What Is Bitcoin Backed By?


People often say: “bitcoin can’t be money, it isn’t backed by anything.” This is an old way of thinking that originated with paper money. Prior to paper money, people used precious metal coins (such as gold) because they maintained strong monetary properties: scarcity, durability, divisibility, portability, fungibility, and acceptability (the six monetary properties).

Paper became money because it was superior to gold in terms of divisibility and portability BUT it lacked scarcity. People reasoned that we could benefit from the greater divisibility/portability of paper money as long as it was redeemable in a form of money that was scarce. This is when money needed to be “backed” by something.

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