Quote from: toknormal on March 07, 2017, 10:36:21 AM

There are types of monterary media - e.g. debt based money - which derive their very existence from a contractual basis. For example, if you sign a mortgage agreement the bank will monetise that agreement for you so that you can exchange it for a house. That type of contractual money is nominated and the associated encryption of its transactions has more to do with security than privacy. i.e. it's to make sure that the right person is able to perform transactions and not all and sundry. You don't have much privacy because the bank sees everything and members of the public staff the bank.

In cryptocurrencies, however, a system of public/private keys is used so security isn't an issue. Authenticity, however is because we no longer have a trusted third party to back the money - which is why blockchains are transparent but private keys are...."private".

Your (eternal) error is to think that monetary assets HAVE TO be backed by something. They don't have to. A monetary asset is a monetary asset when there's a collective belief in its acceptance against value. How that belief came to be, how it is sustained, and whether it is "legit" doesn't really matter, the only thing that matters is that the belief exists in the mind of the person you want to give the asset to, in order to obtain goods/services. That's all. If I have doggie poop, but my neighbour is believing that others will accept doggie poop for goods and services, then I'm able to obtain goods and services from him against doggie poop I provide, and hence, doggie poop is, at that moment, a monetary asset.

The belief in its acceptance against value is the single, only, sole thing that defines a monetary asset.

Now, there are different methods to keep that belief going, to get it going and so on, but they are just tools, and there's no need for them to exist, if the belief can be maintained in any other way.

ONE way to get the belief going in a monetary asset, is that it is somehow redeemable against something that is recognized as valuable. That can be another monetary asset of which the belief system is more firmly established, it can be some or other commodity of which the value is established because there's a users' market for it, or it can be an enforceable promise of delivering value by a debtor, in as much as one believes that the debtor can really be forced to deliver. This is the idea of "backing" a monetary asset: to have it derive its value from something else that is valuable and which you can get "for sure" with the monetary asset.

But it is not necessary.

Of course, one thing that kills all belief, is if everybody can make arbitrary amounts of the monetary asset. If the difficulty of creating one-self the monetary asset is lower than the difficulty of providing value to obtain the asset in a trade, of course this is not going to work.