Why don't we just create backing for Bitcoin?

fivemileshigh

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Quote from: fimp on June 20, 2012, 03:49:00 PM

The dollar used to be backed by gold as well and it indeed served a function and contributed to the credibility of the dollar.

Another way to think about this is: the paper dollar was invented as a clever and successful way to gradually separate people from their gold.

nevafuse

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Quote from: fimp on June 20, 2012, 02:32:17 PM

Set up an organization that accepts donations from community members. All donations will be put in gold (alternatively a basket of commodities/government currencies), and the organization will announce that it will forever pay out exactly x gold grams for 1 Bitcoin.

I've heard a lot of bad ideas on this forum, but this one takes the cake.

RodeoX

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The revolution will be monetized!

Does gold need backing? And when we "back" money with gold, all we do is say those pieces of paper are better now because they are backed by shinny rocks. It's just a game of illusions really.

ribuck

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Quote from: myrkul on July 18, 2012, 03:44:07 AM

Quote from: Nomad Tom on July 18, 2012, 03:25:30 AM

Would you work for 2BTC per hour?

In a heartbeat. Are you hiring? Wink

So would I.

myrkul

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FIAT LIBERTAS RVAT CAELVM

Quote from: Nomad Tom on July 18, 2012, 03:25:30 AM

Would you work for 2BTC per hour?

In a heartbeat. Are you hiring? Wink

Nomad Tom

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Bitcoin is backed by things like entrepreneurial rig-running miners, state of the art encryption, reliable ISPs, legal tolerance, and belief. Blackouts, disappointed miners, revolutionary quantum physics advances, a bad cybersecurity czar or a bad Satoshi Nakamoto could turn bitcoins into greenbacks. Don't forget that fungibility is a trade-off for permanence: there are hundreds of posts about data loss. Lightning, water, static, forgotten passwords, and theft limit the safety of the currency in a big way.

The most tangible and probable backing for bitcoins are hourly wages. Would you work for 2BTC per hour? Would your geeky CEO tell payroll to set up a bitcoin security deposit option? If companies can accommodate PayPal for email addresses, they might be willing to take an extra step/exchange. Maybe have a single percentage of net wages transferred to an address for that purpose. Backing bitcoin with service work is the best way for the currency to gain traction and stability.

GernMiester

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BTC's backing is as good as any fiat. ....Confidence..... Its why fiat has value.

Melbustus

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Quote from: unclescrooge on June 20, 2012, 03:54:01 PM

Quote from: DeathAndTaxes on June 20, 2012, 03:49:39 PM

Then when Bitcoin becomes a threat the banks lobby the US govt who links Bitcoin to terrorism and seizes the gold which combined with the media reports causes Bitcoin to crash.

+1

Bitcoin is a base value, which is backing only by how people value it. Like gold.

+1. OP - why does gold have value? This is a concept people who are less mature in their monetary understanding often fail to grasp. As someone else noted, the only reason to "back" a currency is to provide some known stability to the monetary base. Bitcoin has fully-known supply growth and fully-known ultimate supply size built-in. Bitcoin is fundamental. No need to "back" it.

Gold is similar in that the supply and supply-growth is roughly known (though obviously with a lot less precision than bitcoin), and has other qualities that make it fit to be a unit of exchange (eg, durability, fungability, recognizability, etc), and thereby give it utility (ie, "value"). Bitcoin has those properties as well, except much more explicitly, which is a good thing. You can think of bitcoin as a better gold (ie, fit for transactional use in modern times). Gold is what (historically) "backs" other currency. Bitcoin should be the same.

The only fundamental downside to bitcoin relative to gold is that bitcoin is not supported in a world without computing/internet/technology. But that's fine...I think we all have to gamble that humanity won't go too apocalyptic in our lifetimes.

myrkul

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Quote from: benjamindees on June 28, 2012, 12:25:31 PM

Quote from: wyager on June 24, 2012, 08:53:55 PM

Quote from: benjamindees on June 24, 2012, 01:50:52 AM

Quote from: wyager on June 23, 2012, 05:11:12 PM

There is literally no situation in which trying to back bitcoin with anything physical will have a good result.

False.

Name a situation in which you think it would be good.

Sorry, I'm not interested in expanding upon that. It's not too difficult to figure out. Have a little imagination.

Translation: You're right, I cannot come up with a single example, but I am not intellectually honest enough to admit it.

benjamindees

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Quote from: wyager on June 24, 2012, 08:53:55 PM

Quote from: benjamindees on June 24, 2012, 01:50:52 AM

Quote from: wyager on June 23, 2012, 05:11:12 PM

There is literally no situation in which trying to back bitcoin with anything physical will have a good result.

False.

Name a situation in which you think it would be good.

Sorry, I'm not interested in expanding upon that. It's not too difficult to figure out. Have a little imagination.

Boussac

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e-ducat.fr

Quote from: Stephen Gornick on June 26, 2012, 09:40:37 PM

Quote from: Boussac on June 26, 2012, 03:52:26 PM

The current value (120 M) of the bitcoin network is dwarfed by the valuation

Heh, I keep seeing that and thinking I missed a huge rally overnight or something. I'm presuming you are considering all 21 million BTC, even though less than 10 have been issued ...

