Cryptography Software and a giant computer network.
You could also say "the same thing that backs anything of value - its utility".
Topic: What's the best answer to this question ? "What is its backing? " (Read 5340 times)
July 21, 2012, 01:19:44 PM
I like to answer the question "What is it backed by?" by saying the following.
The words "backed by" are meaningless. They havent meant anything since we went off the gold standard. They originally meant that banknotes could be redeemed for physical gold or silver, kept back in a vault at the bank. Euros and dollars have not been "backed by" anything since we went off gold.
The bitcoin opponent then usually says that euros and dollars are backed by the government. I then respond that that is false. Euros and dollars are not backed by the government. Their value goes down at a minimum rate of 2% per year, which is the official inflation target. And its usually more. Euros and dollars kept in a bank, will lose half their purchasing power after 30 years. The government has never compensated anyone for this loss. Therefore the government does not "back" their own currency.
The words "backed by" are meaningless. They havent meant anything since we went off the gold standard. They originally meant that banknotes could be redeemed for physical gold or silver, kept back in a vault at the bank. Euros and dollars have not been "backed by" anything since we went off gold.
The bitcoin opponent then usually says that euros and dollars are backed by the government. I then respond that that is false. Euros and dollars are not backed by the government. Their value goes down at a minimum rate of 2% per year, which is the official inflation target. And its usually more. Euros and dollars kept in a bank, will lose half their purchasing power after 30 years. The government has never compensated anyone for this loss. Therefore the government does not "back" their own currency.
July 21, 2012, 12:17:29 PM
There is no need for backing. A need for backing presupposes that Bitcoin is an indirection or representation of something else. Whereas Bitcoin is not a child node, but a universal master ledger of goods and services exchanged. It has no parent (or, if you prefer, lower turtle 
). It can directly record income and distribution of value, as it flows from person to person.
For 5000 years you could provide goods and services to society and record that fact via acquisition of gold, which acted as an implicit ledger of sorts. Now the ledger actually exists, explicitly! No need for any pseudoledgers above or below.
That's why it's revolutionary. To update Plato a bit: up to now, we've been listening to vynil records and MP3s, but with Bitcoin we get as close as possible to the actual performance from which those recordings were sourced. It's not 100% transparent because the musicians are all wearing masks, but the key thing is that all the notes come through with zero delay and zero distortion.
). It can directly record income and distribution of value, as it flows from person to person.For 5000 years you could provide goods and services to society and record that fact via acquisition of gold, which acted as an implicit ledger of sorts. Now the ledger actually exists, explicitly! No need for any pseudoledgers above or below.
That's why it's revolutionary. To update Plato a bit: up to now, we've been listening to vynil records and MP3s, but with Bitcoin we get as close as possible to the actual performance from which those recordings were sourced. It's not 100% transparent because the musicians are all wearing masks, but the key thing is that all the notes come through with zero delay and zero distortion.
July 21, 2012, 09:01:37 AM
Backing infers dimensionality to an object as having an unseen side. In the real world we know that backings exist after the age of object permanence. We extend the definition to Newton's Third Law of Motion of equal and opposite actions. We then extend that object permanence even further to believe that all actions have consequences.* This brings us to faith.
From the age we have faith that something we observed once will happen again under the right conditions, we develop confidence in these actions and outcomes. Once something has established a functionality that we observe to be reliable, we believe that under certain conditions we will always have predictable results.
Bitcoin is backed by our faith and confidence that it is a very reliable and functional currency.
*Some even go as far as to believe that everything happens for a reason, but that belongs in a discussion about the future of Bitcoin.
From the age we have faith that something we observed once will happen again under the right conditions, we develop confidence in these actions and outcomes. Once something has established a functionality that we observe to be reliable, we believe that under certain conditions we will always have predictable results.
Bitcoin is backed by our faith and confidence that it is a very reliable and functional currency.
*Some even go as far as to believe that everything happens for a reason, but that belongs in a discussion about the future of Bitcoin.
July 21, 2012, 03:11:39 AM
It's backed by the system of people using computers.
No. It's value may be supported by the "system of people". It's not backed by anything.
A is backed by B implies one can redeem A for B. Can you redeem a bitcoin for some "people using computers"? Certainly not.
EDIT: you also can't redeem it for some math.
I think maybe a good answer is: "It's not backed by anything since you can't redeem a bitcoin for anything anywhere. However, bitcoins have value because...
As was explained above, backing is something used with paper currencies, which bitcoin is not. Bitcoin is a commodity money.
July 20, 2012, 09:17:39 PM
When asked this question I reply: "maths"
Good one! "Bitcoin: Backed by mathematics."
