One of the more heated debates going on in Austrian economics circles is whether or not Bitcoin is a currency backed by a commodity. Proponents of Bitcoin claim it is while opponents claim it is not. I fall into the former camp. I also believe that latter camp suffers from a misunderstanding of what Bitcoin is.
Bitcoin, above all else, is a network. The network is maintained by computing power. Disagreements within the Bitcoin network are resolved by going with whatever 50% + 1 of the computing power says. Who gets the Bitcoin when the same Bitcoin is sent to two addresses at the same time (something that could happen if the blockchain gets split)? Whoever 50% + 1 of the Bitcoin network’s computing power says it goes to. Furthermore, new Bitcoin can only be mined through the efforts of a great amount of computing power.
A commodity is nothing more than a raw material that can be bought and sold. Computing power is a commodity as it is a raw material needed to produce many of the goods we enjoy today and it can be bought and sold. One example of a good that is created using computing power is an encrypted communique. In order to encrypt a communique you need pass the plain text through algorithms that tend to be computationally complex. Computing power is also a resource that is bought and sold. When you sign up for an Amazon EC2 instance you’re buying computing power from Amazon. Just as a jeweler buys gold and turns it into jewelry that is later bought, Amazon buys computers from manufacturers that is later rented by people who don’t want to sink that much money into hardware they may only need temporarily.
The computing power put towards maintaining the Bitcoin network could be put to other tasks. Instead of participating in the Bitcoin network somebody could throw their computing power at Folding@Home or SETI@Home. But a lot of people have thrown their limited computing power behind Bitcoin. In fact, the processing power used to maintain the Bitcoin network outperforms the top 500 supercomputers combined. On top of personal hardware, many people are willing to rent your their mining hardware in the form of shares. You can buy into Bitcoin mining pools. The money you use to buy in is generally put towards more mining hardware and you are paid dividends based on the amount of Bitcoin mined.
Bitcoin, through the computing power necessary to maintain the network, is backed by a commodity. The raw materials necessary to maintain the Bitcoin network, including computing power and network bandwidth, could be put towards other uses but cannot be put towards simultaneous uses (even with multi-tasking, a computer can only work on one computation per unit of time per processor or core).