Bitcoin Forum

ELI8 (i feel like a 8 year old) ::) - I've been doing research about the Gold standard and how it works. I'm trying to wrap my head around the concept to get a better understanding. http://money.howstuffworks.com/currency7.htm

I've searched the forums too and found https://bitcointalk.org/index.php?topic=24541.0 which further reinforced my knowledge to a certain degree.

My two questions are;

1. If it were backed by something, what does it mean to cryptocurrencies?

2. Is it a good thing or bad thing ?

Right now Bitcoin is kind of backed by the fiat currency (dollars, etc) we all use to purchase it. At a minimum that's what influences the price, which influences how much goods and services are per BTC.

The reason the Dollar was backed by gold (long ago) is because gold was something tangible (which means you can hold it, it's real), it's finite (there's only so much that exists or has been mined out of the ground), and it's valuable (which means people collectively place a value on it.)

It would be cool if Bitcoin were seen as this stand alone thing because it has a finite volume (only so many exist or will exist once all are mined) and people collectively believe it's valuable. The tangible part is harder to prove or agree on since you can't hold it in your hand but our definition of tangible may need to change in the internet age.

Does Bitcoin need to be backed by anything?

Of course. By trust. By trust that BTC is currency.

I think the economic definition - tangible, valuable, finite (able to divide...) etc. was somewhat too restrictive from the beginning and was about the money of the past.

The best definition of the money is that money is what is considered being money. Just this crazy tautology is always true definition of money.

Dollar now is also backed. Not by gold, but by the trust. Money do not need anything real (=rock solid) as backing. Money need just the real trust and belief of other people in the particular money.

When gold itself was money, it was not something so different, the metal was not accepted as money because it was concrete, but because people believed started to believe in Gold and it went on. Platinum might be same quality material for money and for sure it was always better than silver, but never became money. Because there was already money set. It is called path dependency (and because of that reason and only because if that I am extremely sceptical about altcoins).

Can anyone come out and say, ok this thing "x" is backing up the BTC?

And I don't mean any organization - just an individual?

Because how I see it, if these bitcoin is powered by consensus, then wouldn't an individual be able to empower others to back it with consensus?

Sheesh I hope I make sense  :-\

Bitcoin is not backed by anything.

'Backed up' by something means a currency can be converted to a fixed amount of the underlying asset. There is no such thing in Bitcoin. Some people say that it's backed by electricity. No, it's not. You can't convert a bitcoin to a fixed kW/h of electricity.

Backed by something also means the currency is centralized by the backer's ability to honor commitment to redeem the currency for an underlying asset. As far as I know no decentralized mechanism of redemption exists, please someone correct me if I am wrong. What can give Bitcoin and other crypto currencies value is demand for use cases. The more use cases - the higher the demand and the price.

But what is gold backed by?

It's probably possible to set a decentralised 'backing' if it relates to other intangible/digital asset.

Yes, backing bitcoin with physical goods would require trust (to the 'backer') but that won't necessarily make bitcoin centralised. Anyone can really back bitcoin with anything. For example, I can publically promise/oblige myself (making formal signed off statement, with all my details etc) to exchange 1 paperclip for 1 bitcoin. Each full bitcoin would be officially backed with one paperclip (as long as I'm alive), but that won't make it centralised. It won't make any difference whatsoever, other than no one could say that "bitcoin has no intrinsic value" anymore.

By general consensus that gold is precious and valuable?

For now bitcoin is all about acceptance. It's backed by community support and people's belief in it as reflected in the increasing hash rate. If you take something tangible and try to use it as a medium to support bitcoin, not sure how that would work out. Could that item be quantified and more valuable than bitcoin.... i really don't have the slightest answer.

Bitcoin is owned by the community and it's not possible for the community to buy something let's say gold to keep it and support each and individual coin??

BTC is backed by network of people (community).

Bitcoin is backed by the exact same backing as gold. Belief in it's value.

Like any floating commodity, BTC is backed by demand. If it were backed by something else, it would simply be a proxy for that something else's demand.

