Bitcoin Forum

So one of the major weaknesses of bitcoin is that it is "backed by nothing". I know there are many who would suggest this is not the case, but this is the current perceived reality by outsiders and certainly regular people.

This is not a discussion about bitcoin's "value", but more its perceived value.

What if we could start a bitcoin co-operative of some sort where people "donated" or "guaranteed" their time or resources/assets? The prices were set in bitcoin only and were not reflective of bitcoin's value to any other currency. The prices were "set" for a given time period let's say, or maybe forever(lifetime)?

For example: I am an acupuncturist and my USD cash fee is currently $65 per follow-up visit. Since I believe in the utility and decentralization aspects of bitcoin, I pledge to "donate" or "set aside" 5 acupuncture treatments per month in my schedule for 10btc each. I will not accept any payment but bitcoin for these 5 visits each month.

Now I'm not sure it needs to be so attractive as to be a discount against the usd, which the above examples means they would be getting approx. $25 off at current bitcoin exchange rates, instead I believe the guarantee aspect is the key. The simple idea that no matter what happens to fiat currency, or gold or any other payment method, there are a group of people willing to exclusively accept bitcoins for certain services/goods, etc.

Said another way, bitcoins will always be able to be exchanged for something, no matter what their value is in fiat currency. a way to drive out the fear that this digital currency could be worth nothing at some point.

Now of course this is a fledgling idea with lots of holes, but I think the main premise is worth exploring. Can we create a new method of "backing" this currency which aligns itself with the current goals of bitcoin. Or at least the main goal of bringing the power of money back to individuals and away from state and cartel control.

Now my acupuncture example is only useful for those who can physically get to my location, but there are many people in this community with farther reaching skills such as programming, server space, etc. Of course, if we could get thousands of people all over the world to join, then it would become exponentially more attractive and essentially more valuable.

Of course we would need a website or some other space to connect people and also a secure way for people to pay, etc. maybe even a unique exchange to help make it easier for people.

I also think we would need some stable, official, legal body to act is the intermediary to settle disputes and such. Maybe we could form an international non-profit entity which handles the web operation and is composed of volunteers?

My brain is churning and I think there's some merit to this idea and I would love some feedback.

bitcoins are backed by the proof of work and elecricity used to mint the coin

Indeed.

I think Bitcoin is already backed by hardware power and miner's know-how.

Bitcoin is backed by MATH.  8)

I understand that, but regular people do not. Maybe "backing" was the wrong term to use, but I think if you read my post you will get my drift which is to say it would be great if we could come up with a way in which bitcoin will always have some "inherent" value.

Maybe "securing" the value of bitcoin or "stabilizing" bitcoin is a better term. The electricity has no "value" after it has been utilized and the proof of work only secures the uniqueness and security of the currency as to it being unable to be fraudulently duplicated or double spent.

The question I'm trying to answer, which I hear often from people I talk about bitcoin with, is what is the value of a bitcoin? or what happens if bitcoins are no longer worth money?

I know that simply getting people to use bitcoin will ultimately make the currency work long-term, but in the near term, some sort of "guarantee" would go a long way toward adoption.

I know we can't make people do anything, but sheer volume would make up for the few who state they will do something and ultimately fail to deliver. The feedback system once mature would take care of that. I also think if the central body could hold payments in escrow until the service/product is delivered, this would help with lay people using the system and being afraid of "losing" their coins because bitcoin doesn't have chargebacks. An ebay type of system if you will.

Another key point is to separate it from exchange rates. In order to do this of course, people would essentially have to be willing to "lose" fiat money on the deal. This is why I used the word donate in the original post.

Personally I believe in the underlying principals of bitcoin enough, that I would be perfectly willing to treat 5-10 patients per month for bitcoin, no matter what its exchange rate was, in order to further the idea of bitcoin.

I also am in the process of obtaining an MBA and have been running a business for almost ten years and would be willing to provide a certain number of hours of business consulting, etc.

