"Backing" - what does this actually MEAN?

[kjj]

This thread is a great example of people inventing a new meaning of "backing" on the spot. Obviously, a discussion of what backs bitcoin, or a fiat currency, or gold, or beer is worthless if nobody even agrees on what "backing" or 'backed by" means.

I stick to very simple and cogent definition of what backing is or what being backed by actually means, i.e. an inherent property or quality that makes something useful in reaching an individual's aims and ends or preventing the occurrence of some adverse consequences... Your take?

This is one of the two bizarro definitions of "backed" that people use when they get into a scramble.  The other is trade, and neither is a useful definition unless your brain is stuck.

These are perfectly circular definitions that apply to literally everything in the world.  It boils down to: X is backed by the value of X because (X is useful | X can be traded).  Also, "can be traded" is a special form of "is useful", so these are really a single circle.

We already have a word for value.  Why would we want to define backed to mean "has value"?  Simple and cogent, sure, but also pointless.

"Backed by" means "is a token redeemable for", as I described in an earlier post in this thread.

Bitcoin isn't backed by anything.  Neither is the dollar.  Neither is gold.  Abandon the incorrect notion that backing is necessary for value.

(This is where the regression theory comes up.  Either the chain of regression has been broken, or regression applies to the evolution of money in general, not to specific instances of money.)

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[pjviitas]

I can't believe how much airtime this whole backing topic is getting.

Backing is an "idea" that has been sold to you.

When Farmer Jack traded bartered with Farmer Joe the only backing they had was an idea that it was a good deal.

You guys are making this way too complicated.

[Rassah]

a dollar is a bearer bond that can extinguish a Dollar of DEBT, debt in the form of taxation is a big part of that, but also legal tender laws mean ANY private debt can also be extinguished by the dollar.  So the dollar is the universal extinguisher of all debts in the U.S. and that is it's backing.

I've argue in other threads that the BTC computer network or even the cryptographic code of BTC dose not constitute backing for BTC, because it dose not establish any price or valuation for BTCs.

But being a universal extinguisher of all debts does not establish any price or valuation for USD either. Nothing that's backed by anything else does, because all price is arbitrary. A gold-backed currency could be backed by an ounce of gold, or a gram of gold, and could be numbered 1, or 5, or anything else. Likewise, the government backing, or the extinguishing of debt backing, could back a dollar that can buy you a burger, or a dollar that you would need 1,000 of to buy a burger, and the mechanism would be the same. So backing isn't even "propping up."

Personally, I see backing as an IOU - a liability - where the thing that is backed has a promise from someone else that they will give you something in return. A gold backed currency is just an IOU with a promise to exchange it for some arbitrary amount of gold, and a government backed currency is just a promise that the government will forgive your debts if you exchange it with them. This is why non-backed things, like land, oil, gold, or bitcoin is so much more powerful - there is no one that needs to make you any promises. The land will let you build on, the oil will burn, the gold will be yellow, shiny, and highly conductive, and the bitcoin will work on the blockchain, without anyone promising or allowing it to happen.

[pand70]

Proof-of-work alt coins can come under attack from excess or outdated bitcoin and litecoin mining equipment.

Even if asics come out for litecoin you will not be able to mine all other scrypt coins with those because of the parameters that are used from the scrypt algorithm that litecoin uses.

[deisik]

This thread is a great example of people inventing a new meaning of "backing" on the spot. Obviously, a discussion of what backs bitcoin, or a fiat currency, or gold, or beer is worthless if nobody even agrees on what "backing" or 'backed by" means.

I stick to very simple and cogent definition of what backing is or what being backed by actually means, i.e. an inherent property or quality that makes something useful in reaching an individual's aims and ends or preventing the occurrence of some adverse consequences... Your take?

This is one of the two bizarro definitions of "backed" that people use when they get into a scramble.  The other is trade, and neither is a useful definition unless your brain is stuck.

These are perfectly circular definitions that apply to literally everything in the world.  It boils down to: X is backed by the value of X because (X is useful | X can be traded).  Also, "can be traded" is a special form of "is useful", so these are really a single circle.

You are neither the only one nor the first one here who is at first trying to impute to me some assumption and then trying to refute it as if it were my point. I specifically mentioned about inherent properties or qualities that make something useful. Trading is not inherent, so don't try to play this trick about circular definitions again...

[deisik]

We already have a word for value.  Why would we want to define backed to mean "has value"?  Simple and cogent, sure, but also pointless.

For a day-trader, bitcoin volatility may be useful, thus giving bitcoin value as a means of reaching his aims, right? Is volatility inherent to it? Certainly not, since bitcoin would still be bitcoin, even if it wasn't that volatile. If gold somehow lost its indestructibility, would it remain gold as we know it? The difference is evident, so value is not the same thing as backing...

