Topic: What is bitcoin backed by? My favorite answers - page 2. (Read 10226 times)

+1 LOL 

Don't ask what Bitcoin can back for you. Ask how you can back Bitcoin. 

I really can't say I do.   You said that point can't ever be reached.  I say it can be reached tomorrow. 



No, to both parts of the sentence.  It is a direct consequence of mining awards, and once the direct block award goes to zero, you still have transaction fees.

It is the same with gold, just with gold it is much harder to open a new mine.  With Bitcoin it is a near perfect competition, and new miners will always join as long as it is profitable for them. 



More direct way would be to say that it will be limited to the amount of transaction fees collected.



I have no idea  how you got this 50%, or even what you mean by total economy.  Total energy use will be limited by how much money is there to collect in transaction fees, not 50% of that number. (It will depend on distribution of efficiencies of all mines.)



How is it a feature of USD? Creating trillion dollars takes zero energy.


Anyhow, what happens when 10% or 50% of all the world's energy output is consumed directly by Bitcoin mining?

It's not what Bitcoin IS backed by that makes it great, but rather what it ISN'T backed by 

Yes, I understood your point.  Did you understand mine?  The "intrinsic anti-value" that you point out is a direct consequence of Bitcoin's current inflationary state, and will cease to exist once that inflation ceases.  At that point, the energy used will be limited by Bitcoin's utility as a means of value transfer.  Regardless, the theoretical maximum energy use is actually only 50% of the total economy, not 100%.  Furthermore, this is a feature of all inflationary currencies, not just Bitcoin.  The difference is that, with Bitcoin, it will eventually end.

"What is Bitcoin backed by?"

It is backed by value.
Value is created by people, it is not intrinsic to anything except ideas (opinions).
Certain resources (gold, dollars, real estate, stocks, etc) have great monetary value in our society because we look for, or create, certain properties in them when following a particular - the most popular - economic theory at the time.
As an example, if we all started to adopt the theory of resource-based economics, widely promoted by Peter Joseph who created the Zeitgeist movie-series, we would value resources very differently.
So what makes Bitcoin valuable to people (adopters) in a capitalistic economy?
It can be a multitude of reasons:

• Deflation is better than inflation
• It is better to have a decentralized power
• Transactions in Bitcoin are cheaper, easier in a digital world
• The Blockchain: a PUBLIC record of every transaction
• I hate Ben Bernanke or the Federal Reserve System
• The security of Bitcoin's cryptography
• Irreversible transactions
• A new economy to start a bushiness in
• Anonymity (if done properly)
• Dude, I can buy drugs like I buy shit on Amazon... awesome
• I don't know, my friend uses it and I just follow whatever they does cause I think they're cool (majority of people)
• I like code
• I like turtle
• Miner: "Free money man!"
• we can win a major battle in the arms race and gain a new territory of freedom for several years
• Etc...

This has nothing to do with Bitcoins being limited, or fixed block reward halving.  Besides, mining rewards are 25 atm, plus the transaction fees.  Awards to be made from Bitcoin mining are unlimited.

If the price of Bitcoin went to $20.000 overnight (from $20 at this moment), you would see a 1000-fold increase in mining, simply because it would be so profitable.  So, there is a price point, where all the energy in the world is used.  (Of course I'm simplifying because, at some point the energy prices as well would go up, due to Bitcoin mining.)

See now what I mean by intrinsic anti-value?  The more the price of Bitcoin is, the more energy it (indirectly) uses.

You could, if the total number of Bitcoins were unlimited and if the block reward didn't decrease over time.  But, since it does decrease, we will never reach that point.

cf. fiat currencies

There is a connection between Bitcoin price and energy required for mining Bitcoin.  So, there exist a Bitcoin price point where world's total energy output is consumed by Bitcoin mining.

So, could we say that Bitcoin has intrinsic anti-value?

You've very welcome, it's one of my favorites too.

Tier 2 already includes physical commodities, which gold and energy (as oil/gas/coal/u308) are.

Check out the original FOFOA essay for the skinny.

http://fofoa.blogspot.com/2009/09/end-of-currency.html

Your revisions wouldn't hold in a Kondratieff Winter. 

http://www.runtogold.com/2008/02/first-snowfall-of-kondratieff-winter/

People will run to tangible gold, not abstract ideas/education.  Gold price and allocation are forms of information.

The bitcoinmedia essay seems to be vanishing from Archive.org!  Some of these still work though.  I saved a local copy, just in case.

http://web.archive.org/web/*/http://bitcoinmedia.com/gold-is-a-physical-element-bitcoin-is-an-abstract-protocol/

Maybe we need a Wayback Machine for the Wayback Machine; perhaps hosted at archivearchive.org?   

Agree with you

i been known to study maths and IT now and then

I have to say that was a really cool image and a great visual correlation, I could write a whole essay on that one picture! Thank you for sharing.

That said, I would revise a couple things though.



Really great either way!

Thanks again for sharing!  

The US dollar is backed by oil.  Saudi Arabia, Kuwait, and the other paper statelets only accept US dollars, so you must first buy dollars in order to buy their oil.

