Normies often ask,  "What is #Bitcoin backed by ?" 

Bitcoiners are often confronted with these type of questions which we know to be silly but still struggle to answer correctly thereby leaving the normie thinking that they asked a brilliant question. 

💡Introducing Chetan's Normie Playbook💡 

A re-education camp for normies where we learn how to correctly answer silly normie questions by flipping the script on them without turning them off.

Lets answer Normie Question No 3 - "What is #Bitcoin backed by ?"

Dearest Normie. What does it mean to be backed by something ?

For instance, if I were to ask you what the US Dollar is backed by, you would probably say “it's backed by the US Government”. But you would only say that because you don’t actually understand what an asset “being backed by something” actually means.

The US Dollar used to be partially backed by Gold till 1971, after which the US Dollar has been backed by absolutely nothing.

What is Gold backed by ? Absolutely nothing.

What is #Bitcoin  backed by ? Again. Absolutely nothing.

So what does it mean for an asset to be backed by something ?

➡️ Assets with low stock to flow ratios, a.k.a assets whose supply growth is unconstrained, need to have their supply expansion restricted in some way to prevent unrestrained supply growth or hyper inflation.

➡️ FIAT currencies like the US Dollar have no organic or natural limit on supply; in other words the US Dollar can be printed Ad Infinitum. In order to restrict this, the US Dollar used to be tethered to Gold. Gold’s organic supply grows at about 1.5-2% per year and cannot be printed Ad infinitum. Therefore, by restricting the number of Dollars you can print to the amount of Gold you have, you cap the supply expansion of the US Dollar to 1.5-2% per year.

➡️ Low scarcity and low  S2F (Stock to Flow) assets like the US Dollar are backed by high scarcity and high S2F assets like Gold.

Which brings me back to Bitcoin. Bitcoin has the highest scarcity and the highest S2F of any asset ever. The question of ‘backing it’ by something else is redundant.

➡️FIAT currencies and Gold can be backed by Bitcoin, but Bitcoin cannot be backed by anything since no other asset has a higher stock to flow and Bitcoin is already perfectly scarce. Its supply cannot be expanded by anyone.

➡️It's okay for Gold to not be backed by anything since its supply is somewhat restricted, as well as for Bitcoin whose supply is perfectly restricted. It is not, however, okay for FIAT currencies to not be backed by anything since their supply is completely unrestricted.

However, when most normies ask ‘what is Bitcoin backed by’, they’re often asking it in a more generic gotcha kind of sense. If the US Dollar is backed by the US government and Gold is backed by its metallic properties, what is Bitcoin backed by ?

➡️ Bitcoin is backed by 950 Exa Hash or 21 Giga Watts per second of decentralised encrypted compute power making it far and away the most powerful computer network in human history. It's value is not derived from its reliance on any one government or group of people or metallic properties that can be replicated in a lab or found beneath the Earth's surface;  but rather is derived from it's perfected monetary properties, which are;

➡️ It is global, permissionless, liquid, scarce, portable, transportable, divisible, fungible, verifiable, auditable. It has infinite value density, perfected custody and eliminates counterparty risk.

For previous questions, refer to the Normie Playbook -
#Bitcoin #Bitcoin #Bitcoin