What backs Bitcoin?

For this question of what backs Bitcoin, the easy answer is nothing. The longer difficult answer is scarcity, electricity, computing power, community, and use.  

Because nothing but the market backs Bitcoin, you need to be ready for temporary drops in the price.  I am prepared for drops in the price.  I think of it as only an even that someone needs cash fast. Why sell so much at less than the top rate?  They could wait a little while for the market to recover.  Some say that they push the market down so that they can buy back more coins with the lower price.  We need to be ready to throw a few more bucks (or work) in when it does happen. (the window isn’t open for very long)

There is digital scarcity with only 21 million coins being available in 2130, that is about 0.012 Bitcoin per person on earth evenly divided.  Some people push the idea that having 1 Bitcoin will make you reasonably wealthy in the future based on this scarcity.  Every 10 minutes the system is checking to make sure which account controls how much Bitcoin.

If you steal electricity to mine Bitcoin you will be caught eventually.  It is the best business decision to find the best cost electricity.  You need this power to get the network reward and then you can sell the reward to pay for your electricity if you need to, or you can hold on to it to hope for a better price.

Special computers that can perform the computations that protect the Bitcoin network cost money.  This infrastructure has a cost that is paid for from the award of Bitcoin  that is released about every 10 minutes.  If you bought part of the infrastructure, would you sell the fruits for next to nothing?

Bitcoin is an open club to trade value across the world.  We agree to send the market value worth of Bitcoin at the time of transaction for the cost of the product or service.  You can offer a discount if you like.  Learning how to use a Bitcoin wallet makes you part of the club and costs no money.

The ability to send these coins all over the world( typically faster then the 3 day wire transfers) is a strength.  Some of us are starting to as why there are so many hated people around the world that are not allowed to have any wealth.  Why are there US sanctions against Zimbabwe?  Some people call this censorship free value transfer.

One Reply to “What backs Bitcoin?”

  1. People need to remember that the only thing backing the USD is the reputation of the US! Let’s hope that the Bitcoin infrastructure keeps a good reputation!

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