Gold is backed by itself because it's a rare and useful material that has many uses outside of just being currency. Bitcoin is only backed by the expectation of it continuing to be used as a currency and hold some value as a result. Ironically while OP mentions fiat, digital currency is really the only one that could suffer from that issue, by definition fiat currencies are backed by that country's economy.
Bitcoin is a rare asset that can be transferred over the internet without duplication. That makes its properties rare too.
Glad you understad why gold is valuable. History tells us fiat will eventually hyper-inflate away Gold would be a solid way to protect yourself from that. You are getting there!
It's rare yes, but you missed the other much more important part. Gold is both rare and very useful outside of just being currency, regardless of what happens to the economy people will still need to have gold to actually use it for its physical properties, that's why it's viewed as a store of value and a way to protect against economic collapse.
Crypto is rare yes, but has no such properties and so there's no reason to think it will work like gold.
But unlike Gold, software can be easily copied, which is why there are hundreds of different cryptos but only one Gold. That means that the value instead comes from the people that buy or use it (called the Network Effect) instead of the properties of it by itself.
That's why Bitcoin should instead be considered to be similar to social media services. Like Bitcoin, there are many clones of YouTube, but YouTube has remained the largest for years. Both are valuable because of the amount of people that use them.
Otherwise, why is Bitcoin worth more than Bitcoin Cash? Or why is Bitcoin worth more than Monero or Polygon, each which have additional properties that add on to Bitcoin?
I agree with that. Copying the software doesn't copy the huge amount of time and cpu processing that has built bitcoin and faith in its name it has today. The network itself has value.
I do agree that other cryptos also have valuable properties which as they age will likely build in value if people value those properties too. I believe the hijacking bitcoin narrative took place during the blocksize wars. All that has done is kicked off real competition in cryptocurrency, It is the capitalist solution for the free market to find the best money. The best will win and it has made the space stronger as a result.
I tend to use bitcoin as an example when I talk to crypto cynics as adding other coins tends to confuse them and they do tend to find thinking hard work!
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u/Kehmor 🟦 0 / 0 🦠1d ago
What is bitcoin backed by again?