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This is an interesting question but there is not really a definitive answer in the way it is asked. "Backed by" gold has a very literal meaning in the sense th

by eof 13y ago

This is an interesting question but there is not really a definitive answer in the way it is asked. "Backed by" gold has a very literal meaning in the sense that you can trade something for gold. "backed by government" doesn't translate since you cannot trade money for government (unless you're a lobbyist!); but the fact that an entity with a monopoly on force accepts a certain type of paper to relieve debts in a sense "backs" it.. or at least gives reason for people to use; not to mention you are legally obliged (at least in the states) to accept us currency for a debt. You say yourself > Paper money imo is backed by regional Economy or iow labor + what labor can buy/buys/saves. In this sense, bitcoin is exactly the same. And this is actually more important than the government part; as evidenced by every fiat currency that has ever undergone hyperinflation. You can pay taxes with bolivars in Venezuela; but everyone would rather have dollars. The local economy runs almost entirely on bolivars; people are paid in bolivars, yet.. people want dollars. Why? You can buy things with bitcoin; you can trade it for labor, services, goods. this begs the question of course.. why would anyone trade it in the first place? This is what the 'regression theorem' [1] tries to answer; not for bitcoin, but for everything that becomes a medium exchange. The notion that money needs to be "backed by" something is just conjecture and a relatively recent idea. It only comes about when we use fiat currencies; when gold coins were used, or cowrie shells in africa.. no one asked what a cowrie shell was backed by. The real question is "what makes bitcoin sound money?" Opinions differ on that and I will leave the question to the reader; but, there is no fundamental difference between a US dollar and a bitcoin in terms of 'backing'. A government decree is worth nothing if you don't have sound money, and sound money is sound regardless of a government decree; again, this is evidenced by countless government-mandated currencies becoming worthless and bitcoin, gold, silver, cigarattes, cowrie shells, and rai stones acting as currency without anyone ever declaring them to be currency. 1. http://wiki.mises.org/wiki/Regression_theorem http://wiki.mises.org/wiki/Regression_theorem

dredmorbius 13y ago
> as evidenced by every fiat currency that has ever undergone hyperinflation. Currencies controlled by sovereigns devalue. It happened in Rome (see Joseph Tainter's description of the silver denarius's 94% devaluation), in England (Adam Smith writes at length on British currency, its tri metallic standard (copper, silver, and gold), and the devaluations of same), and elsewhere. Devaluation of currency is a symptom of a deeper cause. It's not an intrinsic property of fiat currency alone. And the inability to, say, devalue government debts denominated in Bitcoin or other digital currency not subject to deflation would result in some other expression of the problem (likely a sovereign default), which would wipe out wealth as well, though with a different allocation of losses.
rokhayakebe 13y ago
> Paper money imo is backed by regional Economy or iow labor + what labor can buy/buys/saves. In this sense, bitcoin is exactly the same..... I am afraid I think your answer and everyone who is trying to compare the Trust we have in today's paper money to bitcoin, is very much flawed. I want to be explained that I am wrong, but I am not convinced by your argumentation. Imagine a country of 200 people. They each work and provide products and services to one another. They gradually value the value of theirs service rendered and production. Then they need to easily exchange cows for shoes for houses for legal advice for whatever goods and services. They then come up with a way to value these goods and services for ease of exchange. So they say your one hour of work is worth $4 then you can easily take that and buy 1 hour of legal advice + 1 piece of bread and be left with 35 cents. That representation and value-holding entity is money as we know it today. It did not just appear. Bitcoin is the EXACT opposite. 10 people come together in the 200 people economy. They decide they create pieces of cloth and give it a value of X. Then they make X amount of those, granted the task of creating them becomes harder as you go. Then as they create more, X magically is worth 1 lawyer hour today, 4 cows more tomorrow, etc... Then after creating these many pieces of cloth, and valuing them at X, then tell ME that I can exchange my car for it. With what we have today as money, we created goods and services, then accepted to use that as a way to exchange, hence the entirety of the money in circulation was equal to exactly the amount of Good and Services rendered, debt, etc... With Bitcoin, it is equal to nothing other than what a few people decided and did not create anything for it. I am sure I am wrong, but that is just how I see it. Bitcoin could very well succeed, but the only thing this would mean is that everybody was duped.
- shitgoose 13y ago
  You are correct, bitcoin and dollar are exactly the opposite. Dollar prices inflate on a whim thanks to Nixon, Greenspan or whoever is at the helm (speaking of cows, check car prices in 1980s and compare to today). Bitcoin prices theoretically should be much more stable since the rate of growth of BTC monetary base is algorithmically limited and grows predictably and slowly.
- CamperBob2 13y ago
  So they say your one hour of work is worth $4 then you can easily take that and buy 1 hour of legal advice + 1 piece of bread and be left with 35 cents. That representation and value-holding entity is money as we know it today. It did not just appear. The problem that bitcoin is trying to solve is that the currency representation you're talking about does just "appear." It appears, potentially in vast quantities, whenever the government issues more of it. This is a big problem for anyone who has savings denominated in the currency.

