Backed vs Unbacked
The powers that be, when they want to ban the use of cryptocurrencies that they cannot control, give you an “important“ reason that you should take heed of:
Cryptocurrencies are not backed by anything.
Well, what about fiat currencies?
They used to be backed by gold, in that for every dollar issued, there’s an equivalent amount in gold stored in the government’s vault.
But not anymore, in almost every country of the world, for decades now.
A fiat currency today is just a piece of paper or plastic or metal that has printed on it, its “value”.
What is fiat currency “backed” by?
Ok, some will say it’s backed by the “government” of the day, which specifies that their fiat currency is legal tender.
“Legal tender” means that it’s legal to use it to pay for something.
Ok. But so what?
Cryptocurrencies are not “legal tender” in the eyes of the government.
Did that stop us from accepting it as payment or a a medium of exchange?
No, of course not.
Because the government’s permission is NOT NEEDED for you and me to agree on what constitutes a medium of exchange that has value to the both of us.
So if you want to pay me for my product with some rocks you picked up from the street, and I agree to this arrangement, I get the rocks and you get my product.
What is the government going to do?
What can it do?
It may think I’m stupid for accepting rocks as payment, but I certainly think the same of it for it to think its permission is needed.
All that is needed for anything (be it digital or physical) to have value between two people, is for them to AGREE that it has value.
If this agreement is there, then whatever is being used, has value.
Nobody and no entity can change this, no matter who or what they may be.
This is why in in some prisons, where prisoners cannot have cash on them, use instant ramen noodles as a medium of exchange.
They used to use cigarettes as currency, but ramen noodles have since taken over its role. Here’s a link, in case you need to check: https://www.cbsnews.com/news/forget-cigarettes-theres-a-new-prison-currency/
Because an agreement (or consensus) is all that is needed for anything to have value, cryptocurrencies can exist.
Cryptocurrencies are all about agreement between parties — the cryptocurrency developer, the sender, and the recipient.
That’s all it needs to be. The fact that is is digital in nature is irrelevant.
And because the entire world can agree with each other on anything if they want, there’s no limit on what we can do in relation to cryptocurrencies and other things or assets related to them.
This simple concept — that of agreement, or consensus — is also the foundation for cryptocurrencies to be verified and validated. If the computers that form the blockchain network agree with each other on a specific data as being correct, then that data is correct. If not, that data is ignored.