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Because there's no such thing as unbacked BTC. You either have the UTXOs pointing at an address you hold the keys for, or you do not. If someone loans you BTC,

Because there's no such thing as unbacked BTC. You either have the UTXOs pointing at an address you hold the keys for, or you do not. If someone loans you BTC, the supply of BTC has not increased.

NovemberWhiskey 4y ago
All bitcoin is "unbacked". There's no intrinsically useful asset behind bitcoin. Your private key is just a bundle of bits. Bits are so abundant as to be worthless.
- eric_cc 4y ago
  Same with paper fiat currency.
  - NovemberWhiskey 4y ago
    I know? The point is: neither bitcoin nor fiat currencies are asset-backed. In both cases, there are commercial entities that offer accounts where you can deposit the "thing", and the "thing" is then loaned to someone else, and this is done for some kind of valuable inducement. The question is: why is one called fractional reserve banking, a behavior that is acknowledged to increase the money supply, and the other one called "oh no this is definitely not increase of the money supply, it's just you relinquishing custody of your bitcoin and why would you do that, there's no reason you'd ever do that".
  - snovv_crash 4y ago
    Actually paper fiat currency is accepted by a government to pay property tax. In this way you need it to keep possession of land, so the entire land value of the linked country, and all the infrastructure built on it, is the backing for 'fiat' currency.
    - junofan 4y ago
      I think I responded to your other comment, but I don’t think this is true. Do you have any further reading? A currency is not backed by land value. It’s usually “backed” by a combination of sovereign debt obligations and its status as legal tender.
      - NovemberWhiskey 4y ago
        I think that's right - fiat currency is not asset backed; in the case of the USD, it's backed by "the full faith and credit" of the U.S. government.
    - datadata 4y ago
      Accepting some form of unbacked currency does not give the currency intrinsic value and therefore make it backed. El Salvador made bitcoin legal tender, which means that USD or Bitcoin could be used to pay property taxes there, that doesn't mean that suddenly Bitcoin is backed by El Salvador property.
      - el-salvador 4y ago
        > Bitcoin could be used to pay property taxes there There are no annual property taxes in El Salvador :) But this may be a technicality, based on the Salvadoran legal definition of the term. So it really depends on what is understood as tax in each jurisdiction. El Salvador law differentiates between taxes and fees. Taxes are born from an "generating action", like selling a computer generates sales tax. While Fees are born from a "service provided" . So there are monthly fees payable to the local city/town/village hall based on property size and location for services they provide in that area Some common ones are garbage collection, CCTV, city lighting, road maintenance and the contribution for each City/Town annual Festival. A monthly fee for each town's annual party :O Does that exist in other countries? So once you get your city hall invoice, and wanted to pay in bitcoin, you'd have to visit the city hall to pay in their bitcoin terminal. At least four city halls are connected to BitRefill which allows online invoice payments using Bitcoin/Lightning. BitRefill connects to a local payment network, then the user types or scans the Invoice barcode, and makes the bitcoin payment for the fees bill.
- Karunamon 4y ago
  You know good and well what was meant, and that isn't it. Stop it.
  - NovemberWhiskey 4y ago
    Actually, no, I literally have no idea what you meant - by all means, please amplify!
    - CuriousCosmic 4y ago
