What is Money

Money can be broken down to three (now maybe 4) definitions.   Money is

1) Hard precious metals (gold silver)
2) Gold backed money.  Before 1971, for every dollar in circulation there was a similar amount of gold in Fort Nox.    In other words, at any time all dollars could be rounded up and trade for gold
3) Fiat Money.   This "money" is backed by a government or organization.  Most currencies around the world are fiat monies.

Gold/Silver makes for an awful currency.  It is not dividable (you can't pay $2.99 for your coffee), not transportable in large amounts, difficult to store, and not digital.

Gold backed money was excellent, but should not have to be based on trust.   The US Government *says* it has so much gold in their vaults today, but nobody has seen it or audited it since WW2(yes, 70 years ago)  Nobody knows how much gold the US government REALLY has, probably not even the US Government.

Enter this "idea" of bitcoin.

I believe the idea of even having a currency is on its way out.   Currencies are difficult to manage:
-You have to print them
-You have to protect it from counter fitting
-You have to transport it
-You have to protect it from theft
-You have to manage it in other ways (replacing lost or damaged bills)

What if there was a database that kept record of what every citizen produces(works) in a country.    What if when I build one house, it goes into a digital public record, and allows me to trade that service for goods produced in other sectors of economy.

Bitcoin is/can be a public digital record of the input each member of the world has given to society.   If you build a house, you get 100 bitcoin, which is exchangeable for 1000 apples in the free market.     Simply put, its a single database, infinity secure, that keeps track of the value of each producers products and time of production.

Over the internet, I can trade the value of the production of one house, for a sushi dinner in Japan, frictionless, free of manipulation, no fees, no banks, no checks, no cash.  I just trade my space on this database for his sushi.  He then gets the space in the database, and I get my dinner.
____________*thought break*______________________
Onto a different thought on what IS money?

I had a conversation with a gentlemen one time about bitcoin.   His main stumbling point was that it was a currency that was not backed by anything.    Since bitcoin has no single issuer, there is nobody that guarantees it.

I asked this gentlemen, "ok, what backs the dollars in your pocket"  and his answer after he stumbled was "more dollars".

 He was missing the point.   The currency we currently use is worthless.   The US dollars value can be broken down to 3 things

1) The value of the paper and ink its printed on
2) The value it demands by other producers in the economy.
3) The military force, backed by American blood and 600 billion more dollars, that enforces US economic interests around the globe.

As soon as citizens lose faith in the US currency, or items 2 and 3 above, hyperinflation will set in.   If you though $4 gas was expensive, wait for $400 / gallon gas.

Here is my proposition.   Bitcoin is not a currency(US dollar).  Bitcoin is not a commodity (gold).

  Bitcoin is a decentralized database where users can store/trade the value of their work at the time it was produced.

Its not a commodity because you can't touch it and it has no industrial use.   Its not a currency because its not backed by any government.  Bitcoin is a brand new idea.    Bitcoin is simply a database of world trade.  If you produce a widget and sell it for 2 bit coin, you can trade the free market value of that widget anywhere in the world, by giving somebody else that spot in the database.  You could think of each bitcoin as a cell in an excel spreadsheet.     You can trade database records around based on the free market value of your goods.

Bitcoin isn't backed by anything because it doesn't have to be backed by anything.   Its like asking what government backs the excel spreadsheet on your computer, and thats just silly.  Bitcoin is a database, backed by computing power.

So how do you get space on this infinity secure database?
-You can buy it with fiat money or gold
-You can work for it (get paid in bitcoin for your work or mining)

You cannot
-Print it (sorry Mr. Bernake)
-Steal it*

*If the user of bitcoin uses proper security