There could also be a portion of the website which allows people to invest in bitcoin start-ups, make donations, etc. I also believe a separate bitcoin to fiat exchange would be great which was backed by this legit international business entity to help alleviate the fear of using the current exchanges. People will feel far more comfortable using an exchange where they have direct legal recourse if they get screwed.

TRUST, TRUST, TRUST is what we need to build more than anything at this point.

So maybe the key part is a "craig's list" for bitcoin with a sophisticated feedback system to help develop localized bitcoin economies.

Maybe instead of escrow, the entity could accept donations and a small transaction fee in order to help people who get ripped off. Kind of an insurance policy of sorts.

True, but the point is, it's not your "entire" productivity you are willing to accept bitcoin for. This is the trouble for bitcoin start-ups currently. They need to pay their bills with fiat.

If you sharpen chainsaw blades and bitcoin value soars and it is now $1000 usd to have your blade sharpened, well no one calls you to pay with bitcoins for a while. No big deal because you already should have a fiat sharpening business.

This is simply a way to get a marketplace going, with limited risk to the people providing the goods/services and limited risk for the customers.

A way to simply start greasing the wheels of bitcoin commerce.

Yes, your points about producing other revenue to handle things is great. I would want it to be non-profit as I think this would lend to greater credibility. I'm sure many would disagree with me on this, but i know marketing and people "trust" the non-profit brand.

I also sincerely am not looking for a way to make money, I make plenty with my core career/business.

I don't give a shit about money, which is why I like bitcoin. I hate liars and thieves and love anything which cuts them out or makes them pay. I firmly believe human society would be exponentially more peaceful and productive if people were not greedy and could be trusted.

Anyway, rant aside, anything to help people wake up to the fiat scam, increase personal freedom and embrace bitcoin is high on my list.

exactly, the price doesn't rise. The point is to kind of "lock" in some inherent value in owning/buying/producing a bitcoin. Let's face it, the bitcoin network isn't nearly as secure without financial incentive.

I only mentioned an exchange as a way for people to securely convert their fiat to bitcoins. I just don't think regular people would feel comfortable giving their personal financial information to the current exchanges, I know I don't trust them one bit.

Maybe exchange is the wrong word. More like a conversion method such as bitpay.

We all know people like things which are simple and easy.

No.

One of the major weaknesses is that someone could own your money without having your wallet. Just by...mostly HUGE luck, generating the same wallet address as you.

Bitcoins are backed by the people who use them. It's very simple, the more people that use this system, the more "backed" it becomes...

It's true... but this is a major weakness in the existing banking system too.
Just by HUGE bad luck, (perhaps slightly less HUGE than in your example though) cosmic rays really could flip some bits in the computers that run your bank account and zero out your balance. There is NOTHING to stop this happening to the backup computer at the same time, and if there are enough cosmic rays, it COULD (just by HUGE luck) put a corresponding entry in some other account so that the beancounters never notice!

Watch out. HUGE luck is TERRIFYING!

I understand this, bit this about getting people to use them. Expecting a large number of people to make that leap of faith is risky at best.

Why not try to make this happen more quickly?

Why not try to create a stable community for people to use bitcoins that they can trust?

Is this a joke? You are more likely to collide with a meteorite waiting in line at the bank than to have a Bitcoin address collision.

i think this is a good idea.  i would be willing to contribute resources from my business.

I´m willing to back Bitcoins with some of my money because I believe in it.

So how about a Bitcoin real money backing that is transparent.

So people would know that they would allways get atleast X dollars for their coins.

By putting locked money in an account.
Like a locked gold/reserve.

This means that in case of a crash you will get some money for your coins if you sell them.

For example I´m willing to put a buy order for Bitcoins for $200 and leave it at that forever.

I would not be able to get that money out ever, they should be untouchable even by me.
Only if Bitcoins value crash I would get Bitcoins for that amount.

