Have you heard that bitcoin is backed by nothing?
If that’s the case then anyone should be able to create a bitcoin. Go ahead then, ask that someone to create a bitcoin. They won’t be able to.
There is only one way to create bitcoins.
To make bitcoin requires a lot of computing power — way more computing power than any of us mere mortals own — and directing that power into making sure that nobody can defraud anybody else about a bitcoin transaction or a bitcoin’s authenticity. To make bitcoins, you have to put a lot of work into making bitcoin transactions free of fraud and counterfeiting. As a result, one thing bitcoin is backed by is fraud resistance. Specifically, it’s backed by creating rewards to make sure it is fraud resistant. Is this getting interesting yet?
Well there’s more. Even if you put all the computing power in the world against creating bitcoins, you still won’t create an unlimited supply of bitcoins. Nope, no matter how much energy and power is put into creating bitcoin, only a certain amount can be made in any period of time. Nobody, no matter how much computing power (or any other kind of power) they have can make more bitcoins than are scheduled to be made. So bitcoin is also backed by scarcity. There will only ever be 21 million bitcoins created. And the last little piece of that last bitcoin won’t be created until around the year 2140 (that’s 122 years from when I’m writing this article).
So we have fraud resistance and scarcity so far. But there is more still.
One more thing that bitcoin is backed by is the fact that it’s not controlled by any one entity. How’s that a good thing? Well, the destruction or corruption of any one entity, or any several, or hundreds of entities, will not destroy bitcoin or impact its fraud resistance or scarcity. Bitcoin is built so that as long as anyone wants to keep it going, it will keep going. To stop bitcoin, literally every entity in the world who runs bitcoin software would have to stop running it. And then, technically, bitcoin would only be paused and would start up exactly where it left off when someone started it up again. So bitcoin is backed by its “unstoppability” too. Sorry that I had to make up a word for that thing. It’s kind of unique and that’s why there’s no word for it (although this is often captured in the other words you may not be too familiar with that are “decentralized” and “anti-fragile”).
So it’s scarce, fraud proof and unstoppable. Want more? Because there is more.
How about this: Can anybody get a bank account, for free? No. Can they get a bank account without being approved by the bank? Of course not. If they do get a bank account, can they take the money out of the bank if the bank is closed, closed down or decides not to give it to them? Also no. There’s billions of people in the world without a bank account. But anyone with access to a smartphone or computer can have bitcoin address. And they don’t have to give any information about themselves to anyone to have it. And they’ll always be able to access their bitcoin and send it to someone else, anywhere else. So bitcoin is also backed by forever being “permissionless”.
So it’s scarce, fraud proof, unstoppable and permissionless. I’ve got one more and then I promise I’ll wrap up with a really cool point.
Its borderless. Yep, no matter where you are and no matter where in the world the person who you want to send bitcoins to or receive bitcoins from is, the transaction will happen. Want to send money “back home”. You can. No banks, no wires, no institutions. So it’s borderless too.
Now, if you take a look at all these points you’ll see that bitcoin is backed by what it doesn’t have: It doesn’t have fraudulent transactions, it doesn’t have counterfeiting currency, it doesn’t have an unlimited supply, it doesn’t have any way to stop it, it doesn’t need anybody’s permission and it doesn’t exist in any one place or respect any political borders. I’ll leave it to you to compare how many of these things that bitcoin is backed by are true of what you might consider money and whether what backs that money is better or worse than bitcoin.