Every time a hash is successfully created, a reward of 25 bitcoins is paid. Who pays this reward, and on what authority? How does this become legal tender? How is it not counterfeiting?
2 Answers
It is not legal tender, and there is no one that's forced by law to accept it.
It is a digital token with the properties of money and (with the current state of computation) not possible to forge or to double spend. It is not backed up by anyone, but its users.
The users are the ones who give value to it, and that's because bitcoin is useful.
Currently it is a very good way to make quick payments to individuals without bank accounts, can be transferred to anyone, including people that live in countries without support from payment companies (like those that live in countries that cannot accept paypal payments)
It is decentralized, meaning that you can't take it down by attacking only one entity. And there is no central authority that can alter the history of bitcoin transactions.
Instead of thinking of it like fiat money, you should think of it as digital gold, it is scarce, it is expensive to obtain and its value isn't backed by any government, is backed up by people willing to buy it and use it as a currency or a store of value.
Obs: I edited the answer to clarify some points, but the accepted answer in this SE thread could give you a lot more insight on what gives value to it.
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1Going from the Wikipedia article on Money, I'm going to disagree with you: "Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context…" Bitcoin easily fulfills the "Medium of Exchange" and the "Store of Value" properties. I've seen it used as a "Unit of Account", although it isn't widespread in use for that.– Murch ♦Mar 29, 2016 at 21:12
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In the U.S. it is worth noting that the IRS does not treat bitcoin as money, current guidance says it should be treated as property and is taxed as such. This is different than how foreign currency is treated and taxed.– Mark S.Mar 29, 2016 at 21:30
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@Murch, what I meant was that it is not legal tender. Nobody is forced by law to recognize the value of bitcoin. I agree that if a lot of people use something like money and that it has the properties of money then it is money. But a lot of newcomers don't have that intuition, and personally I believe that it is a lot easier to learn what bitcoin is to just say that it is not money, gold can be used the same way but it is not money for a lot of people. Mar 29, 2016 at 22:39
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@MarkS.: While I'm aware that the US is treating it as a commodity, several countries appear to treat it as currencies (e.g. Argentina, Australia, Luxembourg, Japan, Sweden). UK and Germany treat it as "private money".– Murch ♦Mar 29, 2016 at 22:59
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1@galileopy: I see, yet, while yours is probably a good approach when you're engaging in conversation directly, I don't think we should conflate money and legal tender here, but rather make full use of their distinct meanings. If you worry that people can't distinguish the two, perhaps it's better to add a few lines to highlight the difference.– Murch ♦Mar 29, 2016 at 23:10
No, there isn't any authority. Simply, the node that mined new block adds new special transaction that says "miner has new 25 bitcoins to spend".
The network, accepting the new block, accepts this reward to miner.
