If Bitcoin were backed by something.

[RodeoX]

Bitcoin is backed by the exact same backing as gold. Belief in it's value.

Except gold has very rare physical and chemical properties, while also being scarce...
Gold really does have value by itself, as a resource. Bitcoin does not.

It's true that gold does have some special properties. It's non-reactive, great conductor of electricity, etc. But that is not why gold is valuable. There is a long history of gold being considered valuable. This tradition is not connected with electrochemical properties. Gold is simply perceived to be valuable beyond it's utility.

Bitcoin also has utility and special properties. It is the fastest, cheapest, and most secure way to send money to anyone. That is an extremely compelling idea. Like gold, it's supply is limited and unchangeable. But also like gold, the real reason to exchange some wealth for bitcoin is because of a shared belief in it's future value.

Ah, good point. I agree.
But then the next problem is that bitcoin can be replaced by alt-coins with the same properties. Some of them even allow infinite creation of new coins... (meaning it can never become scarce, and therefor more valuable per unit)

It very well could. Although I personally like scarcity as a property. The ability to create infinite coins hurts the value of coins already held. Kind like what happened to benie babies. People started to collect them and see them as valuable. Then the company that makes them came in and overproduced them, collapsing the price.  (not that hoarding them was smart in the first place).

I have not seen an alt coin that betters bitcoin for me. Most seem to be copies of Satoshi's work with some find/replace script kitty stuff. But that could change and a better system could emerge. The next few years should be interesting!

[1713500020]

1713500020

[cr1776]

ELI8 (i feel like a 8 year old) - I've been doing research about the Gold standard and how it works. I'm trying to wrap my head around the concept to get a better understanding. http://money.howstuffworks.com/currency7.htm

I've searched the forums too and found https://bitcointalk.org/index.php?topic=24541.0 which further reinforced my knowledge to a certain degree.

My two questions are;

1. If it were backed by something, what does it mean to cryptocurrencies?

2. Is it a good thing or bad thing ?

Something similar was stated above, but as soon as bitcoin is backed by something physical such as gold, it implies that someone or some entity is holding the physical item that is being used to back the currency.  So then you have some type of centralized entity that has to be able to resist the pressures of some other people and groups of people.  Some of those people will be legally able to guns (governments) to force their will on this entity, some people may try to do so illegally (gangs, criminals etc).  As soon as some entity is doing the backing, then that entity can be robbed or pressured by their government to remove the backing.  Or to water down the backing etc.

Could a government be the backer?  Sure, the government of Russia could resist the pressures from the EU, China, and US for example.  But could the government of Russia resist the pressure of Putin to do so?  Probably not.   Could a US government agency resist pressure from China or Russia?  Sure.  But could the  agency resist the pressure of the President?  No.  So then, which government would it be?  There would be no consensus.  Would it be the UN?  They can't even resist the pressure from the smallest member, so that would be even worse.

So, in general backing bitcoin by something physical will result in centralization and all the problems inherent therein.  And you have the problem of picking who the centralized entity will be.

Bitcoin itself is backed by math, the trust in the network, the trust in the protocol, the blockchain, the infrastructure and the combination of all of those (and more) into a network.  It is likewise backed by the uses of all of those things. And together they are quite useful and consequently valuable.  Nothing physical, but nevertheless these non-physical things backing bitcoin are quite valuable. 

Kind of like the internet in 1993, few people were as aware as they could be of the uses to which it could be put.  People are only scratching the surface of the uses of the blockchain concept.

:-)

[AltcoinInvestor]

Bitcoin is not backed by something.

Bitcoin is backed by people.

We're deciding the price of it.
If I've bitcoin and I want to sell it at price of 30$ or 1000$ who would say anything about that?
Or Vice versa, If I want to buy bitcoin I could just say I want to buy bitcoin at 500$. If someone wants to sell this price I got it.

We're using fiat currencies just as a tool to buy or sell bitcoin.

When the bitcoin is accepted as a currency in world wide, it's gonna mean a lot.

[hashman]

If I say asset X is backed by asset Y, it means that I personally agree to give you asset Y in exchange for asset X at the agreed upon value. 

So, to initiate a "backing" you need a central issuer (in this case me) to make the promise of future exchange between the two assets.   

Generally, you should see that I used the word "backed" and realize that I am probably lying to you.  The history of this word has only shown that it is used fraudulently leading to defaults.  Even when an individual or group fully intends to trade the asset for the paper when asked, often circumstances lead to default.   

[RobbinHoodz]

ELI8 (i feel like a 8 year old) - I've been doing research about the Gold standard and how it works. I'm trying to wrap my head around the concept to get a better understanding. http://money.howstuffworks.com/currency7.htm

I've searched the forums too and found https://bitcointalk.org/index.php?topic=24541.0 which further reinforced my knowledge to a certain degree.

