"Backing" - what does this actually MEAN?

[deisik]

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.

If bitcoin does actually have value, couldn't we trace the reasons or roots as to why it has value? If value means an individual's assessment of usefulness (that's what economic theory tells us), could we as well track down bitcoin's properties that contribute to its usefulness and then tell between them which are inherent to it (i.e. without which it will no longer be bitcoin as we know it) and which are just attached to it?

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[Erdogan]

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.

If bitcoin does actually have value, couldn't we trace the reasons or roots as to why it has value? If value means an individual's assessment of usefulness (that's what economic theory tells us), could we as well track down bitcoin's properties that contribute to its usefulness and then tell between them which are inherent to it (i.e. without which it will no longer be bitcoin as we know it) and which are just attached to it?

No, the value started out with zero at genesis, and the curent value is appearantly magical.

The regression theorem has been discussed here on bitcointalk numerous times, I don't want to repeat it all. Maybe others.

[kjj]

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...

When your argument is "X because X" or "X because Y because X", you've formed a circle.  The evidence is that you ended up in the same place you started.

but this core usefulness (which is what people mean by backing) cannot simply exist beyond some inherent properties of things...

No one* means that when they ask what backs bitcoin.  Generally, when someone asks "What backs bitcoin?" they really mean "I'm under the mistaken impression that the dollar is redeemable for something.  What is bitcoin redeemable for?".  Go read some of the dozens of threads on that topic if you don't believe it.

* I'm using "no one" approximately here, since you are an obvious counterexample.

[shawshankinmate37927]

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".

Yes, the scammers have tried to redefine what "backing" means in an effort to makie things more confusing than they should be.  They've also tried to redefine terms like "inflation/deflation" and "money/currency".

It's important to also note that "backing" is a bad idea because it introduces counterparty risk.

Gold and silver are good forms of money.  Pieces of paper "backed" by gold and silver are not.  History proves that the concept of "backing" is not a viable option.

[deisik]

When your argument is "X because X" or "X because Y because X", you've formed a circle.  The evidence is that you ended up in the same place you started.

This is not my argument. I never said anything of the kind. It seems that it is you who is clinging to circular reasoning here...

[deisik]

No one* means that when they ask what backs bitcoin.  Generally, when someone asks "What backs bitcoin?" they really mean "I'm under the mistaken impression that the dollar is redeemable for something.  What is bitcoin redeemable for?".  Go read some of the dozens of threads on that topic if you don't believe it.

* I'm using "no one" approximately here, since you are an obvious counterexample.

I think the question which this thread is titled with says the opposite. It is surely not along the lines what you redeem for bitcoins (or anything for that matter). As I said before, I don't think that the OP came here to hear (no pun) what he obviously already knows about backing as being what you might get if you could redeem dollars or bitcoins...

[Ibian]

Why is this such a difficult question for you lot? Bitcoin is backed by exactly the same thing as any other kind of money: People who are able to enforce its use. That would be governments (not the US government, plural) for fiat, and the collective group of people running mining nodes for bitcoin. It's not more complicated than that.

[porc]

"Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a "claim on society"; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange."

MURRAY ROTHBARD

[deisik]

"Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a "claim on society"; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange."

MURRAY ROTHBARD

Porc, I asked you twice before (this is the third time already) but you didn't answer my question, that is, if someone (say, a trader) could use bitcoin to earn some money "by dumping it on the next guy" (as you would say), would it be useful to him? I hope you will deign an answer...

[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.

By backing people usually mean something that gives money real value (beyond just face-value), thus making it useful for them to hold it. If you agree to this definition, then backing is not meaningless even in the context of Bitcoin. And yes, you redeem a token of fiat currency when you exchange it for goods, so it is backed up by the commodities that are denominated in that currency...

I don't think that's a useful definition of "backing," because it just means utility. If people mean utility they should just say utility. If there are people who use "backing" to mean simply utility, they are either using an ahistorical/nonstandard definition for something much simpler, or they are confused by analogy with centralized currencies.

[deisik]

By backing people usually mean something that gives money real value (beyond just face-value), thus making it useful for them to hold it. If you agree to this definition, then backing is not meaningless even in the context of Bitcoin. And yes, you redeem a token of fiat currency when you exchange it for goods, so it is backed up by the commodities that are denominated in that currency...

I don't think that's a useful definition of "backing," because it just means utility. If people mean utility they should just say uutility. If there are people who use "backing" to mean simply utility, they are either using an ahistorical/nonstandard definition for something much simpler, or they are confused by analogy with centralized currencies.

No, it doesn't mean utility because it would mean value (since value is an individual's assessment of utility). And this would indeed be circular. Read all my posts in this thread and you will see that I'm not talking about utility. Utility doesn't come out of thin air, it is subjective valuation of objective properties or qualities of things in respect to their usefulness in helping an individual reach his ends...

[godislove]

The dollar is indeed backed by something:  the ability to keep our wealth and keep us out of jail by paying our taxes with it.  It's backed by legal threats.  On a yearly basis, it's required to be redeemed in exchange for your freedom.  Just ask Peter's Schiff's father.

"Here, Mr. U.S. government. I have some dollars for you."
"Oh, thanks. That's so sweet.  Oooo, and what such a nice and generous surprise. I'm so excited. You know how we're here to help, representing your interests.  You may have access to your bank accounts, keep your house, and retain your freedom for 12 more months.  Would you like to donate to a presidential campaign?"

[porc]

The dollar is indeed backed by something:  the ability to keep our wealth and keep us out of jail by paying our taxes with it.  It's backed by legal threats.  On a yearly basis, it's required to be redeemed in exchange for your freedom.  Just ask Peter's Schiff's father.

