why can't bitcoin be based on something that has value?

[larry_vw_1955]

i dont understand why bitcoin has to be just base on people perceive value of it. and for someone to just artrarily fix the supply of them at 21 million doesn't make any sense. it should be able to contract and expand the # of bitcoins in existence. but because bitcoin is design very simplistically it is kind of like monopoly money. not backed up by anything.

It's a common myth.  Bitcoin’s price is not directly caused by subjective perceptions:  It is a result of the market, based on supply and demand.  Perceptions are one factor in the “demand” side of that.  There are other factors to demand; and perceptions do not alter supply.

Ultimately, Bitcoin’s fundamental value derives from its facilitation of productive economic activity, which would be costlier, infeasible, or impossible without Bitcoin.  I know that I have done productive non-Bitcoin, non-market business with Bitcoin, which I could not have done without Bitcoin.  That’s not extraordinary:  It is being an ordinary Bitcoiner who uses Bitcoin as money, rather than a purely speculative buyer who just wants “number go up”.  The more such people they are, the higher the organic, non-speculative demand for BTC.

i'm not saying bitcoin doesn't do that. but bitcoin has weaknesses. you can't deny that. the main weakness being that it is not backed up by something like gold. gold could then be used to measure the value of bitcoin. and gold has real world use. people wear it. it gets used in all kinds of electronics. bitcoin doesn't get used anywhere for any purpose. it's just imaginary.

This discussion of economics is far off-topic for the development forum.  I feel obliged to answer something that is more usually nocoiner FUD or newbie confusion.  If you have further questions about this, I refer you to Bitcoin Discussion or Economics.

ok well, the topic belongs somewhere.

[1715428738]

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[pooya87]

Money does not need to be "backed up" by something. In fact no money in the world is backed up by anything. Take US dollar for example, it is not backed up by anything except a stupid faith 70 years ago. So the real question you need to be answering first is why should bitcoin be different from other currencies?

[nullama]

Bitcoin is not imaginary. It's real.

It's information.

Would you say a photo encoded in a computer is not real? Bitcoin is even better than that because you cannot duplicate it, like you can with the digital photo.

What's the value of that photo?, well, it depends on many factors, but it can have a value if it's useful or desirable by people. Also scarcity increases the value. An exclusive photograph that no one else has can have a great value. A common photo has less value. And so on.

Bitcoin is way better than gold because it has similar properties without having to have all the negatives like difficulty to transport, verification, divisibility, etc.

[mk4]

Think about it — how can you have bitcoin backed by literally anything physical, but still remain decentralized and trustless? Being backed by something physical automatically invites counterparty risk.

[odolvlobo]

i dont understand why bitcoin has to be just base on people perceive value of it. and for someone to just artrarily fix the supply of them at 21 million doesn't make any sense. it should be able to contract and expand the # of bitcoins in existence. but because bitcoin is design very simplistically it is kind of like monopoly money. not backed up by anything.

If you can figure out how to trustlessly back a coin with some physical entity, you will have accomplished something that nobody else has ever been able to do.

But, let's suppose you figure out how to trustlessly back bitcoin with something. Now, the question becomes, "what is that something backed by?" In the end, you can be backed by nothing but economic utility. So, just make it simple and let the value of a bitcoin be backed by its economic utility -- which it is.

[avikz]

Op is missing on a fact that bitcoin as a production cost as well. The mining rigs are expensive. Electricity requirement is real and maintenance requirements are there! We are not living in 2009 anymore where our laptops are able to produce bitcoins. So when OP is saying perceived value - it's fundamentally incorrect!

Also bitcoin doesn't need to be backed up by some commodity. Not everything on earth need to follow a traditional method. Sometime out-of-the-box assets are far more sustainable than others.

[witcher_sense]

i dont understand why bitcoin has to be just base on people perceive value of it. and for someone to just artrarily fix the supply of them at 21 million doesn't make any sense. it should be able to contract and expand the # of bitcoins in existence. but because bitcoin is design very simplistically it is kind of like monopoly money. not backed up by anything.

The value of things is always subjective; it may vary significantly from one person to another. Some people don't value bitcoin at all, claiming that spending energy on its mining is a waste of resources, whereas others may value bitcoin because it allows them to make unstoppable transactions, which can be settled in seconds without the participation of any trusted intermediaries. A fixed total supply is one of the main features that make bitcoin valuable to some people simply because these people understand that no other assets in the world have similar peculiarities.

bitcoin doesn't get used anywhere for any purpose. it's just imaginary.

If it is imaginary, then you can use your imagination to make yourself rich by imagining thousands of imaginary bitcoins. If you can't do that, then there is something wrong with your conclusions.

