Bitcoin isn’t backed by anything!!
The never-ending cry from Dollar Maximalists continues in 2023…
Unfortunately this is one that will continue until Bitcoin flips the dollar, which is at least a decade away, and probably more like two. How do you logically work through this argument, whether it’s for your own understanding of monetary networks or for the education of a curious pre-coiner?
Lets break it down to first principles, examining what backs monetary systems.
Smart People Run the Fiat Network, How’s That Going?
The bottom line with all “money” is that it is simply an agreement between the two parties making a transaction - nothing more, nothing less.
All monies are backed by the collective user base - people!
The dollar system emerged because people trusted the value of the currency more than any other. While there certainly were some smart financial players behind the scenes making this happen, it was accepted by the general population because the currency delivered on its promise, it simply worked.
For a while…
Today we are more than 50 years into the pure fiat experiment, most are getting pretty tired of having their dollars degraded in purchasing power, or in some cases frozen or seized by the US government when they aren’t happy.
The hard truth for those who are a little too trusting is that money can (and will be) weaponized by those who are in control. See the big CBDC push now happening.
While there are plenty of smart people operating the levers of the Dollar System, they are subject to influence and ever changing political winds.
Add to the mix there are no “rules” meaning anything can be changed at any given time. Violence also plays a massive role in the legacy system, as many on the wrong side of the United States have found out.
In the end, you’ve got a foundation of build on a fault line, and earthquakes frequently occur making the system unstable for many users.
Really Smart People Run the Bitcoin Network, Upgrading the Money One Person at a Time
Like the fiat system, the Bitcoin system at its core is run by people as well.
However, this system is built from the ground level with volunteers agreeing to run systems based on mathematics, code, and computing power. And this is where the “backing for Bitcoin” really comes into play.
Undoubtedly in your Rabbit Hole exploration you’ve come across someone who just blows your mind with their insight into the Bitcoin network. Maybe its in the economic incentives, possibly the technology behind it, or maybe its someone who just explains it to you like you’re five years old and it finally clicks into place.
The bottom line is those who work in and on Bitcoin are doing so because of their intelligence, and their conclusion that “its just better.”
Nobody gets paid by the Bitcoin CEO to do this. In fact, many have to sacrifice high paying careers in the dollar system to go work on Bitcoin. Many have had their character attacked simply because they’ve chosen to opt out of one system and put their efforts into Bitcoin.
So which system is better? One with sufficient trust, limited friction, and safety rails - which in turn give the user a feeling of confidence?
Parallel Systems Competing for Users - Capitalism Emerges
In the end, users will choose the system they trust the most.
All of us have been “born in” to one system, and as time goes by we either stay with it or move on.
Its hard to fault a guy like Warren Buffett who has profited handsomely from the existing dollar system. He saw the fiat game for what it was and made the right moves to enrich himself. Millions like him who’ve had financial privilege see no need for Bitcoin, the dollar works just fine. In fact, it works extremely well for Warren and others who have profited from inflationary policy.
For others, the dollar system has been pretty much a disaster.
Massive wealth inequality has emerged in the last two decades as wealth gets sucked upwards to the top 1%.
Thus, people are starting to move on…starting to invest in Bitcoin to preserve their hard earned money in something that cannot be diluted.
In the end, every monetary network is backed by one thing, the collective brainpower of the people behind it.
And that’s why Bitcoin will win