“There are six characteristics that make something a good candidate for money/currency:
The better something is in those six characteristics, the better suited it is at being a currency.
A lot of things have value, but make poor currencies due to failings in one or more of those six areas (diamonds, bicycles, iron bars, etc.)
For thousands of years, gold checked most of those boxes and the migration to gold certificates helped solve gold’s issue of divisibility for smaller values (it’s a pain in the ass to try and weigh/divide grains of gold) And nowadays, fiat currencies try and optimize these characteristics as well:
1.) Scarcity: only a select group can create/print money
2.) Durability: most money is digital anyway and the paper notes are printed on durable paper/cotton hybrids or unique plastic-like materials
3.) Divisibility: There are various denominations plus coins
4.) Transportability: Paper is lightweight and pretty easy to fold up and put in your pocket, even in large amounts
5.) Recognizability: A ton of effort is put into making bills easy to recognize/difficult to counterfeit. Think of the inks, watermarks, hidden strips, etc.
6.) Fungibility: Any $1 bill is equal to any other $1 bill.
Bitcoin takes each of these characteristics out to the n-th degree. It is:
as durable as you want it to be (you can engrave a private key into tungsten if you like)
divisible to 8 decimals
as transportable as an email
practically impossible to counterfeit
and perfectly fungible
Bitcoin’s ‘backing’ comes from the fact that it’s exceedingly difficult to change any of the above and not in anyone who maintains the networks best interest to do so, unless a case can be made that it’s usefulness as a unit of account, store of value, and/or medium of exchange is increased in some way.
It is also the only way to transfer value digitally without the need for a third-party.
Money is basically favor vouchers. You do something for someone and they give you some item (gold, seashell, signed piece of paper, etc.) that society agrees gives you the right to call in that favor owed to you, but the cool thing is it doesn’t even have to be from the person you did the original favor for.
The way Bitcoin works is instead of actually passing around gold or pieces of paper to record who did what for whom, a globally synchronized accounting ledger records this data in a cryptographically secure way. Since no tokens have to be physically transported, it is global and fast. But since no central authority controls it, it cannot be politically messed with, inflated, confiscated remotely, etc.
It’s like gold that weighs nothing, that you can carry in your brain without anyone knowing, and that you can teleport anywhere in the world for a tiny fee or even no fee. You can do this with a few cents or a few million dollars just the same way.”
by Ya Li