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Comment by jerf | Hacker News Reader

I've complained before about the problem of BitCoin not having any backing [1]. Creating backing by making BitCoin (or $CRYPTOCURRENCY) a percentage ownership of some company is an interesting possibility, though one wonders how to distribute dividends properly. The implications stagger the mind, honestly. Not necessarily all in a good way, but it's the best idea for a BitCoin/$CRYPTOCURRENCY backing I've heard yet.

[1]: "But neither does the US Dollar!" Yes, it does; the US government acccepts taxes only in the form of dollars, and has the authority to force many other entities to render unto it taxes. Upon this basis is the value of government fiat currencies built, and it's why currencies follow the fate of their issuing government quite precisely. (The "it has no backing" model would predict that the currency could float on regardless, which they observationally do not do.)

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I agree, this is fantastic stuff, and definitely a very good explanation for what things can be. Crypto-currency is a very very interesting space and not many appreciate it. It solves the core problem of how to deal in money, which is needed as the first stage of AI in order to create a machine that can interact with our human world.

Dividends can be distributed just like dividends are distributed in current companies - on a pre-declared date, everyone holding the 'stock' will get the dividend.

Crypto-currencies are really backed by the value of services that they provide.

Bitcoin is backed by the bitcoin network, as the means of paying transaction fees.

Network can work pretty well at $10/BTC and at $10000/BTC. Bitcoin is "backed" in the same sense as gold: it's just unforgeable, divisible scarce asset which makes it a good collectible. If it has any value at all (in the eyes of some collectors), it can be used as a medium of exchange and can potentially acquire many more collectors willing to hold it in expectation that they can sell it any time for something else valuable.

USD is a collectible too, without any "backing". Some time ago USD was gold backed, meaning it was a promise to give you a certain amount of metal from the bank. Since 1972 (actually, for average Joe it all started even earlier, at Bretton Woods agreement) USD is officially not backed by gold. It's a pure collectible protected from forgery by law enforcement (both paper bills and banking transactions) and also protected from competing collectibles by various regulations and controls. As long as govt does not print dollars too quickly, it remains being a scarce asset which can be used as a collectible. Enforced requirement to pay taxes only works as long as dollars are demanded on the open market as a scarce collectible. If dollars are only needed as tokens to be purchased from govt with real goods (or bitcoins) to be paid back to it, then they have no meaning as money and it's going to be just a fancy way to pay taxes in something else.

Sure, I was speaking directly to the parent comment. If you're comfortable using the term "backed" about USD because taxes, you should be comfortable using the term "backed" about bitcoin because transaction fees. If you're not comfortable using it in either case, I won't argue.

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