Topic: BTC NOT BACKED BY ECO SYSTEM (Read 296 times)

The idea of "backed by something" was gone about 50 years ago. Fiat right now is backed by governments but the idea is that it’s backed by the citizens, the moment citizens leave that fiat, the fiat becomes useless, aka we have seen buying gum with billions of dollars in some cases in some nations, and $5 get you a 5 star hotel in those nations.

So, you need to be really careful about what you invest into and use if it's backing you are looking for. USA is the greatest economy in the world and they are not backed by anything, it’s just guns and gunpowder at this point that keeps them in power, and they are doing horribly with that as well. So bitcoin is fine, it's same as any other fiat.

The situation in Argentina is a bit "specific". The official exchange market is restricted. You can buy only the equivalent of $200 US dollars on the official exchange market, and only if you declare you don't receive subsidies for electricity and gas (which 90% of the population receive). You can do some financial operations to get "hard currencies" (e.g. buying Argentine bonds or stocks that also are listed in New York, and sell them for US). Of course there's a black market too. But these methods all involve some risks and/or are expensive. Thus people buy stablecoins and use them for saving, and also for buying/selling goods.

I agree with you that investing in stablecoins is much riskier than in the underlying fiat currency, but in this specific case, for some people which fear Bitcoin's volatility and don't want to trade, it can make sense. At least for relatively small amounts, e.g. to save for the next vacations.

So there are some niche use cases, but overall, I agree that 90%+ of Ethereum's "smart contracts" are only used for "circlejerk" speculation.

It might have some use case, but saving to a stablecoin must be one of the worst things you can do. First of all, saving on fiat currency is generally not a good idea, especially these days that it gets de-valuated day by day. And since stablecoin reflects to a fiat currency's market value, it's a bad tactic. Second, as said by pooya87, there are no guarantees that the company does have the necessary reserves, and that it'll continue maintaining this stability.

In fact, from a Forbes article of 2021, Tether released that they hold about 75% of their USDT in cash. The rest 25% comes from investments. And that wasn't always the case; they switched from 100% cash to 75% in March 2019.

Summarily, it isn't safe, because there's another centralized entity introduced to the whole situation, along with the FED.

The only use case I can think of is anonymity. Say a merchant doesn't want volatility of bitcoin, and want (ironically the volatility of) their fiat currency. They can accept USDT, and you can acquire it and immediately spend it without holding it for a long enough time to experience losses.

What asset backing ETH does have exactly? ETH and BTC are both not backed by any other asset. ETH has a real life use indeed but so does Bitcoin. People send and receive btc every day. They sell stuff, purchase stuff. That's the main use case of bitcoin. ETH on the other hand is providing housing for other projects mostly. People don't usually use ETH as a payment method.

You don't have to counter your friend's arguments anyway. He is not going to change his mind just because you successfully defended your arguments. People will believe what they want to believe.

I disagree because even in those cases people should stick to real fiat currencies instead of an extremely high risk token created on a centralized mutable blockchain that promises to have a stable price with no guarantees. Not to mention this token itself is controlled by a centralized organization.
Besides MakerDAO is more of a lending platform than a stablecoin, and the price of the token is subject to the market volatility of the shitcoins like ethereum it relies on. We saw this specifically in 2020.

I think you are mixing up things. Bitcoin and Ethereum both are not backed by anything. Both are digital assets.
The thing you are talking about basically is the utility. Ethereum's utility is smart contracts which people can use for a wide range of things.
Bitcoin's utility is the coin itself which is decentralized and enables us to make P2P transactions. This is what you should counter with.
Although these coins are not backed by anything they have their own values which I have just mentioned.

Pretty much what hatshepsut93 said. If you use the term "backed by" as an insurance that 1 BTC can be traded at any time with 1 unit of an other asset, then it's wrong, because bitcoins aren't liabilities, same as bank notes were during the gold standard epoch. But, "backed by" is a synonym to "supported by" as well, which in this case is true; bitcoin's supported by a variety of merchants across the world.

But, is that a good question? Say the same merchants who accept bitcoin, added ethereum to their available payment options. Would that unmake ethereum a shitcoin? Take a better example: Fiat. Everybody accepts fiat, but I can't deny it's a shitcoin, because a small group of non-elected people decide the monetary policy, and there's only one full node running. 

I partly agree with the hypothesis that Bitcoin's "not backed by anything" - it's at least not a backing like the gold standard where you could exchange a Bitcoin to [random other asset].

But: Only "scarcity" matters? We have to look closer into the meaning of the word "scarcity". At least, a "limited supply" of coins and mining equipment isn't the determining factor - and that's what most people associate with scarcity. You can create a second Bitcoin with exactly the same or a even more restrictive reward schedule and chances are it won't have the same value (there were some altcoins that tried that and miserably failed, even if we ignore the 51% attack risk).