So the general consensus that bitcoin is precious and valuable is what we need, and nothing else.
Bitcoin is backed by math certainity, the blockchain. The rest is indeed consensus.

If it was backed by anything physical the country in which that item was held would be stolen by the country.  All of the banks are criminals and in 100% control of the money supply in every country.  Attempt to make something new they will jail you for life and steal EVERYTHING you own.

Liberty dollar, google it.  We are debt slaves, our masters would never allow competition.. alas our masters are not very smart.. or not as smart as they would like to think they are.

Designers >>>>>>>>>>>>>>>>>>>>>>>> all, Bitcoin is proving this.  Intellect is humanities greatest strength.

Gold is effectively "worthless".. however since you can never trust a human it is not worthless..  The fact it cannot be duplicated, it is rare and cannot be printed to infinity is insanely valuable.

Do you think that the global elite (Bilderberger etc.) will accept the Bitcoin? I mean either Bitcoin or our existing shit economy (based on debts and manipulation of our population). The big crash is coming, I assume in 2016/2017. Our economy will drown.

If a crash really happens BTC and Gold will be worth a lot.. A LOT.  If the idea paper is value is gone... shit will get real.

Except gold has very rare physical and chemical properties, while also being scarce...
Gold really does have value by itself, as a resource. Bitcoin does not.

It's true that gold does have some special properties. It's non-reactive, great conductor of electricity, etc. But that is not why gold is valuable. There is a long history of gold being considered valuable. This tradition is not connected with electrochemical properties. Gold is simply perceived to be valuable beyond it's utility.

Bitcoin also has utility and special properties. It is the fastest, cheapest, and most secure way to send money to anyone. That is an extremely compelling idea. Like gold, it's supply is limited and unchangeable. But also like gold, the real reason to exchange some wealth for bitcoin is because of a shared belief in it's future value.

True, but value of those properties is a small % of total gold value. If you take away all the speculative/investment/store of value part, the price would fall to something around 15% of it's current value.

Also, remember that it's use in jewelery is mostly due to it being considered precious and valuable. Afaik pure gold is too soft and brittle to be used as sole material to make rings etc, you have to mix it with other metals.

Helium (gas) got some very unique properties and apparently is very scarce, but it's not considered valuable or precious.

Ah, good point. I agree.
But then the next problem is that bitcoin can be replaced by alt-coins with the same properties. Some of them even allow infinite creation of new coins... (meaning it can never become scarce, and therefor more valuable per unit)

It very well could. Although I personally like scarcity as a property. The ability to create infinite coins hurts the value of coins already held. Kind like what happened to benie babies. People started to collect them and see them as valuable. Then the company that makes them came in and overproduced them, collapsing the price.  (not that hoarding them was smart in the first place).

I have not seen an alt coin that betters bitcoin for me. Most seem to be copies of Satoshi's work with some find/replace script kitty stuff. But that could change and a better system could emerge. The next few years should be interesting!

Something similar was stated above, but as soon as bitcoin is backed by something physical such as gold, it implies that someone or some entity is holding the physical item that is being used to back the currency.  So then you have some type of centralized entity that has to be able to resist the pressures of some other people and groups of people.  Some of those people will be legally able to guns (governments) to force their will on this entity, some people may try to do so illegally (gangs, criminals etc).  As soon as some entity is doing the backing, then that entity can be robbed or pressured by their government to remove the backing.  Or to water down the backing etc.

Could a government be the backer?  Sure, the government of Russia could resist the pressures from the EU, China, and US for example.  But could the government of Russia resist the pressure of Putin to do so?  Probably not.   Could a US government agency resist pressure from China or Russia?  Sure.  But could the  agency resist the pressure of the President?  No.  So then, which government would it be?  There would be no consensus.  Would it be the UN?  They can't even resist the pressure from the smallest member, so that would be even worse.

So, in general backing bitcoin by something physical will result in centralization and all the problems inherent therein.  And you have the problem of picking who the centralized entity will be.

