[lemondrops]

>> It is only worth something because other people say it is worth something

That is actually the very definition of most currencies currently in use [1]. Money is actually just a promise that someone will provide you goods or services in exchange for it sometime in the future, it has no intrinsic worth. Also, paper money isn't tied to anything [2] either, let alone the "digital" money we have in the banks.

[1] https://en.wikipedia.org/wiki/Fiat_money [2] https://en.wikipedia.org/wiki/Nixon_shock

[notahacker]

"Fiat" money is backed by enormous sums of debt repayable only in that currency and a tax burden representing a large proportion of GDP payable only in that country, and its supply is kept in balance with demand on a day to day basis by central banks. (And even then, people are entirely justified in worrying that certain currencies will struggle to retain value because their state and central bank are very bad at doing the latter jobs) So it's basically backed by years' worth of guaranteed future demand to obtain that currency from people who will therefore be willing to provide goods and services in return.

Bitcoin is backed by optimism.

[Kyotoku]

Never have seen this so well explained. Alternatively, fiat can be printed. So there is a case for something that is limited, transportable etc. You can always sell your bitcoin to pay the taxes. Is just that the limited comodity would have the tendency to sell for more if the fiat is being printed

[alex_young]

Money is traditionally backed by something though right? Isn't a currency a bunch of tokens with an army? Where's the Bitcoin army when I need them to enforce my contacts?

[alien_at_work]

Actually, the main thing that gives money value is the fact that you have to pay your taxes in it. If you live in the US, you might be able to live day-to-day with nothing but BTC but when tax time comes you'll be converting some of that to dollars or facing some ugly consequences.

[lemondrops]

Not really, see e.g. the 2012-2013 financial crisis in Cyprus, there was no "army" to enforce that people got all their money back... [1] The only thing that keeps the system working is trust (see other reply to my initial comment that explained it more thoroughly).

Though I agree that there is a lot less "backing" of Bitcoin in that sense, nothing protects you from losing everything if something goes wrong.

https://www.theguardian.com/world/2013/mar/30/bank-of-cyprus...