My two questions are;

1. If it were backed by something, what does it mean to cryptocurrencies?

2. Is it a good thing or bad thing ?

Something similar was stated above, but as soon as bitcoin is backed by something physical such as gold, it implies that someone or some entity is holding the physical item that is being used to back the currency.  So then you have some type of centralized entity that has to be able to resist the pressures of some other people and groups of people.  Some of those people will be legally able to guns (governments) to force their will on this entity, some people may try to do so illegally (gangs, criminals etc).  As soon as some entity is doing the backing, then that entity can be robbed or pressured by their government to remove the backing.  Or to water down the backing etc.

Could a government be the backer?  Sure, the government of Russia could resist the pressures from the EU, China, and US for example.  But could the government of Russia resist the pressure of Putin to do so?  Probably not.   Could a US government agency resist pressure from China or Russia?  Sure.  But could the  agency resist the pressure of the President?  No.  So then, which government would it be?  There would be no consensus.  Would it be the UN?  They can't even resist the pressure from the smallest member, so that would be even worse.

So, in general backing bitcoin by something physical will result in centralization and all the problems inherent therein.  And you have the problem of picking who the centralized entity will be.

Bitcoin itself is backed by math, the trust in the network, the trust in the protocol, the blockchain, the infrastructure and the combination of all of those (and more) into a network.  It is likewise backed by the uses of all of those things. And together they are quite useful and consequently valuable.  Nothing physical, but nevertheless these non-physical things backing bitcoin are quite valuable. 

Kind of like the internet in 1993, few people were as aware as they could be of the uses to which it could be put.  People are only scratching the surface of the uses of the blockchain concept.

:-)

Thank you, and to the rest of you for your sharing your knowledge.

In summary, I don't really like where this cryptocurrency is going then. After reading this, I don't know if I can even trust in the "trust". Don't even ask me why. In my view, its like opening Pandoras Box.

[johnyj]

The stickiness of money's value: It is first backed by a consensus, then if a large drop in price happens, people will feel that now it is the right time to buy, thus support the price at a lower level

Actually the mining cost is a good indicator, since the demand from fiat money will always flow to the lowest possible cost to get coins, either mining or purchasing, the result is that the mining cost will be close to the actual exchange rate

Regarding altcoins, just like silver, tungsten and many other metals, they have similar property as gold, they never became as valuable as gold, since people need only one type of universal money to do the transaction, for convenient

[Atdhe]

But what is gold backed by?

Gold is backed by trust. As any currency. If some currency is "backed by gold", then people fall into false impression that the gold itself has value. It has not. When gold is backing currency it is just a proxy of trust, because people simply have trust in gold.

Fiat money as well are backed by trust. By trust into issuer, which is central bank, that the issuer will maintain price stability. This is why common currency markets watch extremely closely even quality of shit of the board of central bankers. Because it is always just a matter of time until central bankers do something nasty.

[Atdhe]

Helium (gas) got some very unique properties and apparently is very scarce, but it's not considered valuable or precious.

Helium has extreme costs of holding. To store helium is no fun.

[Sindelar1938]

Bitcoin is backed by something: logic and mathematics
And that's unequivocally a good thing

[Atdhe]

Bitcoin is backed by the exact same backing as gold. Belief in it's value.

Except gold has very rare physical and chemical properties, while also being scarce...
Gold really does have value by itself, as a resource. Bitcoin does not.

It's true that gold does have some special properties. It's non-reactive, great conductor of electricity, etc. But that is not why gold is valuable. There is a long history of gold being considered valuable. This tradition is not connected with electrochemical properties. Gold is simply perceived to be valuable beyond it's utility.

Bitcoin also has utility and special properties. It is the fastest, cheapest, and most secure way to send money to anyone. That is an extremely compelling idea. Like gold, it's supply is limited and unchangeable. But also like gold, the real reason to exchange some wealth for bitcoin is because of a shared belief in it's future value.

Ah, good point. I agree.
But then the next problem is that bitcoin can be replaced by alt-coins with the same properties. Some of them even allow infinite creation of new coins... (meaning it can never become scarce, and therefor more valuable per unit)

That is exactly why altcoins will fall apart. The answer for "What are altcoins backed by?" is: incredible stupidity of hipsters.

[onewiseguy]

a ballon holds helium and its cheap, When ballons placed at a party its lots of fun.  


Back to the post, if bitcoin was backed by anything but what a buyer wants to pay than its just like fiat so think of it as bitcoin being its own type of gold. well i least i do.

