[Manglano]

From an economic standpoint, Bitcoin is backed by generated electricity, computer hardware, and network trust. This is not dissimilar from the American Dollar, currently backed by the global energy economy and network trust. Here, the network is the US Treasury and the American public, depending on your analysis; Bitcoin's network is necessarily smaller but the opening of Futures trading suggests a vested interest in continued network growth by exchange operators. Consider the hedge on continued access to electricity and advanced technologies.

What this is worth to the consumer (is currency a product? opinions vary) will vary, but diamonds without industrial use were valued at billions of dollars only 150 years ago. Large diamonds still carry multimillion dollar values, despite that a 32-karat diamond can be grown from carbon ash in a small plasma cell for only hundreds of dollars. Maybe even less if the laboratory is powered with a renewable energy source.

The diamond was perhaps my favorite currency to study. It is an object historically backed partially by human fascination with light, partially by industrial demand, but the industrial demand was slowly diminished by the introduction of synthetic grit and stones. Despite the low cost of manufacturing a synthetic diamond for jewelry, they usually depreciate immediately--that may be a comment on the consumer's demand by those who practice valuation, or it may be that a "used" diamond is somehow worth less than a "newly discovered or grown" diamond. Impossible to say.

Good talking to you!

[paulgb]

> From an economic standpoint, Bitcoin is backed by generated electricity, computer hardware, and network trust.

Saying Bitcoin is "backed" by generated electricity and computer hardware is like saying paper money is "backed" by the printing presses and labor that made it. Economically this is nonsense.

[xorcist]

Nonsense is perhaps a bit strong. What people mean when they say Bitcoin is "backed" by energy, is that there is a certain cost associated with producing one BTC. That cost is primary the electricity consumed and electricity has a spot price (barring distribution problems which might skew the price). Miners are not likely to sell under the price of production, at least for shorter time frames, which creates a supply elasticity.

It is not backed by energy in a literal sense of course, that would be obviously meaningless. But the price of energy, BTC and mining difficulty are connected. A change in one variable affects the others.

[vasilipupkin]

yeah, that argument I never really got. It's like saying that a product is backed by the cost of that product. Doesn't make sense.

[notyourday]

US dollar is backed by :

https://en.wikipedia.org/wiki/List_of_aircraft_carriers_of_t...

and other things like that. Which is why even drug dealers that are hunted by the US trust US dollar.

[Manglano]

Yes, I know that. I lump the US military under "network trust."

[tome]

What does it mean for a currency to be backed by the military?

[lamp_book]

Couldn't find a good source quickly, but it should be fairly evident that there is a pretty strong feedback loop between a nation's military and its economy, especially in the all of human history up to the colonial times at least. Maybe the link is more obfuscated today, but the US exerts a huge amount of political power (and therefore economic) with its massive military. And since military relies on the USD for funding, you could probably assume that the USD is going nowhere as long the US military is powerful (with some hand waving), which looks like a good bet.

[ksk]

>And since military relies on the USD for funding, you could probably assume that the USD is going nowhere as long the US military is powerful (with some hand waving), which looks like a good bet.

But that is not income and would only put the US in debt, devaluing the USD.

I think the point he was alluding to is that countries hold a significant chunk of their foreign reserves in USD, which keeps demand for USD high. Other than the obvious trade aspect, one of the major reasons countries do so is because they purchase goods and services from the US military. (e.g. Japan, South Korea).

[rhino369]

>From an economic standpoint, Bitcoin is backed by generated electricity, computer hardware, and network trust.

From an economic standpoint it isn't backed by anything. Bitcoin doesn't have a direct correspondence with any commodity. I can't turn in a bitcoin and get the electricity back.

It's back by nothing. Monopoly money. So is the USD dollar and all other fiat currency. Bitcoin is a fiat currency without the fiat.

[Manglano]

Humbly I disagree!

The labor of manufacture is perhaps why the fiat currency has value. This argument heads toward philosophy, but without the minting process (and its technological backbone), to some degree the dollar would be valueless cotton.

In nations where the fiat currency is printed on polymer, I feel that their fiat currency states something like, "Not only do we stand as the people of this nation and its currency, but our belief is such that we have printed the currency with a specialized ink on an advanced polymer."

Before you consider military or government or the world outlook, a belief like that is not worth nothing. That note has indeed been backed by something, and no way is it Monopoly money!