Bitcoin itself is backed by math, the trust in the network, the trust in the protocol, the blockchain, the infrastructure and the combination of all of those (and more) into a network.  It is likewise backed by the uses of all of those things. And together they are quite useful and consequently valuable.  Nothing physical, but nevertheless these non-physical things backing bitcoin are quite valuable. 

Kind of like the internet in 1993, few people were as aware as they could be of the uses to which it could be put.  People are only scratching the surface of the uses of the blockchain concept.

:-)

Bitcoin is not backed by something.

Bitcoin is backed by people.

We're deciding the price of it.
If I've bitcoin and I want to sell it at price of 30$ or 1000$ who would say anything about that?
Or Vice versa, If I want to buy bitcoin I could just say I want to buy bitcoin at 500$. If someone wants to sell this price I got it.

We're using fiat currencies just as a tool to buy or sell bitcoin.

When the bitcoin is accepted as a currency in world wide, it's gonna mean a lot.

If I say asset X is backed by asset Y, it means that I personally agree to give you asset Y in exchange for asset X at the agreed upon value. 

So, to initiate a "backing" you need a central issuer (in this case me) to make the promise of future exchange between the two assets.   

Generally, you should see that I used the word "backed" and realize that I am probably lying to you.  The history of this word has only shown that it is used fraudulently leading to defaults.  Even when an individual or group fully intends to trade the asset for the paper when asked, often circumstances lead to default.   

Thank you, and to the rest of you for your sharing your knowledge.

In summary, I don't really like where this cryptocurrency is going then. After reading this, I don't know if I can even trust in the "trust". Don't even ask me why. In my view, its like opening Pandoras Box.

The stickiness of money's value: It is first backed by a consensus, then if a large drop in price happens, people will feel that now it is the right time to buy, thus support the price at a lower level

Actually the mining cost is a good indicator, since the demand from fiat money will always flow to the lowest possible cost to get coins, either mining or purchasing, the result is that the mining cost will be close to the actual exchange rate

Regarding altcoins, just like silver, tungsten and many other metals, they have similar property as gold, they never became as valuable as gold, since people need only one type of universal money to do the transaction, for convenient

Gold is backed by trust. As any currency. If some currency is "backed by gold", then people fall into false impression that the gold itself has value. It has not. When gold is backing currency it is just a proxy of trust, because people simply have trust in gold.

Fiat money as well are backed by trust. By trust into issuer, which is central bank, that the issuer will maintain price stability. This is why common currency markets watch extremely closely even quality of shit of the board of central bankers. Because it is always just a matter of time until central bankers do something nasty.

Helium has extreme costs of holding. To store helium is no fun.

Bitcoin is backed by something: logic and mathematics
And that's unequivocally a good thing

That is exactly why altcoins will fall apart. The answer for "What are altcoins backed by?" is: incredible stupidity of hipsters.

a ballon holds helium and its cheap, When ballons placed at a party its lots of fun.  ;D


Back to the post, if bitcoin was backed by anything but what a buyer wants to pay than its just like fiat so think of it as bitcoin being its own type of gold. well i least i do.

I think a couple of cryptos tried that backing stuff never worked.

Well said.

1. Cryptocurrency or bitcoin won't be 100% anonymous & P2P. Bitcoin / Cryptocurrency lose their original goal
2. Bad thing, they can control bitcoin as they want  :(

Bitcoin for now is already good, it don't need backed by something, but by the user  :)

it is , it allows you a system to trust strangers,

read Satoshi's whitepaper

If BTC is backed by something, if that thing is useless, BTC is worthless. BTC is backed by community, us.

Altcoins are backed by Bitcoin. They are tools that allow people to get some Bitcoin from the pump and dumps, thats basically all.

No. Altcoins are not backed by BTC. Altcoins can be exchanged to BTC or some money. That is not backing.