by eof 13y ago

dredmorbius 13y ago

> as evidenced by every fiat currency that has ever undergone hyperinflation. Currencies controlled by sovereigns devalue. It happened in Rome (see Joseph Tainter's description of the silver denarius's 94% devaluation), in England (Adam Smith writes at length on British currency, its tri metallic standard (copper, silver, and gold), and the devaluations of same), and elsewhere. Devaluation of currency is a symptom of a deeper cause. It's not an intrinsic property of fiat currency alone. And the inability to, say, devalue government debts denominated in Bitcoin or other digital currency not subject to deflation would result in some other expression of the problem (likely a sovereign default), which would wipe out wealth as well, though with a different allocation of losses.

rokhayakebe 13y ago

> Paper money imo is backed by regional Economy or iow labor + what labor can buy/buys/saves. In this sense, bitcoin is exactly the same..... I am afraid I think your answer and everyone who is trying to compare the Trust we have in today's paper money to bitcoin, is very much flawed. I want to be explained that I am wrong, but I am not convinced by your argumentation. Imagine a country of 200 people. They each work and provide products and services to one another. They gradually value the value of theirs service rendered and production. Then they need to easily exchange cows for shoes for houses for legal advice for whatever goods and services. They then come up with a way to value these goods and services for ease of exchange. So they say your one hour of work is worth $4 then you can easily take that and buy 1 hour of legal advice + 1 piece of bread and be left with 35 cents. That representation and value-holding entity is money as we know it today. It did not just appear. Bitcoin is the EXACT opposite. 10 people come together in the 200 people economy. They decide they create pieces of cloth and give it a value of X. Then they make X amount of those, granted the task of creating them becomes harder as you go. Then as they create more, X magically is worth 1 lawyer hour today, 4 cows more tomorrow, etc... Then after creating these many pieces of cloth, and valuing them at X, then tell ME that I can exchange my car for it. With what we have today as money, we created goods and services, then accepted to use that as a way to exchange, hence the entirety of the money in circulation was equal to exactly the amount of Good and Services rendered, debt, etc... With Bitcoin, it is equal to nothing other than what a few people decided and did not create anything for it. I am sure I am wrong, but that is just how I see it. Bitcoin could very well succeed, but the only thing this would mean is that everybody was duped.

shitgoose 13y ago
You are correct, bitcoin and dollar are exactly the opposite. Dollar prices inflate on a whim thanks to Nixon, Greenspan or whoever is at the helm (speaking of cows, check car prices in 1980s and compare to today). Bitcoin prices theoretically should be much more stable since the rate of growth of BTC monetary base is algorithmically limited and grows predictably and slowly.
CamperBob2 13y ago
So they say your one hour of work is worth $4 then you can easily take that and buy 1 hour of legal advice + 1 piece of bread and be left with 35 cents. That representation and value-holding entity is money as we know it today. It did not just appear. The problem that bitcoin is trying to solve is that the currency representation you're talking about does just "appear." It appears, potentially in vast quantities, whenever the government issues more of it. This is a big problem for anyone who has savings denominated in the currency.