Non-virtual backing of virtual currencies

Many people who are brought up in the paradigm of modernity can be confused by the very term “virtual asset”. They may perceive it as something ephemeral, something having no tangible objectification. And they are right in a certain sense since this is about an electromagnetic process that is a movement of energy, not of matter.

The ones who are used to feeling crisp dollar bills in hands would be suspicious of cryptocurrencies that circulate only within the internet having no banks in the background. They don’t care about the pure human belief that actually stays behind crispy banknotes. They need to understand which “real” valuables are backing crypto.

A popular misconception that only lines of computer code provide Bitcoin’s existence keeps a lot of proponents of “solid values” far away from cryptoeconomy. The defiance of the fundamentals of blockchain is a typical feature of consumers mesmerized by the matrix. In contrast to them, the postmodernity-oriented people can figure out quite a simple backing of crypto on their own.

Energy and capital are the two basic real-world valuables that stay behind Bitcoin. A huge amount of electricity is consumed by validating nodes that support running the Bitcoin blockchain. This is what is better known as “mining” — a process of validation of blocks of data along with building a chain of blocks — the blockchain. This pure machine process provides the “human-less” consensus between network users about the authenticity of transactions in Bitcoin. It requires very significant computing power and, therefore, a lot of electric energy has to be consumed. The total power consumption of such a country as New Zealand can be an equivalent.

Since 2009, dozens of billions of dollars have been invested in Bitcoin. Such capitalization is enough to make bitcoin holders confident in a real value inherent in Bitcoin. It is also worth remembering that all those invested billions do not belong to any organization or a person who can be recognized as an issuer of Bitcoin. Otherwise, it would be as risky to trust such a central point of failure as to trust any bank. However, Bitcoin capitalization is spread over the internet and anybody is able to neither steal nor nullify the value of Bitcoin.

In addition to valuables from a “real” world, a strong network effect with millions of users supports Bitcoin with their trust. And we know that public trust is what makes any money valuable.

Thus, we can see some diversified sources that provide Bitcoin with real value. In addition to a strong public trust, Bitcoin is backed by millions of units of hardware that cost a lot. The hardware consumes many Gigawatts of electric power that also cost a lot. Besides, billions of “real” dollars invested in Bitcoin reflect the monetized business value of the cryptocurrency.

Dozens of thousands of online crypto exchanges, trading platforms, Bitcoin-specific software, mobile applications, and many other relating crypto projects should be taken into account as well. They all have their own monetized value that is impossible without Bitcoin. Millions of man-hours spent on the internet by Bitcoin users constitute another valuable resource that gives real value to crypto.

It seems Bitcoin with is purely virtual origin appears “more real” in many practical aspects than the majority (if not all) of conventional currencies do. It is just enough to observe its characteristics to ask: what non-virtual money can offer something similar?

Let’s specify what we have in Bitcoin at the end of the day: an invulnerable inalienable state-agnostic Internet-based virtual asset that is backed by enormous energy and huge capital. The asset that does not require believing in its legitimacy since the whole history of transactions is verifiable by any user at any moment. Besides, Bitcoin has a huge network effect as a unit of value exchange and an online system of transactions simultaneously. What other money than Bitcoin can offer similar transparency, credibility, and immutability? None of the available fiat currencies can, obviously.