What Backs Bitcoin

People who have spent less than 600 blocks worth of time studying bitcoin like Elizabeth Warren often argue that Bitcoin has no intrinsic value.

"No thing that backs it up. That's what makes it different.  It's just belief. You and I assess. You assess the value goes up. I assess the value is going down and therefore I buy."

So It's like this artwork?

"No because at the end of the day I can hang that thing on my wall and I can enjoy it or I can throw darts at it."

They assert it is "just digital." How do you know it's there if you can't touch it with your hands or see it with your own eyes? They often believe that money needs to be "backed by something," as if they still think the bank has gold in the vault to back up the digits in your bank account. Maybe they think pieces of cotton embossed with presidential portraits back up that money-- but that's not the case. I can't fault them for this. I thought the dollars in my piggy bank were backed by gold held in Fort Knox. As it turns out, it is backed by the full faith and credit of the United States Government. The same government that brought you:



“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.” --Satoshi Nakamoto

We can't trust the United States government officials. Some people think that makes me a waco conspiracy theorist, but we also have to trust the banks, the bonds, thye Federal Reserve with the Interest rates. A CBDC would make us need to trust them even more. Maybe you live in a country that uses a different currency. What is that currency backed by? The full faith and credit of the Venezuelan government? The full faith and credit of Russia? Turkey? Lebanon?Full faith and credit is nothing more than a belief. Despite the poignant accusations of the Senator from Massachusetts and the full faith and credit of her Native American ancestry, the full faith and credit of any nation is the full faith and credit in the honesty of its politicians. I guess this means fiat currency and now CBDC's are backed by something after all: Bullshit.

Does Bitcoin have intrinsic value? Yes, because like gold, bitcoin is backed by physical reality. Wait, I thought Pocahontas said it isn't backed by anything? She wears a pantsuit and makes speeches. She's a US Senator for crying out loud. She must be doing a good job because like all the rest of the Senators we keep electing her again and again. You are just some cartoon robot. Why should we trust you? You haven't even been verified by the Ministry of Truth.

You Should Not Trust Me, You Should Verify The Math


" A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network."

Satoshi Nakamoto''

Let's break this down. Bitcoin is peer-to-peer. That means it is run on a peer-to-peer network like BitTorrent. If you've never used BitTorrent, this term might not mean anything to you. BitTorrent is a file-sharing network. People on the BitTorrent network seed bits and pieces of music, movie, audiobooks, and even plans for 3D-printed guns, and porn(of course). You may not like 3D-printed guns, Justin Beiber, or transgender goat porn. Too bad. Those things exist on BitTorrent whether you like it or not.

"Governments are good at cutting off the heads of centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own." --Satoshi Nakamoto

gun

Music, 3D printed gun cad files, and transgendered goat porn are all information. This information is valuable. Value is subjective. I might not find Justin Beiber's music valuable, but Beliebers disagree with me. I don't like grannie goat porn. That's fine. That's what a market is for, determining value via the price system. Beliebers find value in his music. Granny goat porn aficionados find value in granny goat porn,

subjective value

His songs are distributed on centralized servers like Apple music. I would bet a million sats that Apple backs up this music on more than one computer, but I can't say for sure since it is proprietary information. Proprietary information is so valuable that laws are created to protect it. Justin Bieber's bibliography is protected by copyright laws.

BitTorrent is unaware of these copyright laws. 1 mp3 = 1 mp3 according to the BitTorrent software. This software does not make a distinction between copyright and copyleft. The rules of BitTorrent do not discern between legal or illegal mp3s. All are welcome.

For the sake of argument, let's say I seed a copy of Justin Bieber's song. The government of the United States says this is illegal so they destroy my computer. Can someone in Australia still download it? Absolutely! Because that song was not just on my computer. It was on dozens, maybe hundreds of computers. In other words, it is backed up by hard drives all over the world.

