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

[keelba]

Originally, Bitcoin had a value of zero. But then, a while back someone bought 2 pizzas for 10,000 BTC. This put the value of 2 pizzas into the overall system. It was a tiny amount but it still counted. Others have bought drugs and other contraband with BTC. Some have exchanged work for BTC. Some people bought electronics. All of these tiny amounts add up until a currency that is worth essentially zero begins to have value. A while back, a single BTC only traded for a penny but the "intrinsic" value was in there and it grew.

Others began to see this value and believed the value would continue to go up and, of course, they wanted to speculate on it and make some money. This speculation caused the price to rise as more money was pumped into the system. The intrinsic value hasn't risen nearly as much as the price, due to the speculation. However, the intrinsic value has risen because Bitcoin has gotten more visibility with all of the added speculation. This increased visibility increased the public's awareness of Bitcoin. It caused entrepreneurs and inventors to come up with new ways and new opportunities for people to use the currency. This cycle brings in more inventors, more speculators, and more end users. The speculators, unfortunately, drive the price up and are ultimately responsible for the peaks and valleys. But this isn't such a bad thing because every time the price rises, it creates more awareness and so the intrinsic value continues to slowly rise, even though it looks like the price may be falling today.

Ultimately, Bitcoin is "backed" by its usefulness. As long as you can do things with it, then it has value. The more people can do with it, the more value it has.

Consider this -

What if you could purchase something with complete anonymity? You can already do this with cash but can you do it almost instantaneously across the world with virtually no cost? This feature may not have value to you but it has value to others.

What if you could start accepting payments online and not have to: pay merchant account fees, worry about chargebacks, wait to get paid by the merchant, or have to set up a secure website? These features may not have value to you but they have value to others.

What if you did not like putting money into a bank, for whatever reason (maybe you're afraid the banks will take your money the way they did in Cyprus), and wanted to control your own money but still needed a way to pay others without sending checks, moneygrams, wire transfers, etc.? This feature may not have value to you but it has value to others.

What if you had a factory and wanted to export your products to another country but did not want to wait up to 8 weeks to get paid and purchase letters of credit for upwards of $100,000 each? This feature may not have value to you but it has value to others.

What if you were a world Superpower and were tired of purchasing all of the United States' debt and wanted a new currency to use as your "gold standard"? This feature has a lot of appeal to most countries in the world.

This is just a small sample of the usefulness of Bitcoin. Not everyone is taking advantage of the things Bitcoin can do for them today. Not yet anyway. But the list of things Bitcoin is useful for is growing rapidly and the number of people figuring out how Bitcoin personally benefits them is growing daily.

[johnyj]

Originally, Bitcoin had a value of zero. But then, a while back someone bought 2 pizzas for 10,000 BTC. This put the value of 2 pizzas into the overall system. It was a tiny amount but it still counted. Others have bought drugs and other contraband with BTC. Some have exchanged work for BTC. Some people bought electronics. All of these tiny amounts add up until a currency that is worth essentially zero begins to have value. A while back, a single BTC only traded for a penny but the "intrinsic" value was in there and it grew.

Others began to see this value and believed the value would continue to go up and, of course, they wanted to speculate on it and make some money. This speculation caused the price to rise as more money was pumped into the system. The intrinsic value hasn't risen nearly as much as the price, due to the speculation. However, the intrinsic value has risen because Bitcoin has gotten more visibility with all of the added speculation. This increased visibility increased the public's awareness of Bitcoin. It caused entrepreneurs and inventors to come up with new ways and new opportunities for people to use the currency. This cycle brings in more inventors, more speculators, and more end users. The speculators, unfortunately, drive the price up and are ultimately responsible for the peaks and valleys. But this isn't such a bad thing because every time the price rises, it creates more awareness and so the intrinsic value continues to slowly rise, even though it looks like the price may be falling today.

Ultimately, Bitcoin is "backed" by its usefulness. As long as you can do things with it, then it has value. The more people can do with it, the more value it has.

Consider this -

What if you could purchase something with complete anonymity? You can already do this with cash but can you do it almost instantaneously across the world with virtually no cost? This feature may not have value to you but it has value to others.

What if you could start accepting payments online and not have to: pay merchant account fees, worry about chargebacks, wait to get paid by the merchant, or have to set up a secure website? These features may not have value to you but they have value to others.

What if you did not like putting money into a bank, for whatever reason (maybe you're afraid the banks will take your money the way they did in Cyprus), and wanted to control your own money but still needed a way to pay others without sending checks, moneygrams, wire transfers, etc.? This feature may not have value to you but it has value to others.

What if you had a factory and wanted to export your products to another country but did not want to wait up to 8 weeks to get paid and purchase letters of credit for upwards of $100,000 each? This feature may not have value to you but it has value to others.

What if you were a world Superpower and were tired of purchasing all of the United States' debt and wanted a new currency to use as your "gold standard"? This feature has a lot of appeal to most countries in the world.

