What Is Bitcoin, How Is It Different Than âRealâ Money
Bitcoin is a virtual currency. It doesnât exist in the kind of physical form that the currency & coin weâre used to exist in. It doesnât even exist in a form as physical as Monopoly money. Itâs electrons â not molecules.
But consider how much cash you personally handle. You get a paycheck that you take to the bank â or itâs autodeposited without you even seeing the paper that itâs not printed on. You then use a debit card (or a checkbook, if youâre old school) to access those funds. At best, you see 10% of it in a cash form in your pocket or in your pocketbook. So, it turns out that 90% of the funds that you manage are virtual â electrons in a spreadsheet or database.
But wait â those are U.S. funds (or those of whatever country you hail from), safe in the bank and guaranteed by the full faith of the FDIC up to about $250K per account, right? Well, not exactly. Your financial institution may only required to keep 10% of its deposits on deposit. In some cases, itâs less. It lends the rest of your money out to other people for up to 30 years. It charges them for the loan, and charges you for the privilege of letting them lend it out.
How does money get created?
Your bank gets to create money by lending it out.
Say you deposit $1,000 with your bank. They then lend out $900 of it. Suddenly you have $1000 and someone else has $900. Magically, thereâs $1900 floating around where before there was only a grand.
Now say your bank instead lends 900 of your dollars to another bank. That bank in turn lends $810 to another bank, which then lends $720 to a customer. Poof! $3,430 in an instant â almost $2500 created out of nothing â as long as the bank follows your governmentâs central bank rules.
Creation of Bitcoin is as different from bank fundsâ creation as cash is from electrons. It is not controlled by a governmentâs central bank, but rather by consensus of its users and nodes. It is not created by a limited mint in a building, but rather by distributed open source software and computing. And it requires a form of actual work for creation. More on that shortly.
Bitcoiniacs Bitcoin Store
https://bitcoