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  1. Some people argue that Bitcoin is undemocratic, since, if successful in replacing fiat, those who ‘joined’ last will pay the highest price when converting from fiat. While this is true, conversion from fiat is voluntary.

    But how democratic is our current fiat currency system? The possibility of loss of savings via inflation and / or bank and / or government insolvency is real.

    In fact, thinking about how fiat money is created reveals it’s biggest flaw: there is no creation of money without the simultaneous creation of debt. Let that sink in.

    “Inside money”: a central bank can ‘print’ money. But as long as it remains inside the CB it’s not yet money. Coins and notes are being put into circulation as commercial banks acquire notes and coins from the CB. Not for free, of course, but by having the amount deducted from their account with the CB. The CB in turn account for ‘notes and coins in circulation’ under ‘liabilities”.

    In Quatitative Easing, the Fed buys bonds from Primary Dealers, crediting their accounts with the Fed with the respective proceeds. This represents a liability for the Fed.

    “Outside money”
    When you apply for a loan at the bank, the bank credits your account with the requested sum. Your debt is now an asset for the bank (loans outstanding to customers). Accordingly, should you deposit cash in the bank, you have become a creditor to the bank, and your deposit shows up under “liabilities” in the bank’s balance sheet.

    Same is true for shadow banking as well as off-shore banking. There simply is no creation of money without simultaneous creation of debt.

    In aggregate, there is no debt-free saving.

    If someone wants to save, someone else needs to go deeper into debt.

    Our economy only grows while debt increases. Even a slow-down in the rate of growth of debt can lead to a financial crisis.

    This leads, of course, to problems: debt cannot grow faster than the underlying assets supposed to earn interest to service said debt (or GDP). As (real) GDP growth can be broken down into population growth and productivity growth, it becomes clear that peaking populations as well as slowing productivity growth are putting natural limitations on the growth of debt.

    Debt-free saving is offered, among other things, by gold and by Bitcoin. Neither a gold coin nor a Bitcoin is anybody else’s debt. Nobody can default on a gold coin or a Bitcoin. You could go as far as to say that debt will be impossible in a Bitcoin-based currency system. This would have vast implications for everything, from how governments are forced to run balanced budgets to sharing wealth as a society.

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