Thus, it is important that there's an ecosystem providing value to the network. Often the word "network effect" is used for that - more users willing to buy or accept it, more service providers (which make the currency even more useful) result in a higher value. And that's what the OP is referring to. I think it's a complex system of value creation, with lots of ingredients, that make Bitcoin special, even in comparison to similarly designed coins like LTC or XMR.

Of course, if you're using the word "scarcity" correctly incorporating demand into the equation, then the "ecosystem" becomes part of the demand side.

Mostly correct, although I would argue that algorithmic stablecoins like Dai do have some use - for example as a means to save money in countries with an unstable currency like Argentina. But yes, most of the DeFi space is simply "trading a certain kind of ETH/whatever transaction for another one and whose transaction gets more hype wins!". And NFTs can be done with any cryptocurrency, including Bitcoin.

People use the term "backed" wrong. If an asset can be exchanged for another asset at a fixed rate at any time, then it means it is backed. But when people say that an asset is backed by something because that something gives it value, that's incorrect use of the term.

Bitcoin's and most altcoin's price is formed by supply and demand. The exception are stablecoins - their value is the same as the value of a currency that they represent, although in some cases it's not guaranteed, especially with algorithmic stablecoins.

Having a large ecosystem with many active users generates a lot of demand for a coin, which results in higher price. But altcoins don't really have big ecosystems, they merely pretend to have it. They hire shills by offering bounties, they do airdrops to generate some blockchain activity. Even Ethereum's ecosystem is largely fake, because it is not related to real world economy, it's just the most popular way to create and swap useless tokens.

As a common man its understandable that why he asked such question but as someone who know the basics of economy and importantly money we need to tell them these are the lies kept told to us millions and billions of times which registered in everyone's mind so the money we use actually backed by the reserves while in reality the money isn't backed by anything, they just print more money every year which is why we get into inflation and so one.

For the topic if we say ETH and other shitcoins has more use case because they case eco system supported by network then tell bitcoin is more accepted and highly decentralized unlike those shitcoin, the real meaning and purpose is behind the bitcoin not the ecosystem.

So since we got the better technology the system will built on its own like we are witnessing what is the status of bitcoin before 10 years and now.

Bitcoin is backed by majority of entities. Businesses, firms, institutions, investors, retailers, popular people and any individual who holds bitcoin. Its value is derived from supply and demand thats why theres a volatility with it.

On the other hand, ethereum is the 2nd of all that has a widely used application and also same with btc backed by its constituents (holders). I think your friend is just afraid with the idea that bitcoin or crypto is somehow a strong store of value against fiat which is literally not true but who knows. It works like gold and could double and triple its value in the future.

Rule number 1:
Don't argue with people, who are ignorant and don't understand anything about economics and finance.
This is a waste of time.
Rule number 2:
Don't argue with people, who don't understand how cryptocurrencies and blockchains work. This is also a waste of time.
Only argue with people who understand how economy and finance works. Maybe some of them will understand how cryptocurrencies work.
Ask your friend what asset is currently backing the US dollar and the Euro.
If you ask me, the US dollar is currently backed by promises and debts. The same thing applies to the Euro.
This definitely seems like a great ecosystem.

In order to sustain its decentralized nature, bitcoin must remain independent of any asset or business because otherwise, it will rely on some centralized maintainers of bitcoin's value, which is obviously not good if our goal is a censorship-resistant, decentralized peer-to-peer system for transferring value. In short, bitcoin "backed by nothing" is actually a feature, not a bug. As for use cases, it is a completely different story since it has nothing to do with underlying assets or businesses supporting something. To understand what use cases bitcoin has, you first need to realize that bitcoin is money in its purest form. From that simple realization, which requires doing a lot of research, you may conclude that bitcoin being a convenient and efficient medium of exchange is the only use case bitcoin has and the only one that matters. Other use cases, such as a store of value or an asset for speculation, are just derivatives of that main one. Your friend doesn't think that bitcoin is a good form of money, which is why they refused to accept the fact that bitcoin is demanded because of its credible monetary properties that makes them a good medium of exchange.

The respond is actually pretty simple, just ask them to show you a real use case of shitcoins like ethereum in real world that is not for gamblers and speculators. There is none! All they end up doing is listing a bunch of useless tokens that are created only for one purpose: fundraising and scamming people. Something that does not need a "smart contract platform" to be done.

Only stablecoins are backed by an asset, that's why they are called stablecoins.

The rest of the cryptocurrencies, on the other hand, are not backed by anything. This includes BTC and ETH.