"Here, Mr. U.S. government. I have some dollars for you."
"Oh, thanks. That's so sweet.  Oooo, and what such a nice and generous surprise. I'm so excited. You know how we're here to help, representing your interests.  You may have access to your bank accounts, keep your house, and retain your freedom for 12 more months.  Would you like to donate to a presidential campaign?"

The dollar is not only required to pay taxes and thus to keep out of jail. It is also legal tender, thus any debt can be extinguished with dollars. It is forced upon us and any alternatives are outlawed (capital gains taxes, prohibition ala liberty gold). The state makes sure, the dollar is accepted as a medium of exchange within its borders.

[Impaler]

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.

In a sense yes the 'universal' nature of the dollar isn't establishing a value either, BUT nominal price stickiness and size of the US economy create a lot of stability in the value of the dollar, not to mention a central bank which acts to keep inflation (price inflation) to low levels (yes you can have as much or as little faith in them as you like).  I've never said that the 'backing' of the US dollar is perfect, heck it might not even be considered 'good', you can disparage the quality of the backing as much as you like but you can't say it's not backed.

It simply HAS a backing is all I'm saying, their exists a structure that tries to guarantee a future exchange value, BTC doesn't have any kind of guarantee it just has an exchange market that can go to incredible extremes (bubbles or total collapse) with no brakes on it.  If their were even something like a group of people with large wealth that were publicly pledging they wouldn't let BTC drop below some floor price that would be a backing but we don't even have that.

[porc]

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.

In a sense yes the 'universal' nature of the dollar isn't establishing a value either, BUT nominal price stickiness and size of the US economy create a lot of stability in the value of the dollar, not to mention a central bank which acts to keep inflation (price inflation) to low levels (yes you can have as much or as little faith in them as you like).  I've never said that the 'backing' of the US dollar is perfect, heck it might not even be considered 'good', you can disparage the quality of the backing as much as you like but you can't say it's not backed.

It simply HAS a backing is all I'm saying, their exists a structure that tries to guarantee a future exchange value, BTC doesn't have any kind of guarantee it just has an exchange market that can go to incredible extremes (bubbles or total collapse) with no brakes on it.  If their were even something like a group of people with large wealth that were publicly pledging they wouldn't let BTC drop below some floor price that would be a backing but we don't even have that.

Plain and simple: Bitcoin is backed by absolutely nothing. Let that sink in.

[Ibian]

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.

In a sense yes the 'universal' nature of the dollar isn't establishing a value either, BUT nominal price stickiness and size of the US economy create a lot of stability in the value of the dollar, not to mention a central bank which acts to keep inflation (price inflation) to low levels (yes you can have as much or as little faith in them as you like).  I've never said that the 'backing' of the US dollar is perfect, heck it might not even be considered 'good', you can disparage the quality of the backing as much as you like but you can't say it's not backed.

It simply HAS a backing is all I'm saying, their exists a structure that tries to guarantee a future exchange value, BTC doesn't have any kind of guarantee it just has an exchange market that can go to incredible extremes (bubbles or total collapse) with no brakes on it.  If their were even something like a group of people with large wealth that were publicly pledging they wouldn't let BTC drop below some floor price that would be a backing but we don't even have that.

Plain and simple: Bitcoin is backed by absolutely nothing. Let that sink in.

Is that to say that both of you guys consider bitcoin worthless? Cause if so, I got this public address...

[johnyj]

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.

This is a slow progress: First all those paper that have exchange value can be redeemed for gold from the central bank, and then the gold backing them is removed. Due to most of the people ignore how money works, the value of those paper does not disappear, because now all the merchants already accept them as a payment medium. Transaction demand has taken over to decide the value of those paper: When people are running out of money for transaction, the money's value will rise

Another important fact is that people do not have any choice other than one single currency. If there are 2-3 types of competing currency, then one of them will become more accepted depends on their credibility

[JoelKatz]

"Backing" is a solution to a problem that Bitcoin doesn't have. The reason you want a currency to be backed by someone or something is to ensure its scarcity.  Otherwise, the value can be stolen from you by supply expansion.

But backing is an imperfect solution because the backer can always either fail to meet its obligations or can structure its obligations so vaguely that it can technically meet them while still devaluing the currency and robbing those who hold it. Even physical scarcity, which is what gold has, is still imperfect -- we might one day find an asteroid full of gold and gold might become as cheap as aluminum.

Bitcoin's scarcity is guaranteed by mathematics. It's as close to perfectly guaranteed as we humans are capable of. So long as there is demand, its value will be assured because its supply is known. (Of course, there's no guarantee of demand.)

[johnyj]

Value to its root, comes from demand. And demand comes from desire, if people have no desire or negative desire (hate) for something, then it has no value. Many people think bitcoin does not have any value because they hate it

[shawshankinmate37927]

"Backing" is a solution to a problem that Bitcoin doesn't have. The reason you want a currency to be backed by someone or something is to ensure its scarcity.  Otherwise, the value can be stolen from you by supply expansion.

But backing is an imperfect solution because the backer can always either fail to meet its obligations or can structure its obligations so vaguely that it can technically meet them while still devaluing the currency and robbing those who hold it. Even physical scarcity, which is what gold has, is still imperfect -- we might one day find an asteroid full of gold and gold might become as cheap as aluminum.

Bitcoin's scarcity is guaranteed by mathematics. It's as close to perfectly guaranteed as we humans are capable of. So long as there is demand, its value will be assured because its supply is known. (Of course, there's no guarantee of demand.)

Ding, ding, ding, ding, ding, ding.....we have a winner!!!!