This means that the total of all Bitcoins currently in the world is together atleast allways valued $200.

Thus creating a floor.


Now if we all set something aside to help create that floor.
And we can get 1000 people to put in $200 the value of all bitcoins would get locked to be atelast $200.000. So that would be the floor.

As more and more people contribute to the floor, the real value of Bitcoins will rise.

It would be just like a government promise to buy back your money, only a promise made by people all over the world.

And it would only start to cash out Bitcoins if atleast 90% of all available Bitcoins was put out for sale.




And as more and more people put money in some money. The floor will grow.

Thus creating a value that people understand and increasing the value of the Bitcoins.

Since some people will think.
Whatever happens to the Value of Bitcoins I will allways be able to get atleast 1/10 of my money back.

The exchanges could even have an option to set aside 0.1% of each trade to this global Bitcoin floor making the floor grow for each trade.

It would be in everyones interest to make this floor grow since it proves Bitcoins have a "real" value.

Making the traded value of Bitcoins increase.



There are just two little problems.

Where should the money be kept. It must be safe from stealing and we do not want it to ever be frozen. Perhaps a Swiss bank account?
The amount on the Bank account also needs to be visible for everyone. Even in case of a bankrun the money should not be touched.
The problems with our banks ;) Not sure if it has ever been a problem with Swiss banks though.


We also need a trusted thirdparty to make sure the money will be used to buy up Bitcoins in case of a crash and this has to be done at the time together with trusted exchanges.











People deposit money into it and the money is locked

This entire post does not make sense. The "backing" you are looking for is nothing more than a floor in the price. You can't control the price.

Yes and that makes perfekt sence, since it would be like an insurance that Bitcoins can never be totally worthless.
There is allways a floor. Ofcourse the floor should be saved in the worlds best fiat/gold and not in $.

This would really create a real confidence in Bitcoin.
 
However they can and will be traded at much higher price.

Such a floor would, if it goes grows to something like a million dollar would really make create media attention on Bitcoins it would also get wathed and reported everytime the floor grows substantially.

Everyone holding Bitcoins could have an interest in supporting such a floor.

If possible perhaps those who support the floor the most could somehow get rewarded by the community for doing so.
Perhaps by getting 50% less fees or something similar.

This is a myth I wish would have been rooted already.

"X is backed by Y" means there is a guarantee that you can hand over X and receive a specified amount of Y. In the "electricity / hardware power" this is reversed - a mining rig can transform electricity to bitcoins, not the other way around. If someone finds a machine that can convert bitcoins to electricity, let me know. Also, the conversion ratio isn't fixed.

"Math / proof of work" only guarantee that a bitcoin is a bitcoin, it doesn't guarantee that it has any sort of value. To be of value, Bitcoin needs both the math to protect it from loss, theft, inflation, counterfeit and double-spending, and the people offering goods, services and other currencies for it and believing in its long-term prospects. If you take just the first without the second you get something worthless (see also testnet bitcoins).


Now for the OP... Even if you could somehow make it scale, attempts to put a floor on the exchange rate can backfire due to anchoring (http://en.wikipedia.org/wiki/Anchoring) effects. Suppose "The Bitcoin Floor Company" enters into a legally binding agreement to always offer $0.01 per bitcoin. This only requires a $210K reserve and presumably is a net positive - people will be guaranteed that no matter what happens, a bitcoin will always be worth at least $0.01. But when people will try to form an opinion on what a bitcoin really is worth, they'll think (whether consciously or subconsciously) "Well, this company backs bitcoins by $0.01, so I guess they're worth just a little bit above that". This can cause a decrease in its valuation.

Your premise doesn't solve that problem either.

Say a person provides a service they normally charge $100 for.  They decide to allow 5 services per month for 20 BTC instead.  If BTC were worthless do you think they would still keep offering the service for worthless coins into perpetuity.   Likewise if the price of Bitcoin rises to $10,000 ea are they still going to "offer" the service for "only" 20 BTC ($200K)?  If it falls to $0.01 are they going to offer it for $0.20?

