What is bitcoin backed by? My favorite answers

[Bitcoinpro]

• Your math really is math and not tungsten with a math coating
  

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

i been known to study maths and IT now and then

[1714031170]

1714031170

[1714031170]

1714031170

[AndrewJ]

But other things may be backed by bitcoin.

Agree with you

[iCEBREAKER]

You've very welcome, it's one of my favorites too.

Tier 2 already includes physical commodities, which gold and energy (as oil/gas/coal/u308) are.

Check out the original FOFOA essay for the skinny.

http://fofoa.blogspot.com/2009/09/end-of-currency.html

Your revisions wouldn't hold in a Kondratieff Winter. 

http://www.runtogold.com/2008/02/first-snowfall-of-kondratieff-winter/

People will run to tangible gold, not abstract ideas/education.  Gold price and allocation are forms of information.

The bitcoinmedia essay seems to be vanishing from Archive.org!  Some of these still work though.  I saved a local copy, just in case.

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

Maybe we need a Wayback Machine for the Wayback Machine; perhaps hosted at archivearchive.org?   

[mestar]

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

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

[benjamindees]

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

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

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

cf. fiat currencies

[mestar]

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

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

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

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

[thefiniteidea]

"What is Bitcoin backed by?"

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

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

[benjamindees]

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

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

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

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

Yes, I understood your point.  Did you understand mine?  The "intrinsic anti-value" that you point out is a direct consequence of Bitcoin's current inflationary state, and will cease to exist once that inflation ceases.  At that point, the energy used will be limited by Bitcoin's utility as a means of value transfer.  Regardless, the theoretical maximum energy use is actually only 50% of the total economy, not 100%.  Furthermore, this is a feature of all inflationary currencies, not just Bitcoin.  The difference is that, with Bitcoin, it will eventually end.

[Fuzzy]

What is bitcoin backed by?

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

[mestar]

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

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

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

No, to both parts of the sentence.  It is a direct consequence of mining awards, and once the direct block award goes to zero, you still have transaction fees.

It is the same with gold, just with gold it is much harder to open a new mine.  With Bitcoin it is a near perfect competition, and new miners will always join as long as it is profitable for them. 

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

More direct way would be to say that it will be limited to the amount of transaction fees collected.

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

I have no idea  how you got this 50%, or even what you mean by total economy.  Total energy use will be limited by how much money is there to collect in transaction fees, not 50% of that number. (It will depend on distribution of efficiencies of all mines.)

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

How is it a feature of USD? Creating trillion dollars takes zero energy.


Anyhow, what happens when 10% or 50% of all the world's energy output is consumed directly by Bitcoin mining?

[herzmeister]

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

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

[thoughtfan]

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

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

+1 LOL 

[Walter Rothbard]

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

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

Don't ask what Bitcoin can do for you.  Ask what you can do to make my Bitcoins more valuable.

[xxjs]

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

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

+1 LOL 

You can inflate all the currencies some of the time, and you can inflate some currencies all the time, but you cannot inflate all the currencies all the time.

[benjamindees]

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

I said it won't be reached.  It could be reached tomorrow.  The important thing is that it can't be reached 30 years from now.

[wlefever]

"What is Bitcoin backed by?"

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

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

This is one of my favorite posts about what's backing Bitcoin. When I am explaining Bitcoin to people / coworkers their first response is "so it's not real".  It is real in the sense that it has value, just like anything else we apply a value to! BTC

[HarHarHar9965]

I loved reading the answers from this thread, it has helped me have a better understanding of bitcoin myself as well as a reference for me to use when I am helping other people around me understand the working, the built and the adaption of bitcoin at a wider perspective. I often had nothing to say when people said that bitcoin isn't real, anything which a lot of people value is as real as it can be

[rayhan]

Bitcoin is backed by many things which the banks are not backed with. No greedy people fixing their eyes on your assets. The best thing is , no involvement of government. It is truly of the people , for the people and by the people. Then bitcoin is backed with the original maths , and potential of positive increase in value .

[Mehek]

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

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

That is all.

-bgc

The first one is so accurate. I just witnessed a thread about how untrustworthy the central banks are haha.    Although bitcoin is backed by nothing but people.  The question does have a  point.  It is what bitcoin is not backed by that matters though wink wink.

[Zorrocoin]

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

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

That is all.

-bgc

That is a really good answer indeed. Bitcoin is also backed by loads of people. I've read a lot of other good answers in this thread and it has made me understand a lot about bitcoin  that I really couldn't explain to some one who was unfamiliar with this.