Bitcoin is not backed by anything.
What is the US dollar backed by? and don't say gold because it hasn't been for a long long time. Like the US dollar, Bitcoin is backed by the people who use it. You can take your Bitcoin and you can exchange it for goods at Dell etc, this is what gives it value.
Money came into being as a medium of exchange, so that if you got stuck with it it was useful in some way. It wasn't just a piece of paper. It was something that was useful in and of itself.
Not entirely true. Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, perhaps, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered money. (pasted from wikipedia)
One of the first types of money used by ancient humans was sea shells. Properties of a good money are something easily transferred, divisible, durable, scarce and fungible, and widely accepted as a means of exchange,.
There's also the problem with Bitcoin of inflation. Yes, there's a fixed amount of Bitcoins qua Bitcoin, but anyone can create alternative cryptocurrencies. I don't see why Bitcoin has any unique features that cannot be replicated by others, and therefore you will create massive inflation in a digital coin space.
Inflation caused by other cryptocurrencies do not have a significant effect on Bitcoin, much in the same way inflation caused by Bitcoin doesn't really have a significant impact on USD.