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What is Backing Up Bitcoin?

Bitcoin

September 17, 2020 | 

JOHN K MWANIKI |  1 Comments| 

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The crypto world has grown on the premises of anonymity and lack of any central control. No single entity can control the value of the crypto in the market; this is unlike in the fiat currency where the government has the authority through the central bank.

The central banks determine money circulation. It reduces or increases the supply depending on inflation rates. Such backing has made crypto so popular. Most users have confidence in the value of every denomination. 

The same questions on what backs or controls Bitcoin comes up. Confidence is critical when it comes to money. Nobody wants to risk owning crypto when not sure of the value. It might seem nothing is backing the coin. 

Follow through to understand everything about what backs the cryptos; 

The Evolution of the Fiat Currency 

The fiat currency is the most used form of money. Transacting using money is quite convenient. You can easily exchange commodities with the currency without any issue. What most people fail to note, though, is the determinant of the value of the fiat-money. The means through which to determine one dollar is worth that dollar. 

The majority of people are okay to trade without necessarily knowing much. The money system has been around for some time and works just right. And as the say goes, "don't tamper with the unbroken."

To understand the viability of crypto, you need background information on the fiat currency. The Pound is the oldest currency in the world. It started operations around 1200 years ago. Starting out, one could exchange the Pound for more than just its equivalent. It was a medium of exchange. 

The Pound's value was tied with that of the gold. One could exchange the currency for gold. The Pound then improved to peg its importance to the US dollar in 1944. The US, by this time, kept gold reserves to match the money supply, only to become unattainable in 1977. The period was of the gold standard

The US government had to free the fiat currency from any backing by another product. Instead, it is the government that gained control. They can publish as much fiat currency, depending on the need. It only requires users to have confidence. 

Most governments have done well to maintain the fiat currency values. They have managed inflations, debts, and other economic aspects around money. Still, there are cases of fiat currencies with issues like in Zimbabwe and Venezuela

Comparing Bitcoin to the Fiat 

Understanding the history of fiat helps when looking into its relativity with Bitcoin. Bitcoin operates like any other traditional currency. Its nature of exchange and supply makes it more of a fiat. Both the crypto and the fiat's value comes from the market movement. However, Bitcoin seems to be a notch higher. 

Bitcoin beats the fiat currency in various spheres. Some of these are; 

  • Scarcity – the supply of money in the economy depends on demand. Too much supply leads to inflation, while less comes with inefficiencies. For the fiat, the government determines the supply. They can print more money at will depending on any narrative. Bitcoin's supply, on the other hand, is market-driven. The system has set in place systems to ensure proper supply. It provides for halving after every four years. The set systems limit the possibility of under or oversupply. 

  • Durability – the fiat currency is made of paper or coins that are less durable. They damage or get worn out with time. The governments have to print more to avoid less supply. The online nature of Bitcoin, on the other hand, makes it timeless. There is no physical Bitcoin to need replacement after some time. 

  • Counterfeitability – any proper currency must be free from counterfeits. For now, this is not the case with fiat currencies. The fake bills are a menace in the economy. Fraudsters have mastered how to create counterfeit coins. No matter how much illegality can be in Bitcoin, a fake can never be one. Bitcoin operates in advanced blockchain technology with several participants. Every transaction comes with a validation process. You cannot confuse the system and the people involved. 

  • Transportability – Another selling point of a currency is the use factor. Most of the fiat currency is limited within borders. Sending money through different countries becomes hectic. One has to convert the cash, which is time and resource consuming. Bitcoin comes with the ease of supply. Bitcoin operates the same worldwide. It takes a few seconds to send anyone the coins globally. Also, there are several wallets and exchanges for the ease of transfer. 

  • Utility – the ease of use also matters in the money system. The fiat currency comes with a superior utility. It has a defined value. Bitcoin still is also easy to use. The users are gaining trust. 

How Important is what backs Bitcoin? 

You have established that no physical product backs fiat, yet it is very successful. Bitcoin also has no product backing it. The lack of backing, however, is a non-issue. What matters is user confidence.

So far, Bitcoin has been gaining market traction. It has become a viable investment for digital asset investors. The continued growth in value makes it a darling of many. The coin will gain more user confidence with exchanges and payment processing. 

Bitcoin also has its fair share of challenges. The coin is yet to establish the value as a means of exchange. It can only achieve better utility with the value in place.

Its transportability has also had issues. The crypto platforms have been hacked before and face other cyber-attack targets. 

Bottom Line 

Bitcoin has become a viable investment in recent times. The growth has seen some people consider it a possible replacement for the fiat currency. Currency backing is an old economic tradition. Albeit now phased out. 

The fiat has performed well without backing. Bitcoin, with the superior features, looks even to perform better. It only needs user confidence. 

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batholomew brown
batholomew brown . I’m a bitcoin trader and the time I’m writing this blog I can’t find a single review about many bitcoin trading signal services and companies. I have lost lots of money testing them for over an year. I don’t want you to be scammed too.

0     Reply    4 months ago from: Canada

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