Obviously they will adjust their prices and even stop offering it in Bitcoin based on the value of Bitcoin.  Right?  Thus you haven't provided any value for Bitcoin beyond its already agree upon value.

However more simply more people offering goods & services in Bitcoins increases the demand for Bitcoins and that rise in demand raises the price.  Bitcoin is no different than any other currency in that it's value is based on demand.  If demand for Bitcoin is greater than supply price will rise.  Since supply if fixed (thankfully) is you want Bitcoin to be "backed" by something simply encourage more people to accept and pay with Bitcoins.

Good point.

Yes I would be willing to offer the service regardless of bitcoin value. That was what I was getting at with the "donation" aspect of my original post. It's a "pledge" by bitcoin advocates to offer some small service or good, no matter what bitcoin's are worth in terms of fiat, over a set period of time.

Now of course it's not entirely forceable by law, but if people follow through over time, the feedback system will show that certain people are truly legit.

I know this is still an imperfect system which is not rock solid, but it shows that people are willing to back bitcoin with more than money or computer hardware. They are willing to do it with their time or products.

Just another layer to add.

I think this website could have an area for people who are simply willing to accept bitcoin and those folks can change their rates whenever they want. Then we could have a "donor" side with fixed pricing which does not reflect fiat value.

A way to support aspiring bitcoin entrepreneurs and also show people the bitcoin community cares about aspects of bitcoin beyond pure monetary value.

The extent to which they can be separated is very small for the purpose of evaluating the OP's core idea. Fiat currency is very liquid and has more or less steady purchasing power, so it just simplifies the discussion to talk about exchange rates and I don't think it takes away anything meaningful.

The OP reminds me of Allthis:

http://mashable.com/2011/10/18/allthis/

Bitcoin is backed by whatever someone will trade you for it - no more and no less. Why do I accept it? Because there are others who will trade me their goods and services for it (although I'm somewhat limited in my choices). People value it because of its unique features and benefits as a medium of exchange. Like any commodity, its value is reflected in its exchange price (market price). Any attempt to "fix" a price to bitcoin is destined to fail because price-fixing does not work.

That just requires someone accepting Bitcoins (which is a decent goal).

Far easier to convince your repair man to accept Bitcoins at FACE VALUE then to convince him he should do a repair for 20 BTC even if that means making less than minimum wage.

Adoption increases utility but that had nothing to do with the OP.

No Holliday, you read me absolutely correct. Bitcoin supporters might choose to "discount" or "fix" their services/goods. Others should clearly charge what they think is worthwhile based on whatever value they choose, exchange rates, etc.

My idea was to simultaneously promote bitcoin business and also create some kind of "soft" backing in terms of supporters simply taking the exchange rate out of it. I thought the supporter aspect just might demonstrate the ongoing commitment and show laypeople that there is a solid group who are behind this, that is all. So behind it that they are willing to accept bitcoin for the sake of bitcoin, regardless of exchange rates.

You are correct, it seems "backing" was a poor choice of words.

I was also thinking maybe the site could charge a transaction fee, but use those funds to support the open source work in the community. Make monthly donations to the people working on the miners and other bitcoin specific programs, since they are really the lifeblood of bitcoin's advancement.

@bc  allthis is certainly similar to what I am proposing, but without the speculative aspect. I wouldn't want people to be buying someone's service at a cheap BTC rate and then reselling.

Now maybe an auction aspect could be cool especially those raising funds to promote bitcoin or to help out an open source developer. Once purchased I don't think the service should be resold.

The auction would be cool though. Let's say I'm willing to donate a mining card in order to raise money for ckolivas, since I use cgminer and love it. I post the mining card with a starting value and then allow people to bid in bitcoin. Maybe 10% goes to the site for funding and the rest gets donated to ckolivas for his great miner.

Lots of cool things could be explored.