This regime is coming to an end, as explained in one of Ron Paul's finest speeches, The End of Dollar Hegemony.
https://www.youtube.com/watch?v=44wo8IhuHfQ

Don't worry, we cannot "run out" of Bitcoins.  The available supply will merely become more valuable, and the market will simply use substitutions like LiteCoin.

And here is the Big Diagram of What Backs What (Including Bitcoin):



Hopefully this will eliminate some of the boorish narrowmindedness, FUD, and confusion in this thread and replace them with conceptual clarity.


Now isn't that better than screaming at people in GIANT RAGE FONT and insisting they don't understand what 'backed by' means?   

Are you sure about that or you just believe in what you want to believe in? Did you check all the math yourself or you just prefer to believe in what tungsten mathematicians tell you?

I would like to add:

- Government and other burglars can't use a metal detector to find your math hidden in a wall brick.

- There are no laws banning you from moving more than 10.000 maths between borders.

- Math doesn't jingle while you are walking, puting a big bullseye over your head.

the I.T. community

I want to turn this question around, and ask what does bitcoin back? What other money has value because it is backed by bitcoin?

Historic reference: Gold backed money was used because the public did not trust paper money sufficiently, as they were accustomed to banks going bust leaving its banknotes valueless. Gold backed paper money could be trusted more, because for each note there was a correspondig mass of gold in the note issuing bank. Some old money units was mass units, for instance the mark.

Gold backing is not as good as gold, as history has shown. The fall of the money starts when the banks issue more notes than they have of the gold in store. This can go on for some time, since, as long as the public believes and experiences that the bank pays out gold for the notes, they trust them. But as soon as more notes are issued than the reserves, the money is risky even when they are gold backed. Then of course, they are suddenly not gold backed anymore. Nowadays there are no gold backed money.

In the future, bitcoin backed money can emerge. Here are two possible examples:

1. Gift cards. Some people regard gift cards as being part of the extended money supply, sometimes called M4. To be precise, a gift card is a note issued by a merchant chain saying the holder of the card can pay with the card for purchases in the store. Gift cards are denoted in bitcoins and backed by the store, either the stores money balance or its goods. This normally works well, but if the store or the chain goes bust, the cards are valueless. The point with gift cards is that giving money outright is not socially acceptable outside the family, but gift cards can be.

Some gift card systems are electronic, just like a prepaid debit card, you can use it multiple times in the store until the balance is exhausted.

2. Extend this system, so that it is issued by a separate company that have a money capital of bitcoins, and the cards are accepted at not only a single store or chain, but all merchants, and you have a new form of money. They would mimic todays fiat denoted debet cards. They could be fully backed, where the issuer has all the bitcoins that is the sum of all the card balances. Such a card could be more useful than a bitcoin wallet applications, with replacement of lost cards and chargeback possibilities for example. An agreement could be made with owners of the current terminal systems, in that case the user would have access to millions of stores from day one.

In these cases you could say that you have new types of money, backed by bitcoins.

But this is exchange value, not intrinsic value. Exchange value is the value of moneyness, the usefulness of the money in indirect exchanges. Intrinsic value is the value except for its moneyness.

The major types of value seen in currency systems.

A fundamental of exchange and economics is that only products can buy products.
Money is the medium of this exchange and currency is a structured form of money.

Products are produced by work, which could be physical (labor, automation, computation, etc) or intellectual (design, research, planning, creativity, etc).

Currency can encapsulate prior work, e.g. a gold coin, which required much physical work (mining, refining) and intellectual work (finding it, managing its transition from ore to ingot.) Such a coin has intrinsic value. Someone performed prior work and that is passed hand-to-hand as a gold coin buys products.

Currency can encapsulate future work e.g. a Federal Reserve note which is a claim on a proportion of taxation of future work, guaranteed by the US government. Such a FRN has fiat value. Someone is expected to do work, paying tax, and this expectation is passed hand-to-hand as the note buys products.

The fifty-year period from 1921 to 1971 saw a paradigm shift in OECD countries which was a transition from an intrinsic currency system to a debt-based fiat system. This has been emulated by the rest of the world. The "advantage" of a fiat system is enabling pulled forward demand, by monetizing future production. The forty-year period since 1971 has seen this advantage exploited to the full. The credit crisis of 2007, ongoing, is a reflection that as future production has been monetized as can realistically be expected to occur. Unless 100-year mortgages enter the mainstream no new leg up is possible in this paradigm. The problem for OECD countries is their economies have become demand distorted, debt addicted, and production-depressed, riddled with insolvent banks which are excessively leveraged. The advantage of fiat is outweighed by a larger disadvantage. Which is that inevitably more and more currency is issued based upon future production which is unlikely to occur in a realistic time-frame.

Enter Bitcoin.

Consider: IntrinsicValue =  PriorWork * Scarcity * Utility

Bitcoin and its blockchain satisfies all three above. The prior work is mostly computational, but also has an intellectual component in the design. It has scarcity, via controlled and limited issuance. It has enormous utility because it supports remote payments (unlike gold).

The Bitcoin network is a return to a hard-currency system with intrinsic value which is a much more sound basis for a world economy, removing distortions and rewarding real productivity. Because it leverages the power of the Internet it has every chance of superseding failing fiat systems. Banks would be forced into a sound model: "one bitcoin of lending to one bitcoin of capital."