Re-visit the question: What is bitcoin's value backed by?

[johnyj]

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  

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

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[empoweoqwj]

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....

[solex]

What is bitcoin backed by?

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.

[johnyj]

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....

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

[johnyj]

What is bitcoin backed by?

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.

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

[jackthebeanstalk]

I think Bitcoin is back by proof of work

[deadweasel]

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. 

[Come-from-Beyond]

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

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

Two things are infinite: the universe and human stupidity

[johnyj]

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.  

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

[cryptoanarchist]

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

[N12]

It's backed by dreams and wishes: Speculators.

[CoinDiver]

Weed

[johnyj]

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

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

Two things are infinite: the universe and human stupidity

True, being stupid proves that you are still a human  

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.”

[worldinacoin]

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

[empoweoqwj]

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....

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

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.

[johnyj]

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

[xxjs]

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.

[johnyj]

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

[Lethn]

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.

[superresistant]

Weed