Why don't we just create backing for Bitcoin?

[julz]

Then when Bitcoin becomes a threat the banks lobby the US govt who links Bitcoin to terrorism and seizes the gold which combined with the media reports causes Bitcoin to crash.

+1

Bitcoin is a base value, which is backing only by how people value it. Like gold.

^this.

Centralized backing is a point of attack and if when attacked, would probably result in a psychological kick in the nuts to Bitcoin.
(perhaps not fatal, but possibly enough to set it back years/decades)
Conversely - Bitcoin has bootstrapped itself just fine without it, so it seems it doesn't need any psychological trick like this to thrive.

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[ribuck]

The hard part is finding people to donate the backing.  Specifically, finding people to donate enough backing so that the peg sticks.  I estimate it would need to be on the order of a million USD.

Bitcoin is already backed by a million USD of buys on the MtGox order book. The price is dynamic, but the USD are real.

[benjamindees]

Bitcoin is already backed by a million USD of buys on the MtGox order book. The price is dynamic, but the USD are real.

In case it wasn't clear, I meant a million USD worth of real assets, not fiat fun-bux.

[ribuck]

In case it wasn't clear, I meant a million USD worth of real assets, not fiat fun-bux.

Do you see the irony in your valuation of the "worth of real assets" in terms of USD?

[nedbert9]

Bitcoin backing?  Lap dance coupons.

[jaychristopher spendbitcoins.com]

I'd vote for backing gold with bitcoin instead.
Bitcoin is transparent and has a controlled scarcity, whereas gold was a good short term solution that doesn't have either of these advantages. What would happen if we found out that 90% of the earth's core was made of gold and we had machines to mine it? I am exaggerating of course, but I do know that people still find large sums of gold today.
I am unaware of a major governmental currency that is still really backed by gold (there very well might be, but I am more aware of fractional reserve as the primary method) - so why should bitcoin be?

[TTBit]

Why back all 21 million coins? Collect 100k coins at an address and get a company to back it with 100 oz gold. These 100k coins would be traded at a premium, since you can always turn in 1000 coins for 1 oz of gold.

Is it possible to differentiate between coins using only one block chain? If so, could facebook collect 100k coins and deem them "facebook coins" and use them for facebook transactions, while mooching off the one 'main' blockchain.

[FreeMoney]

Backing is crap. Backing is a promise that usually gets broken. Who do you believe? Who do you trust will always be willing and able to pay? What other thing do you even want? What will back it?

I'd rather just have the useful thing itself.

[BrightAnarchist]

Backing is crap. Backing is a promise that usually gets broken. Who do you believe? Who do you trust will always be willing and able to pay? What other thing do you even want? What will back it?

I'd rather just have the useful thing itself.

Agreed.

BTW I recommend listening to Stef's opinion on BTC, it really clarifies the whole "backing is neccessary" misconception:

http://www.youtube.com/watch?v=s_VewfiuCao

[cbeast]

What is the Confederate dollar backed by? We need to think long term here. Bitcoin is backed by the freedom of the Internet. If the internet loses its freedom, then Bitcoin loses all its value.

[notme]

Stephen Gornick, to show that scarcity in itself is not enough to provide value I need only point to SolidCoin or other Bitcoin forks.

SolidCoin was not scarce... its supply was manually controlled.  There are several forks with nontrivial value, but network effects cause bitcoin to be far more valuable.  If bitcoin fails in a way that these other forks address, or DNS gets grabbed by the ITU or similar, namecoin or another fork will gain value.

[finkleshnorts]

here is how to "back" bitcoin: merchants price their goods at a fixed amount in BTC, and vary the USD price accordingly.

[benjamindees]

Do you see the irony in your valuation of the "worth of real assets" in terms of USD?

No.  It's perfectly reasonable to communicate the approximate current value of an undisclosed asset in terms of a widely-used currency.

The topic is "backing" of Bitcoin.  Market value is not the same thing as "backing".

[wyager]

No.
No.
No.


There is literally no good reason to back Bitcoin with anything. This would defeat the entire purpose of Bitcoin. There is literally no situation in which trying to back bitcoin with anything physical will have a good result.

Here's a handy rule of thumb; don't suggest trying to regulate or control the price of Bitcoin in any way. Bitcoin was made specifically to be regulated in such a way, and with good reason.

To quote someone on Reddit:

Bitcoin is backed by:

i) The laws of mathematics
ii) The laws of supply & demand

No need to trust any promise.

[benjamindees]

There is literally no situation in which trying to back bitcoin with anything physical will have a good result.

False.

[Realpra]

Unit of account and money really should be considered two different things.

Bitcoin does not necessarily need to be the first if it is a great tool for trade.


I guess we could back it at 2$/BTC for some slight psychological effect, but it would be better selling your house for BTC, renting it out or what have you.

[wyager]

There is literally no situation in which trying to back bitcoin with anything physical will have a good result.

False.

Name a situation in which you think it would be good.

[imanikin]

Then when Bitcoin becomes a threat the banks lobby the US govt who links Bitcoin to terrorism and seizes the gold.  The seizure combined with the media reports of Bitcoin no longer backed by anything causes Bitcoin to crash overnight.

No I like decentralized just fine.  

...

So instead of someone saying "I am not buying BTC for $6 it is not backed by anything" they will say "I am not buying BTC for $6 it is backed by only half a cent of gold". ...

+1
The skeptics' minds will not be changed by any backing.

If the gold backing is instituted before B is accepted by most people as a viable and useful currency, the banks will get the government to seize this organization, together with the gold...

IF and when B is accepted by most people, whether or not the skeptics exist will be irrelevant.

To me, they are irrelevant now, because B will live or die on its own merits, regardless of the unavoidable, eternal skeptics.

Besides the appearance of some superior digital currency, centralization in any form - mining, exchange, or via gold backing - seems to me to be the biggest threat to Bitcoin's survival right now.

[crazy_rabbit]

Personally I don't think Bitcoin absolutely needs to be backed up by anything else. It's a great medium of exchange as it is. But some people see the missing backing as a huge disadvantage that could result in a downward speculation spiral that would make bitcoins worthless.

As long as bitcoin can do stuff that no other medium of exchange can do, I don't see this downward spiral to 0 happening. But to ease the minds of skeptics, why don't we create our own backing for Bitcoin?

Set up an organization that accepts donations from community members. All donations will be put in gold (alternatively a basket of commodities/government currencies), and the organization will announce that it will forever pay out exactly x gold grams for 1 Bitcoin.

So, for instance, if the organization holds 10kg of gold, it would promise to always pay exactly 10 000 / 21 000 000 = 0.000476 gg/BTC

Now the market exchange rate may rise way above x gg/BTC, but if people trust this organization the exchange rate will never go below.

The hard problem seems to be to find the people to put in charge of the organization. But it seems very likely that we can find people more trustworthy than the people in charge of government monetary policy.

I think this could help Bitcoin gain trust.

I think you are overlooking the idea that Bitcoin is supposed to *be* the gold in this senario. It's backed by it's cryptographic security. Even though we all accept gold as value, it's as arbitrary as any other item.

Where would this 10kg of Gold for example come from? Donations? IE: we would all go buy some gold? Gold value changes (quite dramatically sometimes) and it's value is calculated in other currencies. Your plan would essentially peg BTC to some other currencies valuation against gold. And then who would watch this gold? And who watches the watchers? Where would we put it? Suddenly BTC goes from being independent/ephemeral/online/virtural/etc... to being a large bank downtown where the government can walk in any day and take it all.

[knight22]

Bitcoin should be backed by huge amount of goods and services but right now we are very far from it… That will create a strong demand and deflation until stability