As a cryptocurrency enthusiast, you may have wondered. What is Bitcoin backed by?
After all, it is not uncommon for Bitcoin to be compared to traditional currencies and commodities. Gold 2.0 as an example. Therefore, would it be a stretch to assume it is backed?
Don’t worry, in this article, I will be covering what Bitcoin is backed by and much more. So without further ado, let’s jump right in.
Bitcoin is not backed by any physical assets. Ultimately, the currency relies on a faith-based system. Without the trust of individuals, the value of Bitcoin collapses. That being said, it is backed by mathematics and code. Ultimately, it is a decentralized, censorship-resistant currency with built-in scarcity.
What is backing Bitcoin?
Bitcoin is not backed by physical assets. All in all, you cannot redeem it for a predetermined amount of a set commodity such as gold. After all, the currency aims to be decentralized therefore backing it using assets held by a central authority would go against Bitcoin’s ethos.
Rather than the value being ensured by a backing, it is purely based on faith. Ultimately, individuals believe that other people will value it and therefore the system has value.
Backed by mathematics and code
Although Bitcoin does not maintain its value from commodities it is still supported by mathematics and code. Overall, this has created a network without a central authority and therefore it is censorship resistant and without a single point of failure.
Not to mention, a global network of decentralized computers has created an asset that is more democratic. It is backed by a vast community of individuals who all contribute to the consensus mechanism and development of the protocol.
Moreover, blockchain technology provides a distributed ledger that anyone can access. In other words, it is an online database that facilitates auditing by proving a complete history of money flows.
Since the inception of Bitcoin each and every transfer has been recorded. Transactions on this ledger are immutable meaning they cannot be changed.
Not to mention, it is completely open and transparent which creates a system that is honest and verifiable by anyone. This highlights any malicious activity and improves the integrity of Bitcoin.
Overall, these factors back the Bitcoin to create a system that is robust even without the ability to redeem it for another currency or commodity.
It is also worth noting that there is significant company and institutional backing. The most notable example is Microstrategy. Microstrategy is a business intelligence software vendor located in the US.
Led by the infamous co-founder Michael Saylor they have purchased over 130,000 bitcoin at the time of writing. But this institutional exposure to Bitcoin does not stop there.
The popular car brand Tesla also has investments in Bitcoin. Not to mention, the crypto firm Chainaylsis concluded that institutional adoption increased by over 500% in 2021.
Regarding future projections. The Boston Consulting Group, Bitget published a report estimating that cryptocurrency adoption will reach 1 Billion users by 2030.
All in all, there has been a transition over the years from a niche community of cypher funks to a new asset class backed by the largest financial entities.
If you want to view this article in a more visual format then please check out my video below:
Is Bitcoin backed by gold?
Bitcoin is not backed by gold. Although, it does share the same scarcity characteristics as gold with the added benefit of being digital.
Is Bitcoin backed by Tether?
Bitcoin is not backed by Tether. Unfortunately, Tether is backed by centralized assets held by a few select banks. Therefore, this is not compatible with the decentralized nature of Bitcoin.
Is there crypto backed by gold?
Several cryptocurrencies are backed by gold. This includes Tether gold and Paxos gold. In the case of Paxos gold, it is an ERC20 token that is backed by gold reserves held in Brink’s vaults located in London.
To summarize, although Bitcoin is not backed by any physical commodities it is backed in other respects. This includes its secure and decentralized code that is developed by a vast network of individuals.
Moreover, there is significant intuitional backing from the likes of Microstrategy and Telsa and in my opinion, this will only get better with time.
I hope you found this article useful and thanks for reading it.
Want to learn about Bitcoin mining? Click here to read my previous article.