      Not OP but I figure I'll pitch in because nobody else explained it. When referring to backed vs unbacked Bitcoin (or any other UTxO accounting model based cryptocurrency), the "backing" isn't about whether the token is backed by another asset but rather whether your proxy holding of the token is backed by the actual cryptocurrency on the ledger. If it's some wrapped Bitcoin that is backed, that means that there exists some UTxO which corresponds to the wrapped bitcoin tokens you hold. UTxO are atomic and unique so you can verify that your wrapped tokens have a 1:1 mapping to the tokens held within the UTxO on the native token's network. Non-backed bitcoin instead are just tokens that are handled through some minting mechanism where there is claimed to be a 1:1 equivalence without any actual tooling to prove that. This concept of backing can actually even be further extended via Secure Multi-Party Computation where private keys can be collectively held in such a way that no user ever can see the private key but together they can coordinate to build and sign transactions with that private key without leaking it even to themselves. This can then be used to actually hold tokens from a foreign/incompatible network and interact with that network with little to any required trust. Hopefully that helps answer what is meant. --- Also since it's often a question asked I'll answer preemptively: "What is UTxO?" I've mentioned the UTxO accounting model a few times here. Bitcoin doesn't have accounts but rather UTxO or Unspent(U) Transaction(Tx) Outputs(O). These are indivisible bundles of tokens that can only be created or consumed/destroyed atomically. There are no accounts but rather just private/public key pairs which can redeem/spend those UTxO. Additionally, all transactions are just a collection of input UTxO (that are consumed with the tx) and newly created UTxO. All Tx must uphold the rule that the sum of all inputs equal the sum of all outputs (or some equivalent of this rule as is the case for Monero's Zero Knowledge transaction proofs). A number of networks use UTxO or a UTxO extension (such as EUTxO or the cell model). Most famous is Bitcoin but Monero, Litecoin, Cardano, Ergo, Nervos, and a number of other networks also use this model. This is opposed to Ethereum and co (Polkadot, Solana, Luna...) who use the balance-account accounting model. This model works like traditional ledgers where tokens are stored as some balance in an account and transactions are just transfers from one account to another.
matheusmoreira 4y ago
> If someone loans you BTC, the supply of BTC has not increased. True when someone does it, false when a fractional reserve bank does it. When someone loans money to someone else, money physically changes hands and there is no concept of a reserve. Banks are able to maintain the illusion of full reserves even though they operate in a state of perpetual insolvency.
- Karunamon 4y ago
  Please explain the mechanism by which a "bank" is able to transfer to you an amount of BTC that they do not have wallet control over? This is a critical difference. A bank can loan you fiat money that they do not physically have, with the almost always correct assumption that most people won't want to convert that database entry into cash at the same time. This is not possible with bitcoin. Either the bank has the coins in wallets they control to send to a wallet you control, or they do not and can't.
  - NovemberWhiskey 4y ago
    >Please explain the mechanism by which a "bank" is able to transfer to you an amount of BTC that they do not have wallet control over? BTC that's in an offline wallet is like cash under the bed; and you're right that no-one is lending money that they have under the bed. However, a significant number of BTC owners don't keep their money in their own wallets - they keep it at an exchange, which almost certainly commingles it with other owners in shared wallets. You can certainly take a maximalist position here and assert that the exchange is the real owner, because they have the private keys. The fact of the matter is that the real world includes a difference between legal and beneficial ownership; and has done since well before the existence of fiat currencies - because it's useful.
    - Karunamon 4y ago
      That still is not the same thing. Coins in an exchange can only be traded for other coins in the same exchange - it's effectively KrakenBTC or BinanceBTC or [...]. Unlike fiat money in a bank, these exchange balances exist only in their walled gardens and cannot be exchanged for goods or services, effectively decoupling them from the total supply. The total supply of bitcoin is the sum of all unspent transaction outputs on the Blockchain. Not what a bunch of exchanges tell their users they have.

