"Backing" - what does this actually MEAN?

[Nancarrow]

The perennial accusation against Bitcoin is that it's 'not backed by anything'. Fiat money is backed by the government, and I would say that Bitcoin is backed by cryptography. But that's only because I've formed an 'implicit definition' of that word - I hear how other people use it.

But is there an explicit definition, and if so what is it? If I think that X is a good thing because "X is backed by Y", what am I actually saying?

If this is the sort of question that's easily answered in Econ 101, please provide a link - I've never learned any economics formally.

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[hilariousandco]

I'd say we, the people, are backing it.

[I_bitcoin]

Every good or service that is provided backs bitcoins (in other words people will exchange it for as one of the other posters mentioned).   This includes fiat.    Scary eh?   Except not so scary.   When large crowds move they move in very predictable ways.   With enough adoption the crowds will be easy to predict and this will further stabilize the price of bitcoin as adoption increases.

Try to do as much as possible in bitcoin and we will realize the dream faster .

[RodeoX]

The only thing backing any currency system is faith. Gold is just a shinny rock, fiat is just fancy paper. Bitcoin has more faith behind it than ever, and perhaps the opposite could be said of fiat.

[Ibian]

It's something people who don't understand the technology, basic market economics, politics, psychology, or their combined interplay say to avoid admitting that they are deeply, deeply confused.

[deisik]

The perennial accusation against Bitcoin is that it's 'not backed by anything'. Fiat money is backed by the government, and I would say that Bitcoin is backed by cryptography. But that's only because I've formed an 'implicit definition' of that word - I hear how other people use it.

But is there an explicit definition, and if so what is it? If I think that X is a good thing because "X is backed by Y", what am I actually saying?

I don't use any specific definition for this, but the correct answer to your question can be logically derived from the subjective theory of value. Bitcoin (or anything for that matter) is backed up by its properties that are useful in achieving an individual's personal ends (even if it is pure speculation). So when you say that X is backed by Y, it usually means that people either find Y directly useful (positive feedback as in security of Bitcoin) or the possession of X is useful for preventing some undesirable effect from Y (negative feedback as in taxes)...

This is an ad hoc explanation, but its logic is correct nevertheless

[zimmah]

From what I've seen, the meaning is invented on the spot by the person trying to justify (or condemn) the value of a currency. I think this practice started in 1971, when the dollar became completely fiat. It was no longer backed by gold, but it couldn't be backed by nothing.

In more legitimate usage, "backed by" generally means "can be exchanged for a fixed amount of".

so the dollar can be exchanged for a fixed amount of government now?

seems about right, the government is being sold for a couple of millions to the bankers. 

[Carlton Banks]

Basically, 2 meanings:

Pro-rata: where assets are kept by the currency issuer at a some rate comparable to the value of the money supply

Ephemeral: where intangible but valuable capabilities of the issuer confer value to the money supply (e.g. use this money system or you'll find a jackboot moving rapidly towards your face)

[hieroglyph]

for me this means there is nothing tangible a person can point to or hold and say this equals this amount of Bitcoin.  A poor argument that Bitcoin isn't real and and based on fantasy.  So far form the truth it leaves me speechless.

[deisik]

for me this means there is nothing tangible a person can point to or hold and say this equals this amount of Bitcoin.  A poor argument that Bitcoin isn't real and and based on fantasy.  So far form the truth it leaves me speechless.

When you are drawn to court and thrown in jail for alleged tax evasion, you will quickly understand what it actually means being backed up by something intangible like power and force that you can't point to or hold in your hands...

[johnyj]

Bitcoin is backed by fiat money, as long as FED keep printing fiat money like there is no tomorrow, part of those printed money will be used to back bitcoin

FED print lots of money daily, but since those money could not find any place that is worth investing, QE's efficiency is extremely low, maybe 1 out of 100 dollars they printed get invested. But if they stop printing, the whole economy will collapse due to higher and higher debt

[Zangelbert Bingledack]

The term "backing" is completely meaningless in the context of Bitcoin. Backing means that a FIAT currency CAN BE REDEEMED for some commodity, since that fiat currency is nothing more than a promise not to inflate too much.

Bitcoin is not fiat, it can't be inflated, and it doesn't rely on promises, so it is meaningless to ask what it is "backed" by.

Backing is about people pathetically pleading to their government to please not destroy the value of the pieces of paper they are forced to use as legal tender, to please ostensibly allow people to trade it for gold or some other store of value in order to build more TRUST. It has absolutely nothing to do with Bitcoin, and that's GOOD.

[chriswilmer]

The term "backing" is completely meaningless in the context of Bitcoin. Backing means that a FIAT currency CAN BE REDEEMED for some commodity, since that fiat currency is nothing more than a promise not to inflate too much.

