Topic: What is bitcoin backed by? My favorite answers - page 3. (Read 10226 times)

Intrinsic value, in reference to money, is the value is has when the moneyness, or the exchange value, is removed.

For bitcoins, that is nothing. For fiat money, it is the paper value, you can decorate your walls or wipe your ass with it. Zimbabwean dollars has so little money value for the time being, its intrinsic value is dominant.

For gold, it is the technical use in electronics, it can be used to print title on bibles, it can be used to cover other metals for prettyness. For gold rings etc, the beauty is the value. Maybe for really heavy arm rings and the like, the owner also considers the money value of the ring to be useful sometimes in the future.

If you use the wider definition of intrinsic, as essential, natural, or from deep inside, then you are correct, nothing has intrinsic economic value, only use value as expressed by each actor on the market.

The special thing with money, is that when a commodity starts being used as the preferred commodity, it gains more value than its use value. for instance, if gold should again become useful as money, its value would rise, while silver and other commodities would stay put. Same if silver should become new money, it might go higher than gold in value.

This additional value is the exchange value, or the value of its moneyness. You could say that it is the use value of its service of facilitating indirect exchanges on the market.

At the time of the gold standard, a fully backed note (a note saying it represents some mass of gold) was worth more than the same mass of gold, even if the note holder had to pay the bank to store the gold safely. That was because the note was more handy in making exhanges.

So different money types has two value components, its exchange value and its intrinsic value.

Nothing has intrinsic value. All valuation is the product of subjective preferences. Even some people prefer not to have food (think forced feeding in prison)

Since when are electrons and photons not part of our physical world?  I think you mean to say the micro/nano/whatever scale is becoming increasingly important over the macro scale.

How long could Bitcoin survive if there were a global internet shutdown? I'm not sure how such a shutdown would look.

One thing I've really enjoyed in reading this thread is there are so many diverse ideas about what 'backs' Bitcoin and much disagreement.  I would be a lot more concerned of the possibility of Bitcoin enthusiasts being in some kind of self-deceptive, self-reinforcing cult if it were a community of like-minded people.  Yet although there are obvious trends Bitcoin does attract people from virtually all political and economic stables which I believe gives the idea and the currency resilience.

My conclusion:  Come to agree on things if you must but long may diverse opinions be seen and be welcome here

Thought-provoking. One thumb up

This would be a possible way (as the tech matures) to make the blockchain something physical and recoverable. Though it couldn't be updated or read quickly, it can be turned entirely into something physical that can exist and be recovered at some point by the right people with the right tech to do so.

http://www.extremetech.com/computing/146600-new-technique-stores-terabytes-data-on-dna-with-100-accuracy

Solex and mobodick have the right idea. Here's an excerpt from the blog in my signature:

The value of Bitcoin comes from the implementation of a true, public ledger, with every recorded bit of information/data that the economy creates, processes, and stores. The utility of that record is what defines the worth of its currency. Instead of atoms like gold or silver having "intrinsic value", subatomic particles like electrons (and in the future, possibly photons) are becoming the stores of value for our new world. Our global society has been migrating away from the old physical world, to this new age, where information is becoming a more valuable part of our existence. Corporations know that in order to survive they must hire strong ideas, not people. A majority of the world's societies have been participating less and less in the physical world, and more in digital networks, like Facebook, or this blog that you are reading, right now, on the internet. Being able to verify all the accounts and transactions of your world can be very powerful. It can also be scary, which is why Bitcoin transactions include anonymous capabilities.

We are leaving our physical world people, don't stay attached to it...

backing requires an authority or individual to provide guarantees which are not intrinsically given by the item exchanged. At the very least, all paper currencies require backing, because they are easy to counterfeit. This backing usually takes the form of military power and legal threats.

Nobody can be stopped from providing additionally guarantees for bitcoin. Thus to correct my previous post:

E.g. a government can decide to participate in nation sponsored bitcoin mining. This is a reasonable thing to do, once a nation decides to back their paper currency with bitcoin.

I find this too self-referential.
What you say is the same as saying that the system supporting the gold market is part of the instrinsic value of gold.
Bitcoin only has this perceived intrinsic value while it is being used.
What you name are properties of it being used as a currency (or store/transport of value).
It's like saying part of the intrinsic value of gold is that you can make boulions from it. :/
You have to ask yourself, what is bitcoin worth without being used as a currency.
That would give you its intrinsic value.

Maybe you are confusing 'intrinsic value' with 'economic value' ?

+1 for this answer by Solex

I disagree with those who loosely state that bitcoins have no intrinsic value.  Bitcoins have the ability to transfer economic value to a designated address anywhere in the world practically at no cost and it can do so almost instantly.  No other commodity, that I know of, has this ability.  I expect the perceived value of this unique capability to increase dramatically as people come to recognize more and more productive uses for this new means of unparalleled economic efficiency.

