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Bitcoin is backed by nothing but trust. Just like US dollars.

nerdponx 9y ago
Specifically, trust that other people will accept it as a store of value. You can think of cryptocurrency as an IOU for "an equivalent amount in my home currency".
muninn_ 9y ago
But who are you trusting?
earthtolazlo 9y ago
The difference is that you can actually buy things with USD.
- etr-strike 9y ago
  I can buy USDs with my bitcoin. Lots of them.
- gravypod 9y ago
  The ability to buy something does not equate to value of a currency. This is a pretty bad example but if I write a check to you for $10 I have given you a $10 note. It's backed by my promise to you that I have the money. You cannot buy anything directly with the check. It's made out to your name. All you can do with that currency is trade it into a bank for another currency we all use. Another example may be gold. If I have you a gold bullion I hardly think you'd have an easy time spending it at a store (unless you're in Dubai). This doesn't mean gold doesn't have inherent value and it also doesn't mean gold is not a currency.
- thanatropism 9y ago
  Also: you want to buy things with USD (or invest/lend) because USD kept under a mattress will deteriorate. While Bitcoin by structure is supposed to never deteriorate, just increase in value. Everyone else's saying this: the value of Bitcoin is either zero or infinity[]. This was clear way from the beginning, and while I regret not cashing in on the bubble before. [] This assuming the normal continuation of capitalism and the global concert of nations where there is openness to commerce and multiple fiat currencies. Of course, in Mencius Moldbug's dream (who first called for something like bitcoin in '08) where strong authoritarian government prevents other currencies from hanging on... it's an utopia. We might as well trade in time credits.
folksinger 9y ago
Trust? This word depends on context. Do you trust your spouse? Do your trust your waiter? Do you trust the news? Do you trust that the sun will come up? I will grant that both Bitcoin and dollars depend on trust. But both are grounded as well. Bitcoin to physical computing devices and dollars to real estate. That is, Bitcoin is as real as all of the SHA-256 calculations per second across the network and dollars are as real as the mortgages per square mile across the nation.
- hidenotslide 9y ago
  What does real estate have to do with the dollar? 1 dollar does not entitle you to any US land. Inflation is not driven by land or land development. The value of the dollar is stable because people trust it to be stable and because there is a financial system that lets people use it for things they want to do. It fluctuates based on (money) supply and demand. With Bitcoin you are trusting (or speculating) that someone will want to buy it from you in the future. You don't need to trust that no one will suddenly print more though.
koolba 9y ago
US dollars have tax powers and nuclear weapons backing them. That’s as good as it gets.
- gravypod 9y ago
  I don't think that's necessarily as good as it gets. You can have commodity backed currencies. These are much more stable but much more difficult to manipulate which is a power many governments want. One is not necessarily better then the other. You can't force growth in a commodity backed currency by incentivising certain usages by messing with inflation.
- SimbaOnSteroids 9y ago
  Which is ultimately backed by the American people's toleration of the government that holds those powers. Its a layer of abstraction that bitcoin lacks, which makes USD much more less volatile than bitcoin (along with a bunch of other things).
abritinthebay 9y ago
I’m going to say this plainly: If you think that then you have an incredibly simplistic understanding of how fiat currency works.
- gravypod 9y ago
  Noted. I'll attempt to put more nuance in my one-sentence comment next time.
- MsMowz 9y ago
  Modern fiat currency is backed only by debt. The fact that money can be backed by debt implies that there agents have a sufficiently sophisticated ability to judge trust of other agents. It's not extremely relevant that trustworthy behavior is enforced by the state.
  - abritinthebay 9y ago
    This is also not true. GDP, long term economic prospects (of which debt is a part), and political stability are all major factors in fiat currency value. This is not as bad as the original oversimplification but it’s a pretry incorrect one by itself.
  - havetocharge 9y ago
    What about the power to tax? All governments operate within the fiat currency framework.
nihonde 9y ago
Actually, bitcoin transactions do not require trust. As long as no node controls more than half the network processing power, the ledger can’t be faked. The value of a single bitcoin is a measure confidence in the bitcoin network as a useful means of transacting business. Confidence in the network is more analogous to Visa or other credit cards than to dollars or other national currencies.