Bitcoin is not fiat, it can't be inflated, and it doesn't rely on promises, so it is meaningless to ask what it is "backed" by.

Backing is about people pathetically pleading to their government to please not destroy the value of the pieces of paper they are forced to use as legal tender, to please ostensibly allow people to trade it for gold or some other store of value in order to build more TRUST. It has absolutely nothing to do with Bitcoin, and that's GOOD.

+1

[Cryddit]

Somebody could, in theory, start a cryptocoin "SilverOunce", limiting the number of coins issued to the number of ounces of (say) one-ounce silver coin blanks in his safe, and give a standing offer to swap of the cryptocoins for a one-ounce silver coin.

That cryptocoin would be backed by silver.  But it would also be centralized because he'd be the only one who could make new coins, he'd be paying for each coin by buying silver, and he'd be the only one offering to redeem them. 

Anyway, until someone does exactly that, it won't matter.  These aren't backed, they're merely rare.

[Sukrim]

Somebody could, in theory, start a cryptocoin "SilverOunce", limiting the number of coins issued to the number of ounces of (say) one-ounce silver coin blanks in his safe, and give a standing offer to swap of the cryptocoins for a one-ounce silver coin.

That cryptocoin would be backed by silver.  But it would also be centralized because he'd be the only one who could make new coins, he'd be paying for each coin by buying silver, and he'd be the only one offering to redeem them. 

Anyway, until someone does exactly that, it won't matter.  These aren't backed, they're merely rare.

Someone did (nearly exactly) that, already months ago:
https://bitcointalk.org/index.php?topic=149533.0

[deepceleron]

Fiat currency is backed by the threat that if you don't have some to give to the government when they want it, you go to jail.

The US dollar is a promise that you can redeem it - for dollars.

[kjj]

Bitcoin is not backed by anything.  Neither is the dollar.  Neither is gold.  Etc.

"backed" does not mean "can be used in trade".  If it did, then they would all be "backed" by their markets.

"backed" means "is a token for".  Once upon a time, a dollar was a silver coin.  Then it was a paper slip that could be redeemed for a silver coin or, in quantity, for a gold coin.  Those slips were "backed by" the metal reserves.  Now it is just a paper slip, not redeemable for anything.  But observe that all three iterations of the dollar could, and still can, be traded for various things, including the silver or gold coins they once represented.

[Cryddit]

 

  Somebody could, in theory, start a cryptocoin "SilverOunce", limiting the number of coins issued to the number
  of ounces   of (say) one-ounce silver coin blanks in his safe, and give a standing offer to swap of the cryptocoins
  for a one-ounce silver coin.

Someone did (nearly exactly) that, already months ago:
https://bitcointalk.org/index.php?topic=149533.0

Huh.  I hadn't noticed those were tied to silver dimes.  I yam surprised.  Historically, though, Internet payment processing systems that involve someone holding precious metal have usually resulted in charges being filed -- everything from money laundering to fraud to failure to report to accounting irregularities to trading metal without appropriate state licensing, to etc etc etc.

Hope he manages to buck the trend.

[deepceleron]

Somebody could, in theory, start a cryptocoin "SilverOunce", limiting the number of coins issued to the number of ounces of (say) one-ounce silver coin blanks in his safe, and give a standing offer to swap of the cryptocoins for a one-ounce silver coin.

That cryptocoin would be backed by silver.  But it would also be centralized because he'd be the only one who could make new coins, he'd be paying for each coin by buying silver, and he'd be the only one offering to redeem them. 

Anyway, until someone does exactly that, it won't matter.  These aren't backed, they're merely rare.

Someone did (nearly exactly) that, already months ago:
https://bitcointalk.org/index.php?topic=149533.0

Someone did (nearly exactly) that, already years ago:
http://www.nytimes.com/2012/10/25/us/liberty-dollar-creator-awaits-his-fate-behind-bars.html?_r=0

[pjviitas]

The perennial accusation against Bitcoin is that it's 'not backed by anything'. Fiat money is backed by the government, and I would say that Bitcoin is backed by cryptography. But that's only because I've formed an 'implicit definition' of that word - I hear how other people use it.

But is there an explicit definition, and if so what is it? If I think that X is a good thing because "X is backed by Y", what am I actually saying?

If this is the sort of question that's easily answered in Econ 101, please provide a link - I've never learned any economics formally.

Total confidence game nothing more...nothing less.  Some people would say its a con-game of the highest form.

If you are confident that digital bits or paper bits or metal bits is a fair trade for your goods or services then that's all that matters...period...end of story.