Because there's no such thing as unbacked BTC. You either have the UTXOs pointing at an address you hold the keys for, or you do not. If someone loans you BTC, the supply of BTC has not increased.

NovemberWhiskey 4y ago

All bitcoin is "unbacked". There's no intrinsically useful asset behind bitcoin. Your private key is just a bundle of bits. Bits are so abundant as to be worthless.

eric_cc 4y ago
Same with paper fiat currency.
- NovemberWhiskey 4y ago
  I know? The point is: neither bitcoin nor fiat currencies are asset-backed. In both cases, there are commercial entities that offer accounts where you can deposit the "thing", and the "thing" is then loaned to someone else, and this is done for some kind of valuable inducement. The question is: why is one called fractional reserve banking, a behavior that is acknowledged to increase the money supply, and the other one called "oh no this is definitely not increase of the money supply, it's just you relinquishing custody of your bitcoin and why would you do that, there's no reason you'd ever do that".
- snovv_crash 4y ago
  Actually paper fiat currency is accepted by a government to pay property tax. In this way you need it to keep possession of land, so the entire land value of the linked country, and all the infrastructure built on it, is the backing for 'fiat' currency.
  - junofan 4y ago
    I think I responded to your other comment, but I don’t think this is true. Do you have any further reading? A currency is not backed by land value. It’s usually “backed” by a combination of sovereign debt obligations and its status as legal tender.
    - NovemberWhiskey 4y ago
      I think that's right - fiat currency is not asset backed; in the case of the USD, it's backed by "the full faith and credit" of the U.S. government.
  - datadata 4y ago
    Accepting some form of unbacked currency does not give the currency intrinsic value and therefore make it backed. El Salvador made bitcoin legal tender, which means that USD or Bitcoin could be used to pay property taxes there, that doesn't mean that suddenly Bitcoin is backed by El Salvador property.
    - el-salvador 4y ago
      > Bitcoin could be used to pay property taxes there There are no annual property taxes in El Salvador :) But this may be a technicality, based on the Salvadoran legal definition of the term. So it really depends on what is understood as tax in each jurisdiction. El Salvador law differentiates between taxes and fees. Taxes are born from an "generating action", like selling a computer generates sales tax. While Fees are born from a "service provided" . So there are monthly fees payable to the local city/town/village hall based on property size and location for services they provide in that area Some common ones are garbage collection, CCTV, city lighting, road maintenance and the contribution for each City/Town annual Festival. A monthly fee for each town's annual party :O Does that exist in other countries? So once you get your city hall invoice, and wanted to pay in bitcoin, you'd have to visit the city hall to pay in their bitcoin terminal. At least four city halls are connected to BitRefill which allows online invoice payments using Bitcoin/Lightning. BitRefill connects to a local payment network, then the user types or scans the Invoice barcode, and makes the bitcoin payment for the fees bill.
Karunamon 4y ago
You know good and well what was meant, and that isn't it. Stop it.
- NovemberWhiskey 4y ago
  Actually, no, I literally have no idea what you meant - by all means, please amplify!
  - CuriousCosmic 4y ago
    Not OP but I figure I'll pitch in because nobody else explained it. When referring to backed vs unbacked Bitcoin (or any other UTxO accounting model based cryptocurrency), the "backing" isn't about whether the token is backed by another asset but rather whether your proxy holding of the token is backed by the actual cryptocurrency on the ledger. If it's some wrapped Bitcoin that is backed, that means that there exists some UTxO which corresponds to the wrapped bitcoin tokens you hold. UTxO are atomic and unique so you can verify that your wrapped tokens have a 1:1 mapping to the tokens held within the UTxO on the native token's network. Non-backed bitcoin instead are just tokens that are handled through some minting mechanism where there is claimed to be a 1:1 equivalence without any actual tooling to prove that. This concept of backing can actually even be further extended via Secure Multi-Party Computation where private keys can be collectively held in such a way that no user ever can see the private key but together they can coordinate to build and sign transactions with that private key without leaking it even to themselves. This can then be used to actually hold tokens from a foreign/incompatible network and interact with that network with little to any required trust. Hopefully that helps answer what is meant. --- Also since it's often a question asked I'll answer preemptively: "What is UTxO?" I've mentioned the UTxO accounting model a few times here. Bitcoin doesn't have accounts but rather UTxO or Unspent(U) Transaction(Tx) Outputs(O). These are indivisible bundles of tokens that can only be created or consumed/destroyed atomically. There are no accounts but rather just private/public key pairs which can redeem/spend those UTxO. Additionally, all transactions are just a collection of input UTxO (that are consumed with the tx) and newly created UTxO. All Tx must uphold the rule that the sum of all inputs equal the sum of all outputs (or some equivalent of this rule as is the case for Monero's Zero Knowledge transaction proofs). A number of networks use UTxO or a UTxO extension (such as EUTxO or the cell model). Most famous is Bitcoin but Monero, Litecoin, Cardano, Ergo, Nervos, and a number of other networks also use this model. This is opposed to Ethereum and co (Polkadot, Solana, Luna...) who use the balance-account accounting model. This model works like traditional ledgers where tokens are stored as some balance in an account and transactions are just transfers from one account to another.

matheusmoreira 4y ago

> If someone loans you BTC, the supply of BTC has not increased. True when someone does it, false when a fractional reserve bank does it. When someone loans money to someone else, money physically changes hands and there is no concept of a reserve. Banks are able to maintain the illusion of full reserves even though they operate in a state of perpetual insolvency.

Karunamon 4y ago
Please explain the mechanism by which a "bank" is able to transfer to you an amount of BTC that they do not have wallet control over? This is a critical difference. A bank can loan you fiat money that they do not physically have, with the almost always correct assumption that most people won't want to convert that database entry into cash at the same time. This is not possible with bitcoin. Either the bank has the coins in wallets they control to send to a wallet you control, or they do not and can't.
- NovemberWhiskey 4y ago
  >Please explain the mechanism by which a "bank" is able to transfer to you an amount of BTC that they do not have wallet control over? BTC that's in an offline wallet is like cash under the bed; and you're right that no-one is lending money that they have under the bed. However, a significant number of BTC owners don't keep their money in their own wallets - they keep it at an exchange, which almost certainly commingles it with other owners in shared wallets. You can certainly take a maximalist position here and assert that the exchange is the real owner, because they have the private keys. The fact of the matter is that the real world includes a difference between legal and beneficial ownership; and has done since well before the existence of fiat currencies - because it's useful.
  - Karunamon 4y ago
    That still is not the same thing. Coins in an exchange can only be traded for other coins in the same exchange - it's effectively KrakenBTC or BinanceBTC or [...]. Unlike fiat money in a bank, these exchange balances exist only in their walled gardens and cannot be exchanged for goods or services, effectively decoupling them from the total supply. The total supply of bitcoin is the sum of all unspent transaction outputs on the Blockchain. Not what a bunch of exchanges tell their users they have.