By this definition the 'value' of the chain would be 'nearly infinite'.
There is more to valuing things tho.
The chain is pretty useless without the right key. And since it is so incredibly dense you have virtually no chance to get any value from it without the right key.
So is it the chain that should be valued for this or is it the key?
How much difference in utility is there between bitcoin (with the chain) and a system of encrypted IOU's for most people?
I think there is more utility in the fact that bitcoin is a digital (internet tradable) currency than it works through some chain.
The chain can only have value in the context of the bitcoin network. The data itself is worthless outside of this context.
Therefore you cannot separate the blockchain and then value it.
Moreover, i could not exchange the blockchain file for anything of value.
The file is worthless by itself so it is backing nothing.
There is no backing for bitcoin simply because if this network stops to function there will be nothing of value left.
If bitcoin was backed by gold and it collapsed i could at least get ome gold and since it has an intrinsic value (people give it some value no matter what) i still get to eat.
Guess what, if bitcoin collapses noone will sell you food for the blockchain. It has no intrinsic value whatsoever.
You can only get utility from it while it is functioning within the larger system of bitcoin currency.
The whole idea of 'backing' is that there is some other good that has an intrinsic value that is held as a represetation of value to be used in case the currency it is backing will collapse.
The perceived bitcoin 'intrinsic value' comes only from itself so if it collapses its perceived intrinsic value will also collapse. There is no backing.

I'd agree on the use of the word 'optimal'.
But I would say that 'optimal' is even stronger bound to a situation (or environment) than 'ideal'.

Something can only be optimal (or even ideal) if you consider it in a certain setting.
There is no absolute ideal (or optimum), they are all relative to the surroundings.

And to get back to the topic, Aristotles ideals are only partially applicable to todays situation.
Some of those ideals are even completely meaningless for a virtual currency.
So i'm pretty sure even Aristotle would agree that you need to keep checking if ideals still represent the optimum for a given situation and adjust the ideals accordingly.
Blindly following something said a couple of thousand years ago is not a wise thing to do.
If you cannot improve on aristotles ideals then you havent looked at how currency has been used for the last couple of decades.
For one, how about a prerequisite of currency being just information (making it possible to use over the internet)?
It seems to me to be something Aristotle would have never thought of simply because his environment never proposed such a possibility.
Nowadays currency systems that cannot transfer value digitally are becoming pretty useless at a fast pace.
That also puts some pressure on Aristotles ideal that a currency should have some form of intrinsic value.
I would even say that from current perspective the best thing would be if a currency had no intrinsic value whatsoever.

Sure. But gold can exist even without a valuer. So, gold is more than just a value. Gold is money!

The blockchain is logically a single file, and the fact that it can be copied so easily adds to its value, not reduces it, (by enhancing its utility).
The question of valuing the blockchain is to ask "How easy is it to construct another, different one, of similar size, from scratch?"
The answer is - nearly impossible. In terms of Information Theory the blockchain is probably the most information dense object in the world. It is so dense that not even a single byte can be changed without it being degraded. Making another requires enormous amounts of computing power, and not only that, a new one would lack the real-world connections to thousands of individual people with discrete personal holdings represented by entries in the blockchain.

This is the backing for bitcoin.

Mt.Gox provides a mechanism for the valuation of this phenomenon in a "wisdom of the crowd" manner.

http://www.youtube.com/watch?v=iOucwX7Z1HU

"Value requires a valuer."  -J. Baird Callicott

"The concept ‘value’ is not a primary; it presupposes an answer to the question: of value to whom and for what?”  -Ayn Rand

Actually backing's specific meaning (which you conspicuously fail to volunteer) has at least two separate connotations, internal and external.

You also fail to suggest which other word should be used instead.

And then there's this:


Which tells us something about the POV your coming from.  Bridget Brown, is that you?   

Gold can exist without Internet. Bitcoin can't.
Gold can exist without electricity. Bitcoin can't.
Gold can exist without humans. Bitcoin can't.
Gold doesn't depend on SHA 256 algorithm and how NSA breaks cryptographic algos. Bitcoin does.

So, what you say is not true at all.

The concept of "ideal" means completely removed from any particular situation.

From Merriam-Webster:

The word you should have used instead of "ideal" is 'optimal' (most desirable or satisfactory).  Big difference, as you've neatly demonstrated.

Anyway, I can't improve on Aristotle's definition of a good money (ie an ideal exchange medium). 

I'm just glad to see it instantiated in Bitcoin.  It's been a long wait for the Holy Grail of digital cash for us impatient fiat money haters.   

Sorry, my mistake.  It was Jutarul who is half right when he says Bitcoin doesn't have backing (because like gold, Bitcoin is backed purely by its own utility).

OTOH you are half wrong for

1) not understanding the subtle circular nature of an Aristotelian good money's self-backing properties, and

2) screaming at me in rage-font (for the offense of trying to teach you something).

Thus, you're completely wrong to assert (in big bossy letters) that "valued properties != backing," ignoring the fact that backing may be external or internal.


For X to be backed by Y, X must be guaranteed to be convertible to Y.

E.G. A gold standard, where a currency is guaranteed convertible to gold by the issuer of the currency. 

For Z to be backed by Z, Z must inherently posses valued properties.

E.G. Monetary PMs and Bitcoin.


Your silly question ("can I cash in my 1btc or 1gram of gold and get utility as ideal medium of exchange out of them?") amply demonstrates your lack of understanding the crucial distinction between extrinsic backing (via an artificial arrangement) versus intrinsic backing (via inseparable quintessential properties).

Your other silly question is not even a proper sentence.  Do try and proofread, especially when posting in a fit of pique.   

And don't be so narrow-minded when it comes to the meanings of words.  Your linguistic rigidity is the source of your confusion. 

Words have radial definitions, especially phrases (such as "backed by") based on flexible spatial metaphors.