wage and price ceiling, a 10% import surcharge and most importantly, "closed the gold window", ending convertibility between U.S. dollars and gold, leaving only "Full faith and credit" in its wake.


They act similarly for those reasons.  The difference being the "legal tender" issue.  Taxes must be paid in dollars, and any debt may be discharged by payment in dollars (thus all debts public and private).

You are free to specify other terms contractually, but in a legal court dispute, unless you can get "specific performance" the best you are going to get is dollars as a debt satisfaction, though the amount may be based on the value of something else (such as bitcoin).

Soooooo.... yup.  ;D

 :D ;D :P

hahahahaha

Told ya ;)

It seems... not so much anymore.
http://thegenesisblock.com/analysis-silk-roads-historical-impact-bitcoin/

Fiat currency is inflating, Bitcoin is deflating, so price of Bitcoin will rise naturally.
With every exchange between Fiat and Bitcoin the exchange rate will rise at least with the ammount of inflation.

So everyone who is holding Fiat is actually stupid cause Bitcoin is not loosing while every one else is.

Everyone that just holds Bitcoin will keep their values reather than all the Fiat money users who in-fact loose money in the speed of inflation.

This fact changes when you also look at the market value, here is Bitcoin dangerous cause the market is small and the volatility high.

Eisenhower Standard!

No I don't think Eisenhower would concider Bitcoin as "Standard".

Gold is still a physical commodity, but Bitcoin isn't a commodity.
But that's also not neccessary, most of the other attributes apply.

Gold was also used for hundrets thousands of years. Bitcoins are used 4 years now.

But Bitcoins have also advantages:
- Fewer costs in storing
- Fewer costs in transporting

Not much any more and that's a good thing. Bitcoin need trust and stability.

The two complement each other very nicely, and now with the Bitcoin Specie pieces, also very easily.
Each of us are a part of the decentralized bank, and each of us can back Bitcoin's value with our hard assets, including gold and silver.

Your btc are backed by the value, either in fiat or in goods and services, that you will be able to redeem them for somewhere, either now or at any point in the future in which you choose to spend them.

I want to add some things:

- Well both BTC and Gold are both rare.
- You can make jeweleries out of gold but you can't make that out of Bitcoin.

So Gold has a purpose for itself, Bitcoin hasn't.
The purpose of Bitcoin is to pay, trade and store values. Bitcoin is backed by trust.

No trust, no Bitcoin.

The more secure Bitcoin trading systems are, the more valuable and trustable Bitcoin will become.
More security means normally more inconvenience in handling. Here is Bitcoin unique, it's secure but still easy to handle.
But there are still things to improve.

Why is the paper-wallet generator for example not included in the standard-bitcoin client?

I think this is irrelevant. Money doesn't have to have a purpose as an object. You can wipe your asshole with dollar bills.

No trust, no exchange, no trade, no human interaction at all.

I'm wondering too. We could then say bitcoin have a purpose, wiping my ass.

1. My clonecoin is more deflationary than bitcoin (which is currently inflating -- the miners aren't mining for TX fees :)).
2. My clonecoin's worth rel. BTC will continue to increase.
3. ? ? ?
4. PROFIT!!!


See above :D


Everyone holding BTC instead of my clonecoin is stupid.  See (1).


Buy my clonecoin pl0x.  What can possibly go wrong?

I hope that's not an admission of guilt >:(  Destroying/defacing US currency is a (petty) crime!

Trust.

Trusting only 21M available
Trusting never double spent
Trusting the monitoring network, To build this, need different nodes to check out.
Trusting the being not to be used in bad ways (The blockchain implies you cannot do bad with it)

Very true, only problem is if I take the code, not change a thing and start another Blockchain every single one of your points is still valid. The value of the identical other run would not be the same, so no it is't it.

Good idea, never thought of that.

It all come back to drugs : if FBI could shutdown now and forever all bitcoin-drug-related-shops, bitcoin would be pointless & worthless.

The value of Bitcoin (and anything else) is simply what people are willed to pay for it - same for fiat currency which has the adavantage (?) that goverments made supporting statements on it.

Eg. take a bible. There may be 2.26 billion christians on this globe with believe in what is writen there. Surprisingly the bible itself can be bought/exchanged for small money. That is because the total number of bible is not limited. Consequently the prise dropped down to the printing costs.

For comparison take a peace of ground in New York City. This is a very limited resource what many people believe in. And not surprisingly the price for this kind of ground is very high.

Bitcoins is a limited resource with a steadily growing number of believers. And the more it is attacked the more it is well known trusted. That will raise its value.

PS: Definitely it has nothing to do with drugs or other crimes.

Electric bills and computer hardware price..

The Bitcoin protocol is not "backed" by any single entity, such as a company, individual or organized government.  A sole instance of "backing" requires a "backer", and troublesome point of failure.

If we must place a persona behind the protocol, we'd say that it's backed by the users (the market).  In this way, the "backing" is egalitarian and spread across the network.

We could then ask why the market has chosen to "back" or support Bitcoin.  A government entity, for example, has an obvious interest in backing it's own currency.  Why do the users of Bitcoin "back" it?  Because the users believe it has value, due to it's specific attributes, which make it a great store of value and medium of exchange.

 ;D

It's backed up by the hashing power of the entire network.

So there is no actual office, person, or entity that can fuck it up, devalue it, or forge it, because they would actually need to do work in order to take it over.

You see, governments around the world are busy printing (or digitally creating), money out of thin air to pay for the promises that they have made to their people and their elites. But they have nothing to back them up with, so paper money is devaluing.

