Quote from: Impaler on December 07, 2013, 07:28:15 PM

Quote from: deisik on December 07, 2013, 06:44:30 PM

Quote from: Impaler on December 07, 2013, 06:34:39 PM

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 well 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 that the other, otherwise they are on a par. Which currency would you choose?

Their is a lot of difference, something can not be an effective store-of-value if it lacks EITHER. For a person to store value a person needs to do two things, they need to RETAIN an asset and the asset needs to RETAIN purchasing power. If I had an object with perfect ability to retain purchasing power but it could be stolen very easily it would be a poor store-of-value, alternatively something that's very hard to steal but which has unstable in purchasing power would likewise be bad. My total risk of loss is Retention Risk (losing the asset) + Valuation Risk (asset loses value). So any logical and subjective personal assessment of an assets store-of-value is going to need to take both risks into account.

Actually stores of value need neither, though our disagreement may be at least partly down to semantics.

A store of value does not have to be inherently secure. Rather the political, legal and economic structure must be such that it would not be trivial to take away your property by force. Actually BTC is the only store of value that has built in security features - but as you pointed out these are not sufficient.

A store of value does not have to be backed by anything to retain purchasing power. The only thing that needs to 'back' it is the expectation that the public perception of its value will persist.