What is crypto backed by?
Key Takeaways
Backing a currency is done by the currency's issuer to ensure its value. Bitcoin, gold, and fiat currencies are not backed by any other asset. Bitcoin has value despite no backing because it has properties of sound money.
Bitcoin is not backed by any asset or physical commodity. Bitcoin does not require backing since it is sound money because of its inherent monetary properties that allow it to be a good store of value, medium of exchange, and unit of account.
Bitcoin is enabled by various factors such as mathematics and cryptography that lay the foundation of a monetary system that is borderless, permissionless, and censorship-resistant. These factors enable Bitcoin to be sound money, which is why it does not need to be backed by anything.
This should be intuitive because Bitcoin is not controlled by any person or organization. Therefore, nobody is in a position to make this promise, and they would not gain anything by taking on the massive liability associated with ensuring the backing.
The lack of backing does not mean Bitcoin does not have value. The majority of currencies used in the global economy do not have any backing.
By definition, a fiat currency is a currency without backing, and this is what every major economy in the world uses to conduct daily transactions.
Edited by Viswasruti - 3 months ago
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