In brief Like the U.S. dollar and most other fiat currencies, Bitcoin isn’t backed by physical assets in a vault, but instead by its value as a mode of payment. The math underpinning Bitcoin’s blockchain contributes to its desirability in a number of ways.
20The argument that Bitcoin (BTC) has no value because it isn’t backed by anything physical remains one of its major misconceptions.
It’s a view that’s been perpetuated by the likes of billionaire tycoon Warren Buffett and former U.S. President Donald Trump—both of whom have been quoted saying Bitcoin has no value.
But now that Bitcoin ranks alongside the largest world currencies by market cap, it does beg the question … what exactly does back it?
Bitcoin vs. fiat
Up until relatively recently (the last century or so), most ordinary paper currency and coinage was directly redeemable for gold. This is because many of the wealthiest countries followed the gold standard, a monetary system where governments tied a fixed exchange rate for national currency to gold. As part of this system, countries kept sufficient reserves of gold in their vaults to 100% back their circulating currency supply, ensuring currency-for-gold exchanges were always possible.
However, this also constrained the economy in the middle of the Great Depression, since governments were unable to simply source more gold to expand their money supply and stimulate spending.
The system was abandoned by Australia and New Zealand in 1929-1930; Canada, Germany, and the United Kingdom in 1931; and the United States partially left the standard in 1933.
It wasn’t until 1971 that the United States fully left the gold standard, after then-President Richard Nixon ended the interconvertability of the U.S. dollar into gold, thereby nullifying the Bretton Woods