Some people will think that being backed by nothing is a negative. Actually, that is irrelevant. Only scarcity matters for the price, and Proof of Work cryptocurrencies have succeeded in making currencies that become more scarce over time - some faster than others. The cost of mining rigs helps ensure that scarcity.

The US dollar hasn't been backed by anything since the 70's, yet it's still a fine payment medium.

being backed by. is not about "physical" (tangible)
because you then have to ask what is the tangible physical thing backed by to gain the underlying value

fiat right now is not backed by "just trust" or "physical gold" its backed by laws such as minimum wage that keep it useful/needed and also sets the underlying value

where in america and uk the £$10 is about an hours worth of labour

gold is not backed by "shiny" or "malleable". its backed by mining cost

ethereum right now is in high premium speculation compared to bitcoin. due to the PoS of ethereum. the price fell a bit each fortnight since the merge to PoS due to the underlying cost dropping. but its fighting to stay at its price which is now a premium due to the sentimental speculative emotions of utility. but that hype cannot sustain

with fiat because the min wage vs cost of living is spreading. the price is inflating meaning the value % is decreasing. people lose value holding onto fiat during this period of inflation

people really need to learn that the PRICE is not the VALUE
value is a separate number that sits below/underneath price.

when the price is near value then the asset is cheap/valuable. when the price is spread far from value. then thats expensive/over valued/ premium

the difference between the value and the price is an indicator of speculation. where by the spread can be very wide when their is alot of demand, desire, sentiment of need

Most fiat money isn't backed by anything meaningful these days. We've simply out printed the previous metals etc, that fiat relied upon for backing it up. There's only a few notable currencies in the current climate which are backed by something physically. All the other's sort of give the impression they're backed by gold etc, but in reality they aren't.

This will also change relatively soon as we're transitioning into a digital world, and therefore a digital money system, which likely won't be backed by physical precious metals. As for the counter argument, Bitcoin has continued to go up, and that should be proof enough. However, if it isn't Bitcoin is simply backed up by a logical algorithm which assures it remains somewhat deflationary which is already a massive improvement on any other fiat system out there.

 

It is an opinion matrix created and unfounded from the very creation of bitcoin, very obvious early days, but with more than 12 years and before all the infrastructure of users, entrepreneurs and in especially the ecosystem that is supported, then this it is not valid argue such a thing present day!.

In fact, you are part of the answer by having bitcoin, which is one of the elementary principles of bitcoin, trust.

The comparing bitcoin with ETH is valid, but! I have the premise that if ETH is valid for someone, please!! do not come to me with stories that bitcoin needs an explanation.

So let's look at traditional assets; An asset can be consistent and have all the tangible support you want, companies, products, etc. but in general sometimes investors (not all but generally in WS) rely on the performance of the asset, the digital % of profit or loss, but when traditional confidence is lost in an asset, as has happened in the history of WS, that said action that was based on "something tangible" that backed it is not such a thing, where does confidence go...(to hell)

In any case, this is how I see it to give you a differentiated "block" from other previous comments.

once you understand the concept in my last post about backed value
(economics)

then looking outside of the no go zone value. and only look at the speculative green yellow red area. yes different assets have different features which can inspire people s sentiments(values.. not to confuse with value) which can drive demand and the price to be at a premium

but these sentimental (values) are not the same as the backed economic value

prolonged high demand of the sentimental values of utility, function, usefulness can create a higher non-zero bottom(black area no go zone) because the costs to make/acquire stay up so high no one would dare sell and cant make/mine for less



and yes in the past, such as late 2017 there was alot of sentiment in bitcoin that it was then offering new features due to a mandated upgrade that occurred. this desire and demand increased(along with other speculative reasons of that time period) which caused that price to rise

and yes right now many are stuck in the  NFT frenzy of adoring ETH more then BTC right now which is why ethereum is speculatively higher price than bitcoin

but thats separate from the "backed economic value"

once all the speculative hype of ethereum dies down. it will settle down closer to the black area

where as bitcoin has more potential to go up, because its not in a hype period right now, so when it does have a hype. it will go up

Can but aren’t. This argument will always stay irrelevant, because it doesn’t make sense to base basic business operations on a costly, centrally controlled, out of the businesses control and with no legal binding ledger when the business can achieve the same thing cheaper, more secure and better adapted to their needs themselves.

They don’t need ethereum or any other shitcoin to have smart contracts or more automated workflows(if they really need it at all), except if they wanna go bankrupt or give up part of control over their operations for no benefit. It doesn’t make sense cost and operations wise, it does simply fail in practice and is actually inefficient. That’s why you don’t see them do it, despite the hype, despite the technology being there since years.

Ask the people who actually handle the finances, processes or tech stacks of businesses on this idea, let them do the calculation and not some people who are just interested in hyping up useless tokens and don’t even run the use cases they’re preaching themselves.