Op is missing on a fact that bitcoin as a production cost as well.

Production cost doesn't invest in bitcoin value at all, miners produce bitcoins because they are valuable, not the other way around. If you invest your time and labor in something no one needs, this thing will have zero price despite production costs.

[ImThour]

First of all, Bitcoin is a technology. No reason why it should be backed by something, and If you want it to back, that will remove the whole point of decentralization.
It is backed by miners around the world processing the transactions of the users on the network. It's more than an asset. 

[Kakmakr]

Well, let's look at Fiat currencies....

All Fiat currencies has perceived value, because it is backed by a promise from a government to honor the value that are printed or minted on the note or coin.

If you really look at Bank notes, you find that it is made from cotton paper and linen (The same material used in the manufacturing of say aprons, bags, towels, napkins, bed linens, tablecloths) ...... and the only value linked to it, is the signature of the government official that promise to honor the value that are printed on that.  

How many people still believe that governments have the best interest in mind for their fellow citizens? How many corrupt governments are looting and stealing tax payers money?

I will rather support a currency that do not use politicians to manipulate it's value to suite their hidden political agendas.     (Bitcoin's value is based on supply and demand from people globally... not government officials)

[cryptomaniac_xxx]

I guess OP didn't understand how financial market works, as @pooya87 explained fiat is not back by something, not even by gold (if that is what you think of).

In fact:

Fiat currency is not supported by any physical commodity, but by the faith of its holders and virtue of a government declaration.but by the faith of its holders and virtue of a government declaration

https://corporatefinanceinstitute.com/resources/knowledge/economics/fiat-money-currency/

So there is no flaw in bitcoin system, and it was created just like that.

[Poker Player]

Things that are valuable are backed by the belief that they are valuable. Coins used to be backed by gold, but gold also has quite a bit of faith in the belief that it is valuable, although it can be argued that with gold you can make durable objects but to analyze this would be to enter into a long debate that would divert us from the main issue.

In this case the Bitcoin is worth because many people give it value, and if you wonder why they give it value it is because of its intrinsic properties, but as I said before in value attribution there is always a part of shared belief that it is valuable.

Note that in ancient Rome, salt was considered much more valuable than it is today:

Did you know the word 'salary' has nothing to do with money, and everything to do with salt?

In ancient Rome, it was salt and not money that was used for commerce or trading. The soldiers who worked for the Roman empire got a handful of salt in return as their payment each day.

What was the salt backed by? On the belief that it was valuable. You could argue that it was used to salt food, as in the case of gold, which is used to make objects, but that property seems ridiculous today to give it the value it was given in ancient times.

[Accardo]

I don't see any reason that will encourage backing bitcoin with something, the backup may need another backup and it goes on. The value of bitcoin is open for everyone to see. The price, mathematical solving, and blockchain technology stays with bitcoin. It can be said that it's backed by its value because bitcoin can't be tagged valueless, just that people have less confident in bitcoin unlike the Fiat currency. An attribute that will grow, given time and multiple personal experiences about the usage of bitcoin.

this article said something relavant

[avikz]

Op is missing on a fact that bitcoin as a production cost as well.

Production cost doesn't invest in bitcoin value at all, miners produce bitcoins because they are valuable, not the other way around. If you invest your time and labor in something no one needs, this thing will have zero price despite production costs.

Won't disagree! But why someone will invest their time and money into something which no one wants? When a global community invests their time and money into something, it means it has value and demand. A production cost must be factored in while calculating the value of bitcoin, otherwise it doesn't makes sense!

If the market price of bitcoin goes below its production cost, the entire network will be doomed as new supply will stop. Everything goes hand in hand here!

[DaveF]

...If the market price of bitcoin goes below its production cost, the entire network will be doomed as new supply will stop. Everything goes hand in hand here!...

Where do you get that from? For years BTC was mined at a loss by people who found it interesting.
Even now there are people mining with older inefficient miners who loose money every day even at $50k or $60k per BTC.
As people stop mining difficulty drops so the remaining miners make more. If the price drops even more, more people may drop out and the remaining people will get more BTC
That's the way the system works. That's the way it's supposed to work.

As an altcoin example it looks like that as of the next difficulty change (tomorrow) LTC will have a 25% drop in difficulty since the beginning of June when it's price plummeted.
Would take a bit longer due to the 14 day adjustment of BTC but if miners dropped out the same will happen. But looking at the BTC difficulty, miners are not dropping out.