That's right, I believe the market price reflects the market expectation that the quantity of bitcoins will reach 21 million.
Therefore the correct valuation of the bitcoin network should be even 134 M with today's exchange rate.
However I expect a rally in early december when the reward gets halved because the market is irrational Wink

Stephen Gornick

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Quote from: Boussac on June 26, 2012, 03:52:26 PM

The current value (120 M) of the bitcoin network is dwarfed by the valuation

Heh, I keep seeing that and thinking I missed a huge rally overnight or something. I'm presuming you are considering all 21 million BTC, even though less than 10 have been issued ...

Boussac

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e-ducat.fr

Quote from: Stephen Gornick on June 20, 2012, 04:09:30 PM

Quote from: fimp on June 20, 2012, 03:49:00 PM

You know, I didn't come up with this model. The dollar used to be backed by gold as well and it indeed served a function and contributed to the credibility of the dollar.

Right, but gold didn't need to backed by silver, or vice-versa, because gold itself is scarce and the paper used for printing the dollar was not. Therefore the paper had value because it was backed by something scarce.

Bitcoins are scarce. The existing and future supply is known. They don't need this backing by gold or anything else.

+1

Backing is a requirement for people who cannot think outside of the box of elastic money.
Scarcity and usefulness of the bitcoin technology are enough to give value to the bitcoin network.
The current value (120 M) of the bitcoin network is dwarfed by the valuation of networks such as Visa, MasterCard or even Western Union.
What is backing those networks ?
Bitcoin is only monetizing a fraction of the value of something called the internet.

hashman

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Quote from: Stephen Gornick on June 20, 2012, 03:41:20 PM

Quote from: fimp on June 20, 2012, 02:32:17 PM

The hard problem seems to be to find the people to put in charge of the organization.

I think the harder problem would be to find the people to put any money up for it.

The reason the concept of "backing" exists is because otherwise an unbacked form of money has the potential to be devalued through inflation of its supply. Bitcoin doesn't have that potential problem. Therefore this "backing" doesn't really solve any problem that applies to bitcoin.

+1

Maybe it would make more sense to back gold with bitcoins Wink

knight22

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Bitcoin should be backed by huge amount of goods and services but right now we are very far from it… That will create a strong demand and deflation until stability

crazy_rabbit

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Quote from: fimp on June 20, 2012, 02:32:17 PM

Personally I don't think Bitcoin absolutely needs to be backed up by anything else. It's a great medium of exchange as it is. But some people see the missing backing as a huge disadvantage that could result in a downward speculation spiral that would make bitcoins worthless.

As long as bitcoin can do stuff that no other medium of exchange can do, I don't see this downward spiral to 0 happening. But to ease the minds of skeptics, why don't we create our own backing for Bitcoin?

Set up an organization that accepts donations from community members. All donations will be put in gold (alternatively a basket of commodities/government currencies), and the organization will announce that it will forever pay out exactly x gold grams for 1 Bitcoin.

So, for instance, if the organization holds 10kg of gold, it would promise to always pay exactly 10 000 / 21 000 000 = 0.000476 gg/BTC

Now the market exchange rate may rise way above x gg/BTC, but if people trust this organization the exchange rate will never go below.

The hard problem seems to be to find the people to put in charge of the organization. But it seems very likely that we can find people more trustworthy than the people in charge of government monetary policy.

I think this could help Bitcoin gain trust.

I think you are overlooking the idea that Bitcoin is supposed to *be* the gold in this senario. It's backed by it's cryptographic security. Even though we all accept gold as value, it's as arbitrary as any other item.

Where would this 10kg of Gold for example come from? Donations? IE: we would all go buy some gold? Gold value changes (quite dramatically sometimes) and it's value is calculated in other currencies. Your plan would essentially peg BTC to some other currencies valuation against gold. And then who would watch this gold? And who watches the watchers? Where would we put it? Suddenly BTC goes from being independent/ephemeral/online/virtural/etc... to being a large bank downtown where the government can walk in any day and take it all.

imanikin

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Quote from: DeathAndTaxes on June 20, 2012, 03:49:39 PM

Then when Bitcoin becomes a threat the banks lobby the US govt who links Bitcoin to terrorism and seizes the gold. The seizure combined with the media reports of Bitcoin no longer backed by anything causes Bitcoin to crash overnight.

No I like decentralized just fine.

...

So instead of someone saying "I am not buying BTC for $6 it is not backed by anything" they will say "I am not buying BTC for $6 it is backed by only half a cent of gold". ...

+1
The skeptics' minds will not be changed by any backing.

If the gold backing is instituted before B is accepted by most people as a viable and useful currency, the banks will get the government to seize this organization, together with the gold...

IF and when B is accepted by most people, whether or not the skeptics exist will be irrelevant.

To me, they are irrelevant now, because B will live or die on its own merits, regardless of the unavoidable, eternal skeptics.

Besides the appearance of some superior digital currency, centralization in any form - mining, exchange, or via gold backing - seems to me to be the biggest threat to Bitcoin's survival right now.

wyager

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Quote from: benjamindees on June 24, 2012, 01:50:52 AM

Quote from: wyager on June 23, 2012, 05:11:12 PM

There is literally no situation in which trying to back bitcoin with anything physical will have a good result.

False.

Name a situation in which you think it would be good.

Realpra

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Unit of account and money really should be considered two different things.

Bitcoin does not necessarily need to be the first if it is a great tool for trade.

I guess we could back it at 2$/BTC for some slight psychological effect, but it would be better selling your house for BTC, renting it out or what have you.

benjamindees

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Quote from: wyager on June 23, 2012, 05:11:12 PM

There is literally no situation in which trying to back bitcoin with anything physical will have a good result.

False.

Topic: Why don't we just create backing for Bitcoin? (Read 4549 times)