This is just a small sample of the usefulness of Bitcoin. Not everyone is taking advantage of the things Bitcoin can do for them today. Not yet anyway. But the list of things Bitcoin is useful for is growing rapidly and the number of people figuring out how Bitcoin personally benefits them is growing daily.

That's a very good coverage!

It's actually lots of aspects chained together and they support each other,  over time users established a consensus. Comparing with the value of fiat money, it is not backed by any government, but voluntarily by many users and merchants around the world

And, without value, even it has all of the functions, it won't work, so the establishment of the consensus of its value is the key. And that consensus is reached by the mining cost, which is usually the lowest possible cost to get coins

[polarhei]

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

In History, the value we known is based by gold and silver. Now, it is just only trust and firearms so the supply . The design of bitcoin, is just trying to bring the old concept back plus better management. The value comes from there

[Jaden]

Bitcoins are backed by demand, just like any other currency.

[johnyj]

Fiat is backed by the power of the government.  Bitcoins are backed by nothing.

Just like bitcoin, the value of fiat is not backed by government, it is backed by a consensus. Government can not give you anything in return if you bring fiat to government, you can only pay tax with fiat

[bitcoin_max]

It's backed by confidence.  The only reason I'll accept a bitcoin to send you a lamp is because I believe I can use that bitcoin to buy myself a table. 

[Huesos]

In a way you could say that it is backed by Fiat Currencies...
Think about it you can buy and sell things with bitcoins and what do people do with those bitcoins when they have them? Buy things with them ? Maybe, but the majority of them will eventually exchange it for Fiat. Because lets face it in the physical world there's not alot of places where you can use Bitcoin.

Even though i think it's backed by Fiat I personally believe imho that this is still great. Because even though Bitcoin can not replace fiat it provides so many great features for E-Commerce. Bitcoin to me is Virtual Cash and I will be very happy to use in when it stabilizes in the end because of that.

[johnyj]

In a way you could say that it is backed by Fiat Currencies...
Think about it you can buy and sell things with bitcoins and what do people do with those bitcoins when they have them? Buy things with them ? Maybe, but the majority of them will eventually exchange it for Fiat. Because lets face it in the physical world there's not alot of places where you can use Bitcoin.

Even though i think it's backed by Fiat I personally believe imho that this is still great. Because even though Bitcoin can not replace fiat it provides so many great features for E-Commerce. Bitcoin to me is Virtual Cash and I will be very happy to use in when it stabilizes in the end because of that.

All it takes is one or two supermarket accept bitcoin payment, nowadays large supermarket almost has everything people want in daily life. And the supermarket can pay their employee and sub-contractors with bitcoin

Fiat money has been existing for a long time, so most of people don't ask why it still has value after the gold that used to back them were removed 1971

If you are a merchant and everyone have both bitcoin and fiat, you will definitely welcome bitcoin over fiat, but people might want to spend inflative fiat and save deflative bitcoin, so anyway bitcoin will not be used at large scale, it's like some kind of high powered money which seldom used to do the payment, although it has the payment function

If bitcoin value always double each year, who will spend them? They will more likely to mortgage them and get a fiat loan to spend

[Kluge]

Weed

(-and when did we go back to arguing the value of coins come from the cost to mine? Didn't we realize how ass-backwards that was two years ago?)

[klee]

Weed

[Huesos]

In a way you could say that it is backed by Fiat Currencies...
Think about it you can buy and sell things with bitcoins and what do people do with those bitcoins when they have them? Buy things with them ? Maybe, but the majority of them will eventually exchange it for Fiat. Because lets face it in the physical world there's not alot of places where you can use Bitcoin.

Even though i think it's backed by Fiat I personally believe imho that this is still great. Because even though Bitcoin can not replace fiat it provides so many great features for E-Commerce. Bitcoin to me is Virtual Cash and I will be very happy to use in when it stabilizes in the end because of that.

All it takes is one or two supermarket accept bitcoin payment, nowadays large supermarket almost has everything people want in daily life. And the supermarket can pay their employee and sub-contractors with bitcoin

Fiat money has been existing for a long time, so most of people don't ask why it still has value after the gold that used to back them were removed 1971

If you are a merchant and everyone have both bitcoin and fiat, you will definitely welcome bitcoin over fiat, but people might want to spend inflative fiat and save deflative bitcoin, so anyway bitcoin will not be used at large scale, it's like some kind of high powered money which seldom used to do the payment, although it has the payment function

If bitcoin value always double each year, who will spend them? They will more likely to mortgage them and get a fiat loan to spend

In a perfect world Bitcoin would replace fiat. But I think it's gunna take more than 1 or 2 supermarkets for people to use bitcoins.