I hope this clarifies the issue a bit

[teukon]

Personally, I see backing as an IOU - a liability - where the thing that is backed has a promise from someone else that they will give you something in return.

Precisely!  Thank you.

It's true that gold and oil have value but are expensive to store and transport.  Paper and database entries are much more efficient as media of exchange but lack sufficient value density and stability.  Certainly, being backed by the former imbues the latter with some value and stability, but the newly forged currency can only be as reliable as the backer itself.

Bitcoin is still very young and is far less reliable as a store of wealth than practically every alternative.  However, if Bitcoin (or any crypto-currency) continues to grow in value and stability, it will eventually establish a reputation greater than any group of people can muster, becoming more reliable than any gold-backed currency can ever be (but still less reliable than physical gold).  That is, of course, unless someone can invent a currency backer which is not, at bottom, a group of people.

[godislove]

"Backed" in the traditional meaning depends on a central authority to be the one "redeeming it" for something.    Since their is no central authority, maybe the "backed" can't be applied to bitcoin and the question should be changed to "what is it's inherent value".  Value is not a meaningless word.  A "hard" definition might be "enables humans to survive" which is why commodities are a good "backing" for a currency.  People tried to think of ways for governments to stockpile a basket of commodities to back their currency, but it always failed as too cumbersome due to spoilage of food and "softs", so precious metals prevailed.  A less strict definition would be "improves human life" or "has utility".  Lots of fuzziness in that, with perception built into it, but certainly "value" is not strictly a matter of perception. It is a matter of society's perception of its utility, relative to other available currencies. 

[kjj]

This thread is a great example of people inventing a new meaning of "backing" on the spot. Obviously, a discussion of what backs bitcoin, or a fiat currency, or gold, or beer is worthless if nobody even agrees on what "backing" or 'backed by" means.

I stick to very simple and cogent definition of what backing is or what being backed by actually means, i.e. an inherent property or quality that makes something useful in reaching an individual's aims and ends or preventing the occurrence of some adverse consequences... Your take?

This is one of the two bizarro definitions of "backed" that people use when they get into a scramble.  The other is trade, and neither is a useful definition unless your brain is stuck.

These are perfectly circular definitions that apply to literally everything in the world.  It boils down to: X is backed by the value of X because (X is useful | X can be traded).  Also, "can be traded" is a special form of "is useful", so these are really a single circle.

You are neither the only one nor the first one here who is at first trying to impute to me some assumption and then trying to refute it as if it were my point. I specifically mentioned about inherent properties or qualities that make something useful. Trading is not inherent, so don't try to play this trick about circular definitions again...

Try reading?  I refuted your circular claims about usefulness, plus the parallel claim of trade, which are circular in exactly the same way.

We already have a word for value.  Why would we want to define backed to mean "has value"?  Simple and cogent, sure, but also pointless.

For a day-trader, bitcoin volatility may be useful, thus giving bitcoin value as a means of reaching his aims, right? Is volatility inherent to it? Certainly not, since bitcoin would still be bitcoin, even if it wasn't that volatile. If gold somehow lost its indestructibility, would it remain gold as we know it? The difference is evident, so value is not the same thing as backing...

I hope this clarifies the issue a bit

The problem with your argument isn't that it is unclear.

As already pointed out, you made up your own ad hoc definition, and I pointed out that it forms a perfect pointless circle.  Water has inherent properties that make it useful, so by your definition, "Water is backed by the value of water because water is useful."  Feel free to stuff "inherent" in there wherever you feel it will do the most good, if it offends you that I left it out.  It still forms a circle, and it still applies to literally everything in the world, making it pointless.

[deisik]

As already pointed out, you made up your own ad hoc definition, and I pointed out that it forms a perfect pointless circle.  Water has inherent properties that make it useful, so by your definition, "Water is backed by the value of water because water is useful."  Feel free to stuff "inherent" in there wherever you feel it will do the most good, if it offends you that I left it out.  It still forms a circle, and it still applies to literally everything in the world, making it pointless.

I see that you went wild trying to confuse matters instead of giving a reasonable argument against my stance (if you have any in the first place). Water value is backed (read provided) by its usefulness to people due to its properties which satisfy a need (thirst). If water wasn't necessary for survival it would lose a good deal of its value. Seawater is not valued (as high) since it can't satisfy that need. Backing is not value, backing is an aggregate of inherent qualities that provide value...

Try reading?  I refuted your circular claims about usefulness, plus the parallel claim of trade, which are circular in exactly the same way.