I think a couple of cryptos tried that backing stuff never worked.

[silverfuture]

If I say asset X is backed by asset Y, it means that I personally agree to give you asset Y in exchange for asset X at the agreed upon value. 

So, to initiate a "backing" you need a central issuer (in this case me) to make the promise of future exchange between the two assets.   

Generally, you should see that I used the word "backed" and realize that I am probably lying to you.  The history of this word has only shown that it is used fraudulently leading to defaults.  Even when an individual or group fully intends to trade the asset for the paper when asked, often circumstances lead to default.   

Well said.

[sandykho47]

1. Cryptocurrency or bitcoin won't be 100% anonymous & P2P. Bitcoin / Cryptocurrency lose their original goal
2. Bad thing, they can control bitcoin as they want 

Bitcoin for now is already good, it don't need backed by something, but by the user 

[cinnamon_carter]

it is , it allows you a system to trust strangers,

read Satoshi's whitepaper

[OrientA]

If BTC is backed by something, if that thing is useless, BTC is worthless. BTC is backed by community, us.

[cellard]

Bitcoin is backed by the exact same backing as gold. Belief in it's value.

Except gold has very rare physical and chemical properties, while also being scarce...
Gold really does have value by itself, as a resource. Bitcoin does not.

It's true that gold does have some special properties. It's non-reactive, great conductor of electricity, etc. But that is not why gold is valuable. There is a long history of gold being considered valuable. This tradition is not connected with electrochemical properties. Gold is simply perceived to be valuable beyond it's utility.

Bitcoin also has utility and special properties. It is the fastest, cheapest, and most secure way to send money to anyone. That is an extremely compelling idea. Like gold, it's supply is limited and unchangeable. But also like gold, the real reason to exchange some wealth for bitcoin is because of a shared belief in it's future value.

Ah, good point. I agree.
But then the next problem is that bitcoin can be replaced by alt-coins with the same properties. Some of them even allow infinite creation of new coins... (meaning it can never become scarce, and therefor more valuable per unit)

That is exactly why altcoins will fall apart. The answer for "What are altcoins backed by?" is: incredible stupidity of hipsters.

Altcoins are backed by Bitcoin. They are tools that allow people to get some Bitcoin from the pump and dumps, thats basically all.

[Atdhe]

No. Altcoins are not backed by BTC. Altcoins can be exchanged to BTC or some money. That is not backing.

If something is backing altcoins then it is the belief that alcoins will be money one day. Same with BTC. Problems with altcoins is that nobody needs more currencies than 1 in the world without borders. The idiotic assumptions that people will have one currency for bigger payments and another for buying milk and bread are really incredible. They will have 2 or 20 wallets, where will be different amounts of money, but there will be just one global currency (maybe not bitcoin though). People do not want to count more currencies, there is no one advantage of it.

[DhaniBoy]

current bitcoin course must be supported by something, because bitcoin can not stand alone, bitcoin is still in need of a fiat currency in circulation in each country, bitcoin is currently valued at US dollar currency, which makes it valuable bitcoin, because of the absence of comparison, bitcoin into stuff that is not its price
when the infrastructure of a country already accept bitcoin as a trading currency and can be used as currency buying and selling goods, then at the same bitcoin does not require backup again ... 

[Atdhe]

The fiat currency circulating is not help to BTC. It blocks the space, that BTC could easily fill in.
This way BTC is pushed away only to darkmarkets and only because of darkmarkets, moneylaundering, illegal gambling and all this crazy stuff can be BTC counted today as protocurrency. Only at Darkmarkets is real need for BTC. Buying t-shirts or cafe via bitcoin is very cool, but nobody needs BTC for it. If it would not be used at darkmarkets, it would be still a toy. Thank god for the oppression and stupidity of states which still say drugs are illegal. Cheaper transactions itself are not argument big enough to break through monopoly.

Best what could happen for BTC would be some real economical and monetarian doom over planet or at least in some states. Such doom would be perfect for Bitcoin, but very bad for people.

[devphp]

No. Altcoins are not backed by BTC. Altcoins can be exchanged to BTC or some money. That is not backing.

If something is backing altcoins then it is the belief that alcoins will be money one day. Same with BTC. Problems with altcoins is that nobody needs more currencies than 1 in the world without borders. The idiotic assumptions that people will have one currency for bigger payments and another for buying milk and bread are really incredible. They will have 2 or 20 wallets, where will be different amounts of money, but there will be just one global currency (maybe not bitcoin though). People do not want to count more currencies, there is no one advantage of it.

I put the idiotic assumption in bold.
I guess you never heard about the concept of competition and how it helps any industry stay honest and innovating.