[mattm]

> I feel that when money in the form of paper bills was first introduced, there had bound to be people wondering the same thing. After all, taking a step back, who would consider putting such value to pieces of paper that we do in today's day and age?

The thing with paper money, at least recently, was that it originally started out as being tied to gold. Instead of having to carry around gold for exchange, you would exchange these pieces of papers which were the equivalent amount in gold. However, once the idea of paper money became so entrenched governments realised they could remove the actual backing without many people saying "Hey wait a minute. These pieces of paper are now worthless."

If people had tried to introduce paper money originally without the gold backing, there's no way it would have caught on in the same way.

[ahquresh]

But aren't we just introducing Bitcoin with conventional currencies as its backing?

[randallsquared]

No, backing implies that someone has a legal obligation to supply something in exchange for the thing backed. Gold originally backed USD because paper dollars were literally a contract to pay the bearer a certain amount of gold. Gold and USD now have the same sort of relationship that USD and bitcoin do: neither USD nor bitcoin is backed by anything.

Both are still worth something, at the moment, though, which is all you need for an exchange to be possible.

[ahquresh]

I see, I completely misunderstood what mattm was trying to say then. That makes much more sense.