I don't see any refutation. There are properties in things some of which are useful while others are useless. What is circular here?

[Erdogan]

Backing means that the bank issuing notes and token coins have a corresponding amount of gold in its valults. For that to be sensical, there have to be a defined mass of gold for each unit of the backed money unit. For instance, one dollar eqauals 1/20 ounce of gold. The notes have to be redeemable, that is you can go to the bank with your dollars and retrieve the specified amount of gold.

The notes can be redeemable even if they are not fully backed, because, as long as the bank is trusted, people will normally not redeem them. This is the normal situation. It can start creepingly, for instance notes can be issued for gold that is coming in surely in the near future. Eventually the redeemablility is impossible to support, and the fiat unit will be devalued. The indirect reference to the gold via the dollar unit seems to be designed to enable devaluation. If the unit of the note were not one dollar, but rather 1/20 ounce of gold, they could not be devaluable. They could still go ad undas due to printing, of course.

From this, it is obvious that the dollar, or any other modern fiat, is not backed, and not redeemable. We would not care, as long as the supply is limited in the same way as gold, but in case of fiat, the supply is of course not limited.

The bitcoin is not redeemable or backed, but the supply is totally unelastic.

Bitcoin and fiat are both unbacked, the difference is the supply.

[deisik]

From this, it is obvious that the dollar, or any other modern fiat, is not backed, and not redeemable. We would not care, as long as the supply is limited in the same way as gold, but in case of fiat, the supply is of course not limited.

The bitcoin is not redeemable or backed, but the supply is totally unelastic.

Bitcoin and fiat are both unbacked, the difference is the supply.

This doesn't reply the question why dollars (or anything for that matter) have value. When people ask what is backing dollar (bitcoin), by backing they usually mean what gives it value...

[kjj]

From this, it is obvious that the dollar, or any other modern fiat, is not backed, and not redeemable. We would not care, as long as the supply is limited in the same way as gold, but in case of fiat, the supply is of course not limited.

The bitcoin is not redeemable or backed, but the supply is totally unelastic.

Bitcoin and fiat are both unbacked, the difference is the supply.

This doesn't reply the question why dollars (or anything for that matter) have value. When people ask what is backing dollar (bitcoin), by backing they usually mean what gives it value...

This is why this thread is pointless.

Things have value because people want them.  Why they want them is not important to the notion of value.  This is a very difficult concept for many people to understand, including you.  They (you) cannot accept that value doesn't have to "come from" anything, so they (you) scramble to invent post hoc rationalizations and torture the common language until it fits their biases.  If carried too far, as you have done, you end up with a pointless definition.

Your argument is that something is "backed" by it's properties.  Philosophers care greatly about the distinction between a thing and the properties of the thing, but for the most part, ordinary people do not.  Most of us see "X is backed by X" to be of the same essence as "X is backed by the properties of X", and we recognize that we've been led around in a circle.

The non-circular definition is that "backed by" means "redeemable for", as in "Before 1971, the dollar was backed by gold" meaning "Before 1971, the dollar was redeemable for gold".  Of course, accepting this means accepting that most value is not "backed" by anything at all...

[Erdogan]

From this, it is obvious that the dollar, or any other modern fiat, is not backed, and not redeemable. We would not care, as long as the supply is limited in the same way as gold, but in case of fiat, the supply is of course not limited.

The bitcoin is not redeemable or backed, but the supply is totally unelastic.

Bitcoin and fiat are both unbacked, the difference is the supply.

This doesn't reply the question why dollars (or anything for that matter) have value. When people ask what is backing dollar (bitcoin), by backing they usually mean what gives it value...

The question was Re: "Backing" - what does this actually MEAN?

Another question is the one you state. The answer is whatever you, me and anyone else values, i.e what you want. It is in the mind of the participants. This will be revealed in the market, where everyone trades what he have with what he wants, according to his own valuations.

In the market, the most sellable goods will gain an extra value called exchange value, or the money component of the value of something, as opposed to its use value. Gold has some direct use value, fiat and bitcoin does not.

Why something can have only exchange value, and no direct use value, is for some a puzzle. It has value because you can trade it for something of value, but what about the receiver of the money? For him, there is also only exchange value. The reason for the value is a circular argument. Still, it exists, the value is real and appearant.

[deisik]

Things have value because people want them.  Why they want them is not important to the notion of value.  This is a very difficult concept for many people to understand, including you.  They (you) cannot accept that value doesn't have to "come from" anything, so they (you) scramble to invent post hoc rationalizations and torture the common language until it fits their biases.  If carried too far, as you have done, you end up with a pointless definition.