Specifically, trust that other people will accept it as a store of value. You can think of cryptocurrency as an IOU for "an equivalent amount in my home currency".

muninn_ 9y ago

But who are you trusting?

earthtolazlo 9y ago

The difference is that you can actually buy things with USD.

etr-strike 9y ago
I can buy USDs with my bitcoin. Lots of them.
gravypod 9y ago
The ability to buy something does not equate to value of a currency. This is a pretty bad example but if I write a check to you for $10 I have given you a $10 note. It's backed by my promise to you that I have the money. You cannot buy anything directly with the check. It's made out to your name. All you can do with that currency is trade it into a bank for another currency we all use. Another example may be gold. If I have you a gold bullion I hardly think you'd have an easy time spending it at a store (unless you're in Dubai). This doesn't mean gold doesn't have inherent value and it also doesn't mean gold is not a currency.
thanatropism 9y ago
Also: you want to buy things with USD (or invest/lend) because USD kept under a mattress will deteriorate. While Bitcoin by structure is supposed to never deteriorate, just increase in value. Everyone else's saying this: the value of Bitcoin is either zero or infinity[]. This was clear way from the beginning, and while I regret not cashing in on the bubble before. [] This assuming the normal continuation of capitalism and the global concert of nations where there is openness to commerce and multiple fiat currencies. Of course, in Mencius Moldbug's dream (who first called for something like bitcoin in '08) where strong authoritarian government prevents other currencies from hanging on... it's an utopia. We might as well trade in time credits.

folksinger 9y ago

Trust? This word depends on context. Do you trust your spouse? Do your trust your waiter? Do you trust the news? Do you trust that the sun will come up? I will grant that both Bitcoin and dollars depend on trust. But both are grounded as well. Bitcoin to physical computing devices and dollars to real estate. That is, Bitcoin is as real as all of the SHA-256 calculations per second across the network and dollars are as real as the mortgages per square mile across the nation.

hidenotslide 9y ago
What does real estate have to do with the dollar? 1 dollar does not entitle you to any US land. Inflation is not driven by land or land development. The value of the dollar is stable because people trust it to be stable and because there is a financial system that lets people use it for things they want to do. It fluctuates based on (money) supply and demand. With Bitcoin you are trusting (or speculating) that someone will want to buy it from you in the future. You don't need to trust that no one will suddenly print more though.

koolba 9y ago

US dollars have tax powers and nuclear weapons backing them. That’s as good as it gets.

gravypod 9y ago
I don't think that's necessarily as good as it gets. You can have commodity backed currencies. These are much more stable but much more difficult to manipulate which is a power many governments want. One is not necessarily better then the other. You can't force growth in a commodity backed currency by incentivising certain usages by messing with inflation.
SimbaOnSteroids 9y ago
Which is ultimately backed by the American people's toleration of the government that holds those powers. Its a layer of abstraction that bitcoin lacks, which makes USD much more less volatile than bitcoin (along with a bunch of other things).

abritinthebay 9y ago

I’m going to say this plainly: If you think that then you have an incredibly simplistic understanding of how fiat currency works.

gravypod 9y ago
Noted. I'll attempt to put more nuance in my one-sentence comment next time.
MsMowz 9y ago
Modern fiat currency is backed only by debt. The fact that money can be backed by debt implies that there agents have a sufficiently sophisticated ability to judge trust of other agents. It's not extremely relevant that trustworthy behavior is enforced by the state.
- abritinthebay 9y ago
  This is also not true. GDP, long term economic prospects (of which debt is a part), and political stability are all major factors in fiat currency value. This is not as bad as the original oversimplification but it’s a pretry incorrect one by itself.
- havetocharge 9y ago
  What about the power to tax? All governments operate within the fiat currency framework.

nihonde 9y ago

Actually, bitcoin transactions do not require trust. As long as no node controls more than half the network processing power, the ledger can’t be faked. The value of a single bitcoin is a measure confidence in the bitcoin network as a useful means of transacting business. Confidence in the network is more analogous to Visa or other credit cards than to dollars or other national currencies.