[JessicaMILFson]

The American currency is backed on Petrodollars.

https://i.imgur.com/A23EH.png

The petrodollar conspiracy. Please note that I'm not a libertarian, nor a supporter of Ron Paul. Feel free to poke holes in my explanation or google for better ones/rebuttals.
The US basically killed Qaddafi and Saddam and is actively trying to topple Syrian and Iranian regimes because these countries have refused to peg their oil to the USD, meaning, price it and only sell it for the dollar like the Saudis do. If the USD is a necessary commodity to have in order to purchase oil, then the USD has value beyond being just pieces of paper. Creating this artificial demand for the dollar has been the goal of the US in the Middle East for the previous 30 years. Every other reason you've been told for the senseless wars, trillions wasted and tens of thousands killed, is empty rhetoric. If this monetary driving force wasn't there, there would be little reason to go to war, and we most likely wouldn't have.

Why do we want to create artificial demand so bad?

Because the special interest groups that control the Federal Reserve, want the Fed to print more money but doing so would cause inflation if there wasn't demand for the dollar. Pegging global oil supplies to the USD creates this demand.

Whoa there, the Federal Reserve is a government organization, what do you mean special interest groups?

Actually the Federal Reserve is a private organization. By law, every bank in the US must buy into the Fed and together all major banks own the Fed.
Wait, this is outrageous, how can we justify letting private interests control our nation's money supply?!

The law says that Congress appoints the board that runs the Fed, so its not controlled by the banks.
Oh, so it's cool?

No, as we both know, banks have bought out the congress several times over, so the board is undoubtedly composed of ex-bankers or banker friendly figures.

OK, but what does the Fed have to gain from being able to print money? Why do they want this artificial demand?

Ah, the people who own the Federal Reserve make money by charging the taxpayer interest on every dollar printed in the country, by law. So, naturally, they want to keep printing and printing money and they want us to spend the printed money.

Where is this money going?

50% of govt spending is defense*. So it goes straight to the defense contractors who fight the wars to topple "dictators" who want to keep their national oil, of course! And to top it off, banks own the defense contractors!

But, CNN and MSNBC and Fox News and the rest of the media told me Iran was building nukes because they hate my freedom?

You seem not to recall them telling you about the WMDs. But WHY? Well, guess who owns all five major media companies that control 90% of all information you receive through TV, radio, newspapers, music and movies?
 -lolzfeminism

In a similar sense, the Silk Road is backed by Bitcoin.

Based on data from February 3, 2012 to until July 24, 2012, Christin (2013) estimated $15 million in transactions are made annually on Silk Road. Buyers and sellers conduct all transactions with bitcoins (BTC), a cryptocurrency that provides a certain amount of anonymity.

[superresistant]

The American currency is backed on Petrodollars.

https://i.imgur.com/A23EH.png


In a similar sense, the Silk Road is backed by Bitcoin.

Based on data from February 3, 2012 to until July 24, 2012, Christin (2013) estimated $15 million in transactions are made annually on Silk Road. Buyers and sellers conduct all transactions with bitcoins (BTC), a cryptocurrency that provides a certain amount of anonymity.

The transactions are mostly for weed so Bitcoin is backed by weed.

[tokeweed]

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

bitcoin is backed by Extraordinary Popular Delusions and the Madness of Crowds.

[Akka]

Bitcoin is the biggest decentralized transaction network in the world. As there is only a limited supply of BTC every unit in BTC can be seen as one share of this network.

At least part of the value is backed by how much such a network is worth. In it's current state ~250.000 Members (assumption) the Value of this network is surely not $1 Billion.

[johnyj]

Bitcoin is the biggest decentralized transaction network in the world. As there is only a limited supply of BTC every unit in BTC can be seen as one share of this network.

At least part of the value is backed by how much such a network is worth. In it's current state ~250.000 Members (assumption) the Value of this network is surely not $1 Billion.

Great view! Currently so many people want to get a share of this economy before the economy itself fully developed

In another post of similar topic, I looked at the gold, even it does not have payment function today(you can't buy anything with gold directly), and it does not have some real practical use, it still holds significant exchange value. That value is basically decided by the speculation in the gold exchange, those speculations are affected by fiat money supply and sentiment

Bitcoin's value is also basically decided by speculators, no big difference than gold, but at least bitcoin can provide payment function, that's better than gold

If the gold exchange value dropped below the production cost, the gold miners will shutdown the machine to reduce loss, thus reduce the gold supply, establish an equilibrium. But for bitcoin, the supply is always constant in a 4 year period, so volatility is guaranteed

[perdomwx]

The Bitcoin is backed on the full faith and trust on Cryptology.

[xxjs]

The definitive answer: Nothing, it is unbacked.

[NewLiberty]

Weed

Or rather the criminalization of it, and the rest?

[NewLiberty]

The definitive answer: Nothing, it is unbacked.

Heh, I'll back it.

One ounce of silver for every bitcoin.  I have my 21,000,000 ounces here.  Redemption on demand.