Bitcoin has been increasing in value over the last year, with some fluctuation, but it has had a net gain over 1.5 years ago. The reason Bitcoin has been increasing in value is because other money has been decreasing in value, while being backed by nothing.

But, the power of the network prevents Bitcoin from being printed, and has a predictable money creation rate (the mining rate), which traditional states do not have, because their policies vary depending on who is in power/popular every few years.

So, Bitcoin is backed up by the full power of the nodes and the hashing network, while other money is backed up by politicians and their promises. Which would you rather have?

I'm backing it with silver and soon also gold (https://bitcointalk.org/index.php?topic=269535.0).  Fully redeemable.
And so can you, or with the asset of your choosing.
A decentralized bank vs central banking.

True, actually you don't need a lot of money to back the value of bitcoin, just a little bit in every people's risk capital will push the price up several magnitude. I'm only using a part of my risk capital to purchase bitcoin when it falls, but if everyone is doing this, the value of each coin will be unimaginable

The demand for a reliable long term saving medium will never disappear

It has no backing, it has something better: inherent value. [/thread]

Hashing network, software design, immutable laws of cryptographic mathematics etc do NOT correspond to a currency backing. These properties in combination confer the value, being fairly superior examples of the traditional Aristotle list. Except the whole internet/electricity dependence issue.

Poe (Nathan, not Edgar) was known for his scathing sarcasm, be careful about taking his law seriously...  Edgar, OTOH, was better known for being a doper, but now it turns out he wasn't.  Knowing this makes his writing virtually worthless -- like reading Burroughs & finding out he really was just a straight, misunderstood diabetic.

This is based with law enforcement operations done in the last two months such as silk road crushed, LR crushed and etc. . Blockchain is never be anonymous, also the source code is even using alias to package. Since it is in open nature. If you cannot adapt it. Then you will be automatically knocked out regardless you are. We just have built a model accidentally which ensure illegal operations can be spotted. Currently Fiat used can be hidden much information but it cannot be hidden in the blockchain even you try to change wallet address to hide such of these operations.

No. Narcotics can be traced with the blockchain if someone has provide some information such as address, location, person to let the law enforcement to follow. Even the criminal tries to change the address to increase the difficulty of being caught, still can be found by few mistakes made by the criminal as there may be pattern found.

Before further, it is better to state one thing, The Do not to conflict with the ethical issues. Which is the design of the blockchain with obscured information stored in.

In reference to what I wrote before:

the Bitcoin value is just the believe of the people. Since more and more people are believing in it this is the savest harbour any asset can have. Even one goverment tries to destroy and put little damage on it all people from other place of the word continue in their believe - this is more save than gold because goverments can forbid gold trafficking but not Bitcoin trafficking over borders.

Good point

Eventually everything's value is backed by trust and desire. The desire for money always exists, but it takes time to build up the trust of one type of money

It also has backing now (as of Oct 2013)
Thus the value of Bitcoin should not ever fall below 1BTC/4ozt. Ag
In a few months also: 10BTC / 1 ozt. Au
Redeemable in any quantity.

And, this will likely improve in the favor of Bitcoin for 2014.

Trust, greed and also economic stability. If USD is stable and safe, the value of Bitcoin should drop...

I suspect the majority of people using Bitcoin never see a USD.

I suspect you're wrong :(

https://i.imgur.com/8ynsUpS.png

There are no swissfrancs CHF on the list. CHF is a stable currency too, but it's still fiat...

@crumbs
what is the source for this diagram ?

Math

Is your chart showing a measurement of something?
Amount of trades, or numbers of people, or something else?
Does it have something to do with Bitcoin?

Its pretty though.  I like the color gold.

"I suspect the majority of people using Bitcoin never see a USD."
(I suspect the number of humans using Bitcoin in the USA is << %50 of humans using Bitcoin.)

- the P2P network
- the mining power
- the community/ecosystem already built
- comedy gold

Yeah.  The chart has something to do with bitcoin.  It's from bitcoincharts.com, the go-to site for people who chose not to pull bitcoin-related statistics out of their ass.

I'm glad you liek colors, Tiger.  When you're all grown up & ready to shapes, we'll talk moar :)

*The Somalis & Mexicans & Russians & Portuguese that trade bitcoin <-> $?  Well, they see USD too.  Don't have to come from my Land of the Brave to know teh dollar.

You still have to use USD right? There is no shop next to me that accept Bitcoin or even know what is Bitcoin..

A nice map of the world mining power. It shows clearly how much spread BTC is on the world already.

https://blockchain.info/de/nodes-globe (https://blockchain.info/de/nodes-globe)

Nice stretch.  You almost made your pacman chart relevant to numbers of people. ;)

Sorry bro, but nobody cares about broke folk.

Consider me a part of that nobody.  I care.

I see.  You feel, deep down in your heart, that bitcoin is used by countless great unwashed of the world, the huddled masses who haven't even seen a computer, much less have access to one, amirite?

They know nothing about the dollar, dealing in bitcoin only, which keeps them in a state of constant bewilderment:  On Monday, I HEART BITCOIN bumper stickers cost .1 BTC, on Tuesday .15.  Explanations are wholly unhelpful, most involving a mysterious "$" symbol.

There are other annoyances revolving around availability of luxury items in the bitcoin marketplace:  No food for any amount of bitcoin (some manage to survive for months on salsa sauce & sweets purchased on the web), no gas for the "I HEART BITCOIN" car, or car, or even a bumper to stick said stickies on :(  Other than those few trivial but pesky details, the poor are really digging bitcoin.

Of course, those are all just nice feels -- you really don't have any data, do you?
What in the world (other than that really dirty shit from SR that smelled like perfume & cooked up all funny) made you think that the poor are flocking to bitcoin? :D