What is bitcoin backed by? My favorite answers

[iCEBREAKER]

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

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

Not exactly.

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

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

Yes, but no.  You were half right.   

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

[1713873317]

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[1713873317]

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[cbeast]

Bitcoin is backed by ... magic.

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

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

[solex]

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

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

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

[Jutarul]

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

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

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

If you say backed by the blockchain, I suspect you mean the perception of the people that the distribution of money is fair. If one day the people think otherwise they may either just walk away from that money system (similar to the way the paper apocalypse is unfolding) or they may force massive redistribution of wealth (which is the socialists answer to things).

As you can see with the alt chains - distribution of money is a big factor in the underlying trust in the money system. The only reason why bitcoin can survive such a massive early adopter reward is because it is first of its kind, and the developers did original work.

However, now that the genie is out of the bottle, starting another blockchain is trivial. The "magic" lies in convincing people that the generation of money happens in a fair fashion and that the blockchain has features others don't have (and thus may have a competitive advantage in some areas).

[hazek]

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

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

Not exactly.

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

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

Yes, but no.  You were half right.  

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

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

valued properties != backing, mkay?

[conspirosphere.tk]

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

valued properties != backing, mkay?

Yes, you can cash them, but not in the bank. You can try on SR, the OTC market or places like that (until a "better coin" takes off)

[01BTC10]

Bitcoin is backed by ... mathemagic.

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

Fixed your post.

[mobodick]

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

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

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

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

[mobodick]

Bitcoin is backed by ... magic.

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

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

All magic is backed by science....
It is the apparent breakage of science that creates the feeling of magic...

[xxjs]

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

[mobodick]

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

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

Not exactly.

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

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

Yes, but no.  You were half right.   

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

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

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

[iCEBREAKER]

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

valued properties != backing, mkay?

Sorry, my mistake.  It was Jutarul who is half right when he says Bitcoin doesn't have backing (because like gold, Bitcoin is backed purely by its own utility).

OTOH you are half wrong for

1) not understanding the subtle circular nature of an Aristotelian good money's self-backing properties, and

2) screaming at me in rage-font (for the offense of trying to teach you something).

Thus, you're completely wrong to assert (in big bossy letters) that "valued properties != backing," ignoring the fact that backing may be external or internal.


For X to be backed by Y, X must be guaranteed to be convertible to Y.

E.G. A gold standard, where a currency is guaranteed convertible to gold by the issuer of the currency. 

For Z to be backed by Z, Z must inherently posses valued properties.

E.G. Monetary PMs and Bitcoin.


Your silly question ("can I cash in my 1btc or 1gram of gold and get utility as ideal medium of exchange out of them?") amply demonstrates your lack of understanding the crucial distinction between extrinsic backing (via an artificial arrangement) versus intrinsic backing (via inseparable quintessential properties).

Your other silly question is not even a proper sentence.  Do try and proofread, especially when posting in a fit of pique.   

And don't be so narrow-minded when it comes to the meanings of words.  Your linguistic rigidity is the source of your confusion. 

Words have radial definitions, especially phrases (such as "backed by") based on flexible spatial metaphors.

[iCEBREAKER]

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

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

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

From Merriam-Webster:

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

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

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

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

[becoin]

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

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

So, what you say is not true at all.

[iCEBREAKER]

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

Actually backing's specific meaning (which you conspicuously fail to volunteer) has at least two separate connotations, internal and external.

You also fail to suggest which other word should be used instead.

And then there's this:

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

Which tells us something about the POV your coming from.  Bridget Brown, is that you?   

[iCEBREAKER]

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

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

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

[solex]

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

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

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

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

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

This is the backing for bitcoin.

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

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

[becoin]

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

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

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

Sure. But gold can exist even without a valuer. So, gold is more than just a value. Gold is money!

[mobodick]

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

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

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

From Merriam-Webster:

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

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

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

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

I'd agree on the use of the word 'optimal'.
But I would say that 'optimal' is even stronger bound to a situation (or environment) than 'ideal'.

Something can only be optimal (or even ideal) if you consider it in a certain setting.
There is no absolute ideal (or optimum), they are all relative to the surroundings.

And to get back to the topic, Aristotles ideals are only partially applicable to todays situation.
Some of those ideals are even completely meaningless for a virtual currency.
So i'm pretty sure even Aristotle would agree that you need to keep checking if ideals still represent the optimum for a given situation and adjust the ideals accordingly.
Blindly following something said a couple of thousand years ago is not a wise thing to do.
If you cannot improve on aristotles ideals then you havent looked at how currency has been used for the last couple of decades.
For one, how about a prerequisite of currency being just information (making it possible to use over the internet)?
It seems to me to be something Aristotle would have never thought of simply because his environment never proposed such a possibility.
Nowadays currency systems that cannot transfer value digitally are becoming pretty useless at a fast pace.
That also puts some pressure on Aristotles ideal that a currency should have some form of intrinsic value.
I would even say that from current perspective the best thing would be if a currency had no intrinsic value whatsoever.

[mobodick]

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

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

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

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

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

This is the backing for bitcoin.

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

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

By this definition the 'value' of the chain would be 'nearly infinite'.
There is more to valuing things tho.
The chain is pretty useless without the right key. And since it is so incredibly dense you have virtually no chance to get any value from it without the right key.
So is it the chain that should be valued for this or is it the key?
How much difference in utility is there between bitcoin (with the chain) and a system of encrypted IOU's for most people?
I think there is more utility in the fact that bitcoin is a digital (internet tradable) currency than it works through some chain.
The chain can only have value in the context of the bitcoin network. The data itself is worthless outside of this context.
Therefore you cannot separate the blockchain and then value it.
Moreover, i could not exchange the blockchain file for anything of value.
The file is worthless by itself so it is backing nothing.
There is no backing for bitcoin simply because if this network stops to function there will be nothing of value left.
If bitcoin was backed by gold and it collapsed i could at least get ome gold and since it has an intrinsic value (people give it some value no matter what) i still get to eat.
Guess what, if bitcoin collapses noone will sell you food for the blockchain. It has no intrinsic value whatsoever.
You can only get utility from it while it is functioning within the larger system of bitcoin currency.
The whole idea of 'backing' is that there is some other good that has an intrinsic value that is held as a represetation of value to be used in case the currency it is backing will collapse.
The perceived bitcoin 'intrinsic value' comes only from itself so if it collapses its perceived intrinsic value will also collapse. There is no backing.