This looks like a complex thing but I am trying hard to understand it. Why would any one in the world honor a crypto currency till it is backed by a government with monetary value? How does a crypto currency get its monetary value? Who will back it?

  • What do you mean "backed by a government"? Can you give an example?
    – JBaczuk
    Commented Nov 29, 2018 at 14:32
  • Spelling note: "monetary", not "monitory". I edited for you. Commented Nov 29, 2018 at 14:41
  • @JBaczuk I am trying to get the answer for the following example. Assume I have a bit coin and want to buy a product from a marchent. Why would he sell that product to me for a bit coin when he bought it from the supplier for dollars. Commented Dec 3, 2018 at 2:53

2 Answers 2


Currencies get value from demand and supply not from governments backing them. Currencies have existed long before government's started stamping them out in their own name. The demand for a currency comes from the utility that it offers as a medium of exchange. Even pre-historic humans went out of their way to create currencies because they were useful.

Bitcoin has value because it is useful as a global, irreversible electronic medium of exchange and store of value. That is why it is in demand.


Bitcoin’s value is given by the merchant who is willing to exchange it for something of economic value to you (goods, services, etc). These persons who are willing to trade with you for Bitcoin are considered the "economic majority", as they decide which Cryptocurrency definition they are willing to trade value for. The economic majority is the group of persons backing Bitcoin or other accepted Cryptocurrencies.

The US dollar value in contrast is guaranteed by legal-tender laws: Dollars are always accepted for paying taxes, and that reflects a value that will always remain, even if the entire economy decides to stop accepting the US dollar. Dollars are NOT backed by gold.

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    Neither Bitcoin or USD are backed by anything. That term has a specific meaning, namely another valuable held in reserve with a guarantee of exchange. Just because certain activity results in a value does not imply it is backed by it Commented Nov 29, 2018 at 21:55
  • I should write “guaranteed value” instead of “backed”. Clearly there is no reserve nor guarantee of exchange for reserves held. However, state guarantees value of USD by accepting taxes paid with such. That is a guarantee of value, though not backed by reserve. Bitcoin’s only has a known present/past value. Future value is not guaranteed and unpredictable.
    – James C.
    Commented Nov 29, 2018 at 22:27

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