If something is backing altcoins then it is the belief that alcoins will be money one day. Same with BTC. Problems with altcoins is that nobody needs more currencies than 1 in the world without borders. The idiotic assumptions that people will have one currency for bigger payments and another for buying milk and bread are really incredible. They will have 2 or 20 wallets, where will be different amounts of money, but there will be just one global currency (maybe not bitcoin though). People do not want to count more currencies, there is no one advantage of it.

current bitcoin course must be supported by something, because bitcoin can not stand alone, bitcoin is still in need of a fiat currency in circulation in each country, bitcoin is currently valued at US dollar currency, which makes it valuable bitcoin, because of the absence of comparison, bitcoin into stuff that is not its price
when the infrastructure of a country already accept bitcoin as a trading currency and can be used as currency buying and selling goods, then at the same bitcoin does not require backup again ...  ::)

The fiat currency circulating is not help to BTC. It blocks the space, that BTC could easily fill in.
This way BTC is pushed away only to darkmarkets and only because of darkmarkets, moneylaundering, illegal gambling and all this crazy stuff can be BTC counted today as protocurrency. Only at Darkmarkets is real need for BTC. Buying t-shirts or cafe via bitcoin is very cool, but nobody needs BTC for it. If it would not be used at darkmarkets, it would be still a toy. Thank god for the oppression and stupidity of states which still say drugs are illegal. Cheaper transactions itself are not argument big enough to break through monopoly.

Best what could happen for BTC would be some real economical and monetarian doom over planet or at least in some states. Such doom would be perfect for Bitcoin, but very bad for people.

I put the idiotic assumption in bold.
I guess you never heard about the concept of competition and how it helps any industry stay honest and innovating.

No, I really did not hear about competition in currency area and how it helps with innovation. Maybe you or some idiot wrote some nonsense, but I suggest to leave idiots aside.

What I read were just theories - and they were prooved - how one currency the strongest kills all other currencies in certain area. Since blokchain has no borders, there is no need for more currencies, because national states donot exist for cc or in other words the Optimum currency area (http://en.wikipedia.org/wiki/Optimum_currency_area) is whole world.

Maybe there is some need for other cc to exist, like extend anonymity through better mixers, but only one cryptocurrency will become money.

It is truly stupid assumption to think that it is good for consumer to own many currencies, when the major one has to be deflationary_stable. Even more idiotic is to think that future highly competitive electronic market will reward merchants who will spend resources on exchange rate fees that are fancy, but do not bring anything good.

Money definitely tend to monopolisation when left to market powers.

If you say so, there are no other options but to comply ;D

well it is possible that no cc will become money... maybe google currency will take over the human trust, who knows

but even in that scenario, where cc loses, there will be no more centralised currencies than one, there will not be Gcoin, FBcoin etc. as independent currencies... sooner or later they will peg together at fixed rate like now Bulgarian currency is pegged to Euro and before to Deutsche mark and that means that the two currencies are just one kind of money

I don't think it's vital that bitcoin is backed by any sort of other commodity or financial instrument.Sure,good think is it may result in some sort of stability but even then this may hamper bitcoin's growth and potential as an independent currency.

How can be bitcoin backed by commodity? Will mighty God Satoshi come once again to computer and change bitcoin code and peg it to gold or barley?

Bitcoin is bitcoin, because is backed by trust to blokchain or to algo of the currency. Decentralised cryptocurrency can not be "backed" and for sure not by commodity. (Even normal currency that is told that is backed by something is not backed by anything else but trust, but let's leave it rather aside.)

1 - you don't need Satoshi to change the protocol
2- you don't need to change the protocol to get bitcoin backed with something

Of course that I do not need it and nobody needs it. Therefore it will not happen. Who would have to back bitcoin and why? How?

This is dadaistic. The main asset of cc, that makes trust in it, is the independence on outer factors. That is why Bitcoin is perspective and eGold is dead.

Yes. All that is needed to back Bitcoin is for someone to be willing to buy an unlimited number of bitcoins for a set amount of something. For example, if the Federal Reserve were wiling to buy all the bitcoins at a price of $1 each, then Bitcoin would be backed by the dollar.