This criticism could well be grouped with the previous one, since the conclusion it aims to draw is the same: that bitcoin is worthless. But the argument is different, as it claims the reason it is worthless is that it is not backed by anything.
Like the previous one, this statement is literally true. What is wrong is the conclusion. The first time someone hears it, if they have not thought through what it means, it can be cause for concern. The phrase “not backed by anything” does sound bad.
Let us stop for a moment and think about what it means for something to be backed by something or someone else. To do so, let us reflect on a concrete case: what did it mean for the dollar, before 1971, to be backed by gold? What did that backing consist of? It meant one very specific thing: there was an entity (in this case, the US Government) that made the promise to deliver gold in exchange for dollars at a precisely defined rate. That is, for a good to be backed means there is an entity with the obligation to exchange it for something else --- there is someone who has made a promise. In short, for a good to be backed means it is an IOU, as we saw in the first part of the book. Another way to see it: the fact that the dollar was backed by gold means the dollar was a representation of a certain quantity of gold, and as long as the United States kept its promise, holding dollars was equivalent to holding gold.
And gold? Is gold backed by anything? Silver, wheat, oil? No --- gold is not backed by anything. No one has ever had the obligation to give you anything in exchange for gold. Silver, wheat, and oil are not backed by anything either. Of course you can get dollars for gold, but only because you can obtain them in the free market --- not through any obligation, not through anyone’s promise. Gold is not a representation of anything; it is simply gold.
Some explain this by saying that gold is backed by its physical properties, but this is twisting the semantics. One can say that its market value stems from its properties, which make it function well as money, but it is not correct to say it is backed by its properties. No one has any obligation to give you anything in exchange for gold. Fiat money is also not backed by anything, though in a similar vein some say it is backed by the full faith and credit of the government that issues it. Following this misleading way of speaking, one could equally say that bitcoin is backed by mathematics or the energy required to produce it, or other vague notions. Unfortunately some bitcoiners have used it this way in the past, falling into the fallacy that it is bad not to be backed by anything --- but this too is twisting the semantics. Bitcoin has value because of all those things, certainly, because the free market of millions of people who value bitcoin for its properties discovers a market price. But that has nothing to do with being backed.
There are therefore two types of assets: assets that have value in the free market (real assets), and assets that have value because they are backed by an entity that exchanges them for another asset that has value in the free market (financial assets).
Imagine Alice issues a signed piece of paper that says “redeemable for one gram of silver” and gives it to Bob in exchange for one of his predictions. Bob accepts the note because he knows Alice and trusts that she will keep her promise, since Alice is a reliable person and everyone trusts her. Alice, aware of this, can issue many papers of the same kind, and these notes signed by Alice enter circulation in the market. Later, Bob can pay Carol with one of Alice’s notes instead of using silver. Alice’s notes thus become money because people use them to exchange goods and services. What problem do the notes have? None --- they are easily transportable, lightweight, and work well. None… as long as Alice keeps her promise, of course. If Alice decided to stop delivering silver in exchange for her notes, people would stop trusting the notes, would not use them as money, and they would lose their value. The same problem as all fiduciary money: the one who makes the promise may not keep it.
Coming back to our point: which does Bob prefer --- one gram of silver or Alice’s note for one gram of silver? One is backed and the other is not. Bob clearly prefers the gram of silver, because the gram of silver has no counterparty risk. Alice’s note, or any other financial asset whose value comes from being backed, has the problem that whoever backs it may stop keeping their promise, whereas an asset whose value does not come from being backed but from the free market does not have that problem.
The fact that bitcoin is not backed by anything is therefore, far from being a problem, an advantage. Feature, not bug! Moreover, it is an absolutely essential characteristic of bitcoin --- without it, bitcoin would make no sense whatsoever!
This last point may seem exaggerated, but it is not at all. If bitcoin were backed by something, there would be a central point of failure: the entity backing it. This would reintroduce a trusted third party --- precisely the problem bitcoin solves. If it were backed by an entity, it would be far more efficient for that entity to simply maintain a spreadsheet recording how many bitcoin each person holds and how many reserves of “whatever it would have to deliver in exchange” it possesses, rather than using a blockchain. Cryptography, the blockchain, mining… none of it would make any sense if bitcoin were backed. It is absolutely necessary that bitcoin not be backed by anything --- it cannot be otherwise; it is an essential characteristic of bitcoin.