According to Clark Moody's dashboard, there are 17,096 nodes on the network as of block height 783,791. (11:08 PST 4-3-2023) These nodes back up bitcoin like the dollar once backed gold With bitcoin, however, no one person can write an Executive Order to shut down all the nodes, effectively taking Bitcoiners of the node standard. All 17,000 of us would need to shut down our nodes to end bitcoin.

What If They Change The Code?

Greenpeace just released the Death Skull commemorative sticker. Most Bitcoiners I know rushed to get one. It looks cool. We also know that changing the code is futile because we have seen the bitcoin code changed many times before. You may have heard of these changes in the code. Centralized, publicly traded companies like CoinBase sell them for fees. We call these code changes shitcoins. Our nodes reject these shitcoins, cryptographic rules that do not follow the rules of the bitcoin software. Coins that changed the code can make transactions on other nodes. Ethereum can make transactions on fully permissioned Ethereum nodes. Litecoin can make transactions on Litecoin nodes. According to Bitcoin nodes, however, these coins are counterfeits and will be rejected. Our nodes define a hard cap of just under 21 million bitcoin. Each whole coin can be divided by 100,000,000. This is how we enforce the monetary supply, by preprogrammed rules distributed over a computer network. As I said before, you can change the code, but 17,049 other nodes will tell you to GFY.

What if I uploaded Metalica's "Enter Sandman" to BitTorrent, but titled it "Baby(Featuring Ludacris)?" Would Bieber fans believe me? Of course not, because songs are not subject to belief. It is based on Consensus. These are not the same songs. Only one is a valid Justin Beiber song. I wouldn't be able to fool a five-year-old kid with this scheme.

Bitcoin works the same way, but instead of verifying the information with our ears, we verify the information with math. To be fair, we can also use this same math to verify songs on BitTorrent, but this is not important. The main takeaway is that the transactions can and are verified using math. You might not be able to hear, taste, smell, or understand this math but you can see it. It can be verified like 2+2, even if you think the answer is 5, nobody else will agree with you. It does not require belief. We can see this with our own eyes, making bitcoin an objective truth duplicated by thousands of computers.

What If I Forget My Password?

lopp steel

Not only is the entire history of every bitcoin transaction backed up by thousands of computers, but people who use Bitcoin must also back up their secret keys which allow them to spend the bitcoin they own which is backed up by the network. A common misconception is to call this a password. Furthermore, as if this was not confusing enough, we can also add passphrases. A secret key is generally 12 or 24 words that represent a 128 or 256-bit number. It is nearly impossible to guess one of these provided it has enough entropy. If a.passphrase is also used, the Bitcoin user will need this as well and it must be exact. There is no room for error as a passphrase creates a whole new wallet.

I'm not going to lie, I'm no politician after all. If you lose your keys or forget your passphrase, you're shit out of luck. There are no bailouts in bitcoin. Therefore, it makes sense to back these things up and use test net before sending real value to your wallets. To back up our private keys, most of us rely on metal. Specifically, military-grade stainless steel with 24 words etched or stamped on them.
Again, these are real words that represent real numbers so that real math can be used with them. This is not a belief. We literally back up our keys with steel, at least the smart Bitcoiners do. The point is that we might forget our passwords as you say if we get Alzheimer's or bumped in the head. That is why we back our keys up. Politicians like Elizabeth Warren who say our bitcoin is not backed by anything other than belief are just plain wrong.

In conclusion, Every Bitcoin transaction on the network is backed by silicon and all the components inside our computers. If one of these computers goes down, thousands are still running. We each share a copy of the same ledger. If someone tries to change the code, our computers reject it. I did not get into mining, but the same argument holds. There are thousands of Bitcoin miners doing math too. All of that math is verified by other miners and all the nodes are like a cloud run by thousands of volunteers instead of a corporation or government. The keys we use to make transactions on this network technically do not need to be backed by anything. We could just commit them to memory, but most of us back these keys up using military-grade stainless steel. That's what backs up Bitcoin.

--Blogging Bitcoin, 783,827

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