Post
Topic
Board Economics
Re: Medium of Exchange vs Store of Value - and effect on BTC worth
by
deisik
on 07/12/2013, 18:44:30 UTC
You confuse BACKING with SECURITY, Backing a Currency means giving it value, government legal tender laws and the ability to pay your taxes in a currency BACK the currency, or in the past pegging the currency unit to quantity of precious metal.  Security is preventing a currency from being stolen or counterfeited and governments also generally provide Security both by making paper bills hard to counterfeit and punishing thieves.

The BTC computer network provides SECURITY only, it keeps BTC from being counterfeited, and it kind-of prevents bogus transactions by cryptographic signatures, while turning a blind eye to scams, hacked wallets and black-markets.  But all of these things are just guaranteeing your continued ownership of BTCs not that the coins will be WORTH anything.  BTC is secured but not backed.

At the level where it matters for the question discussed (i.e. subjective utility), there is not much difference between these two concepts. Actually, at this level security becomes what gives the currency some value (indeed this is not enough) because it all finally boils down to trust. As a counter-argument, I can just as easy say that backing up by gold is simply preventing government from abusing their power. And security, all of a sudden, now begins to play in the same field...

Simple mental exercise, suppose you have to pick up between two currencies. One can be counterfeited more easily than the other, otherwise they are on a par. Which currency would you choose?