July 20, 2012, 08:55:32 PM
When asked this question I reply: "maths"
July 20, 2012, 06:45:36 PM
Meh. Too wordy, plus it doesn't get to the heart of WHY paper, bitcoin, gold, etc. are different. It's just antagonistic toward paper without showing what makes gold (and bitcoin) valuable.
My take on it, anyway.
My take on it, anyway.
Well, what makes gold valuable? People want it. Honestly, nothing more, nothing less.
Yep. Human demand.
July 20, 2012, 05:50:06 PM
Meh. Too wordy, plus it doesn't get to the heart of WHY paper, bitcoin, gold, etc. are different. It's just antagonistic toward paper without showing what makes gold (and bitcoin) valuable.
My take on it, anyway.
My take on it, anyway.
Well, what makes gold valuable? People want it. Honestly, nothing more, nothing less.
July 20, 2012, 05:12:04 PM
Although I'd probably go with "It's backed by human demand for a suitable money, just like gold."
But that's not what backing is. Backing is a promise to give something worth more for something worth less. Backing is for worthless things like paper. Not bitcoin or gold.
True, your statement of what backing is is accurate. But asking the question implies certain presumptions that are untrue, and I'd want to address that. A simple reply of "Nothing," with no follow up won't really progress the conversation.
True, but, "Nothing. Backing is a promise to give something worth more for something worth less. Backing is for worthless things like paper. Not bitcoin or gold," would.
Meh. Too wordy, plus it doesn't get to the heart of WHY paper, bitcoin, gold, etc. are different. It's just antagonistic toward paper without showing what makes gold (and bitcoin) valuable.
My take on it, anyway.
July 20, 2012, 05:07:39 PM
It's backed by the system of people using computers.
1) Without people, nobody hits the "go" button on their miners or opens their client software, and nobody makes transactions.
2) Without computers, transactions are not confirmed and thus there is no confirmed value.
You need both. Computers without people operating them are useless, and people without computers cannot use Bitcoin.
1) Without people, nobody hits the "go" button on their miners or opens their client software, and nobody makes transactions.
2) Without computers, transactions are not confirmed and thus there is no confirmed value.
You need both. Computers without people operating them are useless, and people without computers cannot use Bitcoin.
July 20, 2012, 05:02:39 PM
Although I'd probably go with "It's backed by human demand for a suitable money, just like gold."
But that's not what backing is. Backing is a promise to give something worth more for something worth less. Backing is for worthless things like paper. Not bitcoin or gold.
True, your statement of what backing is is accurate. But asking the question implies certain presumptions that are untrue, and I'd want to address that. A simple reply of "Nothing," with no follow up won't really progress the conversation.
True, but, "Nothing. Backing is a promise to give something worth more for something worth less. Backing is for worthless things like paper. Not bitcoin or gold," would.
July 20, 2012, 04:53:28 PM
Although I'd probably go with "It's backed by human demand for a suitable money, just like gold."
But that's not what backing is. Backing is a promise to give something worth more for something worth less. Backing is for worthless things like paper. Not bitcoin or gold.
True, your statement of what backing is is accurate. But asking the question implies certain presumptions that are untrue, and I'd want to address that. A simple reply of "Nothing," with no follow up won't really progress the conversation.
July 20, 2012, 04:50:12 PM
What do you say when they ask to see your huge stash of screwdrivers?! :-)
Anytime you want baby!
July 20, 2012, 04:27:49 PM
Although I'd probably go with "It's backed by human demand for a suitable money, just like gold."
But that's not what backing is. Backing is a promise to give something worth more for something worth less. Backing is for worthless things like paper. Not bitcoin or gold.
You nailed it, thanks.
July 20, 2012, 03:51:36 PM
Although I'd probably go with "It's backed by human demand for a suitable money, just like gold."
But that's not what backing is. Backing is a promise to give something worth more for something worth less. Backing is for worthless things like paper. Not bitcoin or gold.
July 19, 2012, 04:02:55 PM
As this question is normally asked by goldbugs, my answer normally is: "Bitcoin is backed by the same thing that backs gold, that is, nothing." 
This is most accurate.
Although I'd probably go with "It's backed by human demand for a suitable money, just like gold."
July 19, 2012, 02:59:22 PM
July 19, 2012, 12:25:54 PM
Sorry for necroposting but I realize the best answer is not in the thread yet.
Didn't I basically say the same thing?
IMHO talking about properties as in your post isn't clear.
Something may have very special properties and yet be worthless because the properties are not valuable in any usage.
Also you are not mentioning transaction processing while I believe this is where there is a huge value proposition for using the bitcoin network. That's what gives "backing" to the price of bitcoins.
July 19, 2012, 11:05:03 AM
Because I said so.
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