If Bitcoin were backed by something.

[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 ?

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[Possum577]

Right now Bitcoin is kind of backed by the fiat currency (dollars, etc) we all use to purchase it. At a minimum that's what influences the price, which influences how much goods and services are per BTC.

The reason the Dollar was backed by gold (long ago) is because gold was something tangible (which means you can hold it, it's real), it's finite (there's only so much that exists or has been mined out of the ground), and it's valuable (which means people collectively place a value on it.)

It would be cool if Bitcoin were seen as this stand alone thing because it has a finite volume (only so many exist or will exist once all are mined) and people collectively believe it's valuable. The tangible part is harder to prove or agree on since you can't hold it in your hand but our definition of tangible may need to change in the internet age.

Does Bitcoin need to be backed by anything?

[Atdhe]

Does Bitcoin need to be backed by anything?

Of course. By trust. By trust that BTC is currency.

I think the economic definition - tangible, valuable, finite (able to divide...) etc. was somewhat too restrictive from the beginning and was about the money of the past.

The best definition of the money is that money is what is considered being money. Just this crazy tautology is always true definition of money.

Dollar now is also backed. Not by gold, but by the trust. Money do not need anything real (=rock solid) as backing. Money need just the real trust and belief of other people in the particular money.

When gold itself was money, it was not something so different, the metal was not accepted as money because it was concrete, but because people believed started to believe in Gold and it went on. Platinum might be same quality material for money and for sure it was always better than silver, but never became money. Because there was already money set. It is called path dependency (and because of that reason and only because if that I am extremely sceptical about altcoins).

[RobbinHoodz]

Can anyone come out and say, ok this thing "x" is backing up the BTC?

And I don't mean any organization - just an individual?

Because how I see it, if these bitcoin is powered by consensus, then wouldn't an individual be able to empower others to back it with consensus?

Sheesh I hope I make sense  

[devphp]

Can anyone come out and say, ok this thing "x" is backing up the BTC?

And I don't mean any organization - just an individual?

Because how I see it, if these bitcoin is powered by consensus, then wouldn't an individual be able to empower others to back it with consensus?

Sheesh I hope I make sense 

Bitcoin is not backed by anything.

'Backed up' by something means a currency can be converted to a fixed amount of the underlying asset. There is no such thing in Bitcoin. Some people say that it's backed by electricity. No, it's not. You can't convert a bitcoin to a fixed kW/h of electricity.

Backed by something also means the currency is centralized by the backer's ability to honor commitment to redeem the currency for an underlying asset. As far as I know no decentralized mechanism of redemption exists, please someone correct me if I am wrong. What can give Bitcoin and other crypto currencies value is demand for use cases. The more use cases - the higher the demand and the price.

[odolvlobo]

But what is gold backed by?

[pawel7777]

Backed by something also means the currency is centralized by the backer's ability to honor commitment to redeem the currency for an underlying asset. As far as I know no decentralized mechanism of redemption exists, please someone correct me if I am wrong. What can give Bitcoin and other crypto currencies value is demand for use cases. The more use cases - the higher the demand and the price.

It's probably possible to set a decentralised 'backing' if it relates to other intangible/digital asset.

Yes, backing bitcoin with physical goods would require trust (to the 'backer') but that won't necessarily make bitcoin centralised. Anyone can really back bitcoin with anything. For example, I can publically promise/oblige myself (making formal signed off statement, with all my details etc) to exchange 1 paperclip for 1 bitcoin. Each full bitcoin would be officially backed with one paperclip (as long as I'm alive), but that won't make it centralised. It won't make any difference whatsoever, other than no one could say that "bitcoin has no intrinsic value" anymore.

[pawel7777]

But what is gold backed by?

By general consensus that gold is precious and valuable?

[Q7]

For now bitcoin is all about acceptance. It's backed by community support and people's belief in it as reflected in the increasing hash rate. If you take something tangible and try to use it as a medium to support bitcoin, not sure how that would work out. Could that item be quantified and more valuable than bitcoin.... i really don't have the slightest answer.

Bitcoin is owned by the community and it's not possible for the community to buy something let's say gold to keep it and support each and individual coin??

[Eastwind]

BTC is backed by network of people (community).

[RodeoX]

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

[eizh]

Like any floating commodity, BTC is backed by demand. If it were backed by something else, it would simply be a proxy for that something else's demand.

[neurotypical]

But what is gold backed by?

By general consensus that gold is precious and valuable?

So the general consensus that bitcoin is precious and valuable is what we need, and nothing else.
Bitcoin is backed by math certainity, the blockchain. The rest is indeed consensus.

[spazzdla]

If it was backed by anything physical the country in which that item was held would be stolen by the country.  All of the banks are criminals and in 100% control of the money supply in every country.  Attempt to make something new they will jail you for life and steal EVERYTHING you own.

Liberty dollar, google it.  We are debt slaves, our masters would never allow competition.. alas our masters are not very smart.. or not as smart as they would like to think they are.

Designers >>>>>>>>>>>>>>>>>>>>>>>> all, Bitcoin is proving this.  Intellect is humanities greatest strength.

Gold is effectively "worthless".. however since you can never trust a human it is not worthless..  The fact it cannot be duplicated, it is rare and cannot be printed to infinity is insanely valuable.

[LOBSTER]

Do you think that the global elite (Bilderberger etc.) will accept the Bitcoin? I mean either Bitcoin or our existing shit economy (based on debts and manipulation of our population). The big crash is coming, I assume in 2016/2017. Our economy will drown.

[spazzdla]

Do you think that the global elite (Bilderberger etc.) will accept the Bitcoin? I mean either Bitcoin or our existing shit economy (based on debts and manipulation of our population). The big crash is coming, I assume in 2016/2017. Our economy will drown.

If a crash really happens BTC and Gold will be worth a lot.. A LOT.  If the idea paper is value is gone... shit will get real.

[Martijnvdc]

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.

[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.

[pawel7777]

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.

True, but value of those properties is a small % of total gold value. If you take away all the speculative/investment/store of value part, the price would fall to something around 15% of it's current value.

Also, remember that it's use in jewelery is mostly due to it being considered precious and valuable. Afaik pure gold is too soft and brittle to be used as sole material to make rings etc, you have to mix it with other metals.

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

[Martijnvdc]

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)