Nearly everyone is familiar with gift cards but few realize that the concept behind them really is that they are a type of money backed by services or goods and the “good faith and credit” of the issuing company. How does that relate to Bitcoin? Well, I’m always hearing more and more derision against our modern fiat money system (even in main stream media) and I’m also hearing from many that Bitcoin “isn’t backed by anything”. So my point is that while gift cards don’t have any intrinsic value in themselves (but neither does our fiat money) the word or promises of the gift card issuers give them value. One will buy a gift card when there is a high amount of confidence that it will be honored by the issuing company and that is pretty much the same with Bitcoins.
Bitcoin is not, however a “company” but rather a peer to peer network but the principle is the same. The more people that have confidence that their purchase of Bitcoins can and will be redeemed when it comes time to then the more demand there is for Bitcoin in the marketplace. Bitcoin’s major advantage over even a gift card is that it can be used in any country while gift cards are limited even in the case of mega international corporations.
I believe history often repeats itself and here, in the U.S., before the Civil War, it was common for many entities (especially banks) to issue their own form of money. They could not be considered “legal tender” but they were used as money none-the-less. Their acceptance varied from issuer to issuer as well, just like gift cards. That is why I believe we will be seeing more businesses using their acceptance of Bitcoins as a form of grass-roots “gift card” that won’t have to rely on the standing of the accepting business but rather the wider acceptance of Bitcoin than anything their small business could hope to achieve.
An example of a Service Backed Currency is the web advertising of our third party ad service BungeeBones. They are not only accepting Bitcoin as payment for advertising services but they are also paying their partnering websites that contribute web traffic to their network with Bitcoin. Their own internal currency “BungeeBucks” is nothing but an accounting term that they back with the opportunity to advertise in their network (not unlike the way a gift card works by redeeming it for a product or service of the issuer) or with Bitcoin payments to the advertising partners.