Topic: What is bitcoin backed by? My favorite answers - page 5. (Read 10271 times)

short answer: its backed by production costs
EG gold miners sell gold to cover their costs of production and a profit to cover their livelihood. gold is getting more expensive to produce a gold bar, hence the high prices.

long answer: its backed by productions costs and profit dependant on demand
EG if an individual gold miners costs were $1500 to make a weeks worth of gold bar the minimal they would sale for is $1500 plus a weeks wages. that's if their was not much demand and the miner was desperate to sell it just to break even.
but if the demand is high, the miner can sell for higher prices and rake in the profit.

same with bitcoin,  its electricity and computer components mainly, as oppose to excavators and 'washer' machines. bitcoins are getting harder to mine a block hence the higher price. then add on the costs of a few grands worth of rigs the miner has pre-paid for they will want more buck for their BTC. the amount of profit ontop of costs varies depending on the demand for it.

so just wait till ASICS hit the majority. at first there will be a flash flood of BTC hitting the market which may cause a drop, due to too much supply and not enough demand. but once the difficulty changes a few days later the supply amounts will decrease, demand will then increase again which would cause a rise.

we're just not as obsessed as you 

Right, because Europeans, Chinese and Indian people (especially those last two) all hate gold.... 

1. Drugz
2. Ponzis
3. Gambling
4. Other scams
5. Money laundering
6. Asset protection / "System D"
7. Fear / Quasi-apocalyptic expectations

I'd say that's quite enough to be confident in its exchange value

That was not the point of my post, but yeah well, such systems do exist, if they would scale up is another question. Also supply and demand still applies, a specialist doesn't have to trade their hours 1:1, if that is what you mean.

Just like gold is backed by... 

So I can cash 1 BTC and get some amount of math?

Bitcoin is backed by math.

Work hours would make a terrible currency since they are not at all consistent.

Zimbabwean dollars have intrinsic value... as toilet paper! Thats golden!

ah always those Americans with their gold.

On an island without any gold, should we suspend all economic activity and starve just because there just isn't any shiny rocks around? No, we can set up a LETS where we keep a ledger, and the unit of accounting is work hours. What is this backed by?

So no, money is not gold. Money does not have to be anything material or durable.

Money is information. That's all it is. Who contributed how much to the needs of a society, giving them the right to consume goods and services from this society.

So why this mania about gold? Well, money has always been a trust problem. Who or what to entrust with this information? Commodities like gold and silver coins have always been good tools to store and transport this information, nothing more. They're not money themselves. A common fallacy. They're tools.

Today we trust governments to administer this information, unfortunately. Ultimately, money today is backed by force. And also, as history shows, governments don't last forever, so it becomes obvious it's good to have something that does not rely on them.

So, to the OP, Bitcoin is not really backed by anything tangible, why not explaining it faithfully according to its actual technical foundation? It's an accounting system, just like the mentioned LETS, but without a central administrator who keeps the ledger and who must be trusted. And instead of work hours, its units of accounting are free-floating, determined by supply and demand. They're debt-free because the initial work is done by computers. Even in a LETS you can imagine that the administrators of the ledger could be compensated by their own currency.

Long story short, if we really have to come up with something about its backing, then Bitcoin is backed by the common effort of the world-wide community, its incentive to keep the system running, and the passion to build upon its unique features. Unlike money today, Bitcoin is not backed by force, it's backed by love.  

So you tell me "not exactly" and then you repeat my words? Huh?

Same as gold, but modern, like "electronic gold"

IMO, it's better than gold..  few years ago, I would pur all my savings in gold, but after discovering BTC, I'm quite happy to have been patient,... now, I'm all in BTC !!!! 

I will answer with counter question:What is HTML backed by?

I don't think that's correct.  For one thing, Bitcoins are different than "anything else in life."

Nothing else in life 1) solves the Byzantine Generals' Problem and 2) meets Aristotle's criteria for good money.

The correct answer is:

[insert Joel Katz response here].

It's backed by other people with FIAT currency willing to buy.

No different then anything else in life....

the value of the radeon cards you mine with is what someone is willing to pay for it. Sometimes it can be unreasonably low or high, depending on what the market is feeling or where you are on the supply/demand curve.

if people suddenly decided that gold was only worth $5/oz then thats what it would be worth, doesnt matter how shiny it is.

I don't think that is a good example.  Surely you can use the dollars?

Bitcoin isn't "backed" by anything, but what gives it value is the same thing that gives all forms of money their value...its utility for exchange.  Paper currencies became popular and valuable because they were more convenient for exchange than physical gold and silver.  Digital currencies (prior to Bitcoin and including digital forms of USD and other national currencies) became popular and valuable because they were more convenient than physical paper.  Bitcoin is becoming popular and valuable because it too is more convenient, but it also enables a true two party exchange (other digital currencies all require a third party in an exchange), doesn't rely on a single, central issuer, and its supply can't be manipulated.  To use any of these currencies for exchange, you obviously need to possess the currency.  That is the source of demand and what gives all of these currencies value.  Speculative demand regarding the future value of a currency is only secondary.  Without the primary demand stemming from the utility for exchange, there would be no speculative demand (at least not any sustainable speculative demand).

Don't reify a process into a thing.  Consider the basis for the speculation.

Me.