You are trying to rephrase what subjective theory of value tells us, but since you don't understand it properly well and have only nodding acquaintance with it as it appears to be, you can't see that what I say directly follows from this theory. Value comes from usefulness (or utility), i.e. the ability of things to help people reach their ends, but this core usefulness (which is what people mean by backing) cannot simply exist beyond some inherent properties of things...

Why people want something may not be important to the notion of value (actually, you are wrong here too), but to people it IS

[deisik]

Your argument is that something is "backed" by it's properties.  Philosophers care greatly about the distinction between a thing and the properties of the thing, but for the most part, ordinary people do not.  Most of us see "X is backed by X" to be of the same essence as "X is backed by the properties of X", and we recognize that we've been led around in a circle.

All your "refutation" boils down to saying that I am wrong because my reasoning is circular, but you don't give neither factual evidence nor logical argument why it is circular. Since you tried to level down my understanding of backing with "value by trading" (which is wrong), I can beforehand tell that it is your reasoning (whatever it might be) which is false...

[deisik]

From this, it is obvious that the dollar, or any other modern fiat, is not backed, and not redeemable. We would not care, as long as the supply is limited in the same way as gold, but in case of fiat, the supply is of course not limited.

The bitcoin is not redeemable or backed, but the supply is totally unelastic.

Bitcoin and fiat are both unbacked, the difference is the supply.

This doesn't reply the question why dollars (or anything for that matter) have value. When people ask what is backing dollar (bitcoin), by backing they usually mean what gives it value...

The question was Re: "Backing" - what does this actually MEAN?

Another question is the one you state. The answer is whatever you, me and anyone else values, i.e what you want. It is in the mind of the participants. This will be revealed in the market, where everyone trades what he have with what he wants, according to his own valuations.

I think we are well past all those times when backing meant nothing else but just something that you redeem your dollar for. I don't think that the OP didn't know that answer himself when he started this thread, but probably wanted to get beyond just that simple but rather superficial answer...

[Erdogan]

From this, it is obvious that the dollar, or any other modern fiat, is not backed, and not redeemable. We would not care, as long as the supply is limited in the same way as gold, but in case of fiat, the supply is of course not limited.

The bitcoin is not redeemable or backed, but the supply is totally unelastic.

Bitcoin and fiat are both unbacked, the difference is the supply.

This doesn't reply the question why dollars (or anything for that matter) have value. When people ask what is backing dollar (bitcoin), by backing they usually mean what gives it value...

The question was Re: "Backing" - what does this actually MEAN?

Another question is the one you state. The answer is whatever you, me and anyone else values, i.e what you want. It is in the mind of the participants. This will be revealed in the market, where everyone trades what he have with what he wants, according to his own valuations.

I think we are well past those times when backing meant nothing else but just something that you redeem your dollar for. I don't think that the OP didn't know that answer himself when he started this thread, but probably wanted to get beyond just that simple but rather superficial answer...

The OP stated a question, and I supplied an answer. Sometimes the world is uncomplicated.

If you did not like the answer, you are of course free to supply your own. To me, your ranting sounds like newspeak, popular among politicians and propagandists like the Fed. I prefer to keep my words stable, backed by history, redeemable from the old heros like Mises.

[deisik]

The OP stated a question, and I supplied an answer. Sometimes the world is uncomplicated.

If you did not like the answer, you are of course free to supply your own. To me, your ranting sounds like newspeak, popular among politicians and propagandists like the Fed. I prefer to keep my words stable, backed by history, redeemable from the old heros like Mises.

Goldbug detected?

Update: When I read Mises, I at first thought about Midas. Sorry for that...

[Erdogan]

The OP stated a question, and I supplied an answer. Sometimes the world is uncomplicated.

If you did not like the answer, you are of course free to supply your own. To me, your ranting sounds like newspeak, popular among politicians and propagandists like the Fed. I prefer to keep my words stable, backed by history, redeemable from the old heros like Mises.

Goldbug detected?

Update: When I read Mises, I at first thought about Midas. Sorry for that...

Not goldbug in fact. Many libertarians have problems with the fact that bitcoin does not have direct use value, they think that bitcoin can not be money excactly due to this. Mises stated the regression theorem to prove that money has to have direct use value. Appearantly, the gliding conversion from gold to gold backed paper money, to devalued gold backed money, to unbacked fiat money, can support fiat as money, but bitcoin not. There was no gliding conversion from fiat to bitcoin. Anyway, Mises could be wrong on that point, but he is still a hero.

Bitcoin obvously has value, the value is just as real as gold, steel, copper, rice or potatoes. The proof is that you can exchange bitcoin for any of those. Makes me a not-goldbug.