Topic: "Backing" - what does this actually MEAN? - page 5. (Read 8576 times)

Agreed!  Indeed, we could all decide to redifine the word "bitcoin" to mean 1 ounce of cheese.  As cheese is not limited to 21 million ounces we must conclude the possibility of inflating the supply of bitcoin without defeating any cryptography whatsoever.

JoelKatz is usually pretty sharp but can't always be expected to keep pace with the likes of us.  Fortunately, he's not in charge of anything of tantamount importance.

You could totally say that. Reasonably so. And people have, countless times throughout history.

Obviously you mean guarantee by a central authority. That's not going to happen ever because bitcoin don't wants that to happen.
You see bitcoin with fiat currency standards thats why you can't understand basic things.

I agree. Rather than arguing over whether Bitcoin is "backed", when we all agree on its properties, let's instead talk about what the consequences of those properties are.

The problem with this thread, and the many others like it, is that definitions get pulled out of asses, and it turns into a fight over which rectal definition is right.

I urge you all to read some actual published works from proper economists that have worked on this problem and see how they use the term.

If you accept this reasoning, then gold is not scarce. Everyone but you could agree to consider aluminum to be the same as gold and now your gold is no more valuable than aluminum. This is not that unrealistic. Fractional reserve gold notes could actually do this if the market considers them "close enough" to gold.

The reason for the confusion has to do with the fact that "backing" has been used to mean more than one thing over the years.

The oldest sense is that one unit of a currency is guaranteed (by some central authority) to be physically redeemable for X amount of commodity Y. This archaic meaning has little relevance today and it is hard to see how it could apply to a cryptocurrency anyway.

A derivative of this meaning is that a central authority agrees to retain X  amount of commodity Y in its physical possession for every unit of currency issued into circulation. Few currencies work this way any more, and again, a cryptocurrency cannot work this way if no central authority exists.

There are other, more abstract uses of the term as well. "Backing" can mean a central authority's conferring legal tender status, i.e. requiring that a currency be accepted for the payment of all debts, and requiring that certain liabilities (e.g. taxes) be payable purely in that currency. As the users of a cryptocurrency do not have any authority to confer such status upon it, this has limited relevance as well. There are vaguer notions, such as "backed by the full faith and credit of", whose meaning is debated back and forth by scholars; is it the full faith and credit of the user community, the issuing authority, the underlying economy, or some ineffable combination of all three? I would argue that the answer is not of much practical importance.

People get wound up about the notion of "backing" because of its perceived connection with unit value; yet the connection is often tenuous and ill-defined in real life. A currency has value when a community trusts that it can reliably entoken value in a predictable, quantifiable manner--it is as simple as that. This typically requires that the system be designed such that the average person cannot casually tamper with the supply by casually creating/forging new units. Thus, pebbles of gravel make poor currency units, because anyone can just take a rock and a hammer and create more, whereas elaborate paper notes printed by a central authority fare much better; there is a controlled supply. The original "backing" systems were stratagems to prevent the issuing authority itself from unduly tampering with the supply; that is their main importance. It was believed by some (and is still believed by a few) that such stratagems are necessary to preserve a community consensus that the currency is functional (the real bottom line here.) As cryptocurrencies have no central authority, and their supply is controlled by preset algorithms, "backing" in the older sense has no relevance to value.

One could argue that a cryptocurrency system is, in some vague manner, backed by the value of other funds invested in it, or by the value of goods available for purchase by it; but this verges on metaphysical speculation and I leave this question to philosophers. I also think that arguments that a unit of currency reflects the value of resources expended to "mine" it, or that it otherwise represents a unit of energy or some such, are badly misguided. Value is set by the community, the average community member does not even have access to such information, and he or she would not really care even if he or she did.

Actually yes it dose have thouse people in the Treasury department and the Federal Reserve, the former collects taxes in the Dollar and the later holds bonds and other assets.  As I said you may not believe them or trust them but they exist and are backing the US dollar, you can't simply say that your doubt in these agencies means the dollar is not backed. 

That is paramount to saying that because you doubt the bravery of a nations army that the nation is undefended.

JK you of all people are not allowed to repeat such idiocy, YOU KNOW THE CODE, Cryptography has ZERO do do we keeping BTC scarce, their is only a simple IF statement in a line of code that either accepts or rejects a block as valid based on the mining quantity that is standing between a finite supply of BTC and unlimited debasement.  The mining pools and exchanges have not chosen to edit that line of code on their software, but that choice is all to is guaranteeing BTC rarity, you can argue about how hard/unlikely/self-defeating it would be for them to do that, but it is NOT a cryptographically secured part of the Protocol.

+1

Dollars don't have such a group of people, either. Both bitcoin and USD have wealthy people, who are essentially backers, who support the currency through various legal and technical means, but those wealthy people would not be stupid enough to start buying up a crashing currency just to prop up its price, if they see it doesn't have a future. So each currency's future, and thus true backing, comes right back to how much you trust the system that's managing it.

By the way, gold has massive use value as an insulator of magnetic fields, insulating them in the same way that plastic can insulate electric fields in a wire? If you were to insulate a magnetic material with gold, it essentially forces the magnetism of that material to stay compressed inside that material, instead of escaping into the surroundings, and causes that material to become super magnetized, similar to a superconductor. But at room temperature. Uses could be frictionless bearings and magnetic levitation. But with society so hellbent on using gold as a store of value, and jacking up its price to many times its industrial value, I guess we will have to forego that technology for a while.

How likely must something be in order to be a "guarantee"? Absolute certainty? What guarantee of future exchange value do US dollars have? (And how do I enforce that guarantee?)

This notion of "backing" as an absolute (or near absolute) guarantee of future value is simply not useful. Nobody can ensure future demand. They can, however, back the supply or promise to exchange for something else of value. (Though that is not an absolute guarantee, of course. It's only relative.) Those notions of "backing" *are* useful.

I would point out that the US dollar has no backing of this sort, other than a vague, unenforceable promise not to inflate the supply "excessively". There is no guarantee of future demand by anyone, though of course future demand is nearly certain.

On its abstract, technical merits, Bitcoin is vastly superior to US dollars as a means of exchange. However, there are many practical ways in which the US dollar is superior to Bitcoins. For example, demand for Bitcoins is much more likely to drop drastically in a short time than demand for US dollars. The value of a Bitcoin is much more subject to manipulation and is much more unstable than the value of US dollars.

Backing has been tried before.  It didn't work.

www.youtube.com/watch?v=iRzr1QU6K1o

There is no magical way to make backing work.  It's time to do away with the whole concept of backing.

I wont educate you on the difference between a dollar and a piece of paper.

No, you have repeated absurdities. Back (heh) it up with logic and reason if you can.

We have gone over why fiat has backing. The quality of that backing is a different matter.

Man, I'm not sure if we are watching the same screen. Where did I say that BTC needs backing? The bolded part doesn't say that at all. I KNOW that backing would create counterparty risk.

My gawd. Why am I not in bed now? Someone wrote something wrong on the internet! Well, somebody else is free to hammer this flat. I'm outa here.

This is bullshit by the way. Or if we pretend (which is all it will be from my side) it isn't, then fiat has no backing.

All BTC needs are secure measures to protect utility. If BTC can retain utility under nearly ALL circumstances, it needs no backing.