-Dave

[franky1]

bitcoin is NOT just some random value people choose as their value. which then becomes the price.
bitcoins value is not based on the random whim of the day of speculators

stop imagining the price as a single line that also represents value.

instead imagine 2 lines

the base line is the store of value. (VALUE backing it (its more stable and doesnt move in a volatile manner)
above that is the price. (the 'premium' that is speculative and random and unbacked by most fundementals0

the value line is not build on the whims of random speculation of peoples random thoughts of price of a random number they choose at any given time.. but instead its based on alot of fundamental economic costs.

EG if X% percent bought below $17k and Y% bought above $17k. they have actual costs and values they wont sell below or want to buy above.

also mining costs where even the most efficient asics at the cheapest wholesale asic hardware cost using the cheapest electric available on the planet.. have a base cost that no one can mine for less than.. meaning everyone else with higher costs wont be able to mine for that amount and would happily buy at that amount or more.

you can gauge some value support by looking at the LONG TERM lows of a 2-4 year period where the price refuses to drop below. this becomes the bottom value..

the amounts above that where the price moves hourly-dayly-monthly at a more volatile speculative price. is the speculative stuff above value

..
take gold. its base value is about $900 and that is the value store amount. then when you look at the markets swinging from $1.2k-$1.9k. thats the speculative unbacked area
(golds 20year low=$300.. golds 15year low=$600.. golds 10year low=$900.. )

the prices(speculative random) above these lows are the random stuff you think is the unbacked thing.
.. your just missing that there is a backed value line hidden below/within the price

[Beparanf]

It was designed to be that way. The power consumption on mining it is already sufficient to backed its value. Its not come from thin air like fiat which has unlimited supply and only trust backing it.

Imagine how much power and it cost that Bitcoin miners already consumed for a relentless Bitcoin mining until to this point. The current design is working since Bitcoin was created. I don't need why we need to change on something that needs centralization for holding all those collateral.

[OcTradism]

The best basement for Bitcoin is the Proof-of-Work algorithm and its Protocol. The disappear of Satoshi Nakamoto is another solid basement for value of Bitcoin. It supports the decentralized protocol of Bitcoin, and developments etc.

With Proof of Work, no more Bitcoin can be mined if there is no miner, no hashrate to mine it. Miners need to have mining rigs (computer, GPU in the past and ASICs now), electricty and more. There is cost to mine Bitcoin and it is another basement for its price.

[hatshepsut93]

Op is missing on a fact that bitcoin as a production cost as well. The mining rigs are expensive. Electricity requirement is real and maintenance requirements are there! We are not living in 2009 anymore where our laptops are able to produce bitcoins. So when OP is saying perceived value - it's fundamentally incorrect!

Also bitcoin doesn't need to be backed up by some commodity. Not everything on earth need to follow a traditional method. Sometime out-of-the-box assets are far more sustainable than others.

Bitcoin doesn't have production cost, because if miners stop mining, the difficulty drops, so the production cost drops too, and it could drop so low that you could mine it alone on an old laptop, basically sustain the whole network with nearly zero investment, just like Satoshi was doing in early days. So, the costs of mining have no influence on Bitcoin's price - they are miner's problems to figure out.

[OgNasty]

Op is missing on a fact that bitcoin as a production cost as well. The mining rigs are expensive. Electricity requirement is real and maintenance requirements are there! We are not living in 2009 anymore where our laptops are able to produce bitcoins. So when OP is saying perceived value - it's fundamentally incorrect!

Also bitcoin doesn't need to be backed up by some commodity. Not everything on earth need to follow a traditional method. Sometime out-of-the-box assets are far more sustainable than others.

Bitcoin doesn't have production cost, because if miners stop mining, the difficulty drops, so the production cost drops too, and it could drop so low that you could mine it alone on an old laptop, basically sustain the whole network with nearly zero investment, just like Satoshi was doing in early days. So, the costs of mining have no influence on Bitcoin's price - they are miner's problems to figure out.

Bitcoin very clearly has a production cost. That leads it to be “backed” by electricity, which is arguably an extremely valuable resource. If you know how to produce Bitcoin without paying any cost, please let me know. I’d love to have some free Bitcoin. This argument also completely ignores the value of securing the blockchain for immutable payments. If you know, you know…

[GeorgeJohn]

Money does not need to be "backed up" by something. In fact no money in the world is backed up by anything. Take US dollar for example, it is not backed up by anything except a stupid faith 70 years ago. So the real question you need to be answering first is why should bitcoin be different from other currencies?

if i should emphasis on how Bitcoin is different from other currencies. My suggestion goes this way. The difference between bitcoin and other currencies is that Bitcoin a valuable asset that have different method of regulations and automatically base on its regulations because of it's decentralized kind of life, other currencies that's known and also popular to the society centralized currency which can be monitored and controlled by a specific sector. So the different is very clear from my perspective.