What Is Bitcoin Backed By?

When introducing the concept of bitcoin to someone for the first time, I’m usually asked, “What is Bitcoin backed by?” I usually reply with an equally ambiguous question,  “What is a dollar, peso, rupee, paypal, and so forth backed by?”

While this is probably not the best way to introduce someone to Bitcoin (BTC) it creates an environment of questioning, which leads me into the good part:

BTC is backed by the blockchain ledger

BTC is backed by goods and services

Advanced cryptography that prevents counterfeiting

Economic rules that don’t change

Massive computing power that makes transactions nearly instantaneous

and….

No central authority

So basically BTC is backed by technology and an economy, just like any other currency, but without a central bank. Some argue this is better than any other fiat currency because a fiat currency is controlled by a governing power; BTC is peer-to-peer.

The block chain is the public record of all BTC transactions, in chronological order. This means that all transactions are known to the world; contrast this with how little we know of central bank activities.

Calling BTC a crypto-currency, or non-governmental currency, is similar to calling the US dollar a piece of green paper with pictures and numbers on it.

Bitcoin is “backed” by its usefulness. Just as is the US dollar. As long as you can do things with it, then it has value. The more people can do with BTC, the more value it will have. In time, the technology and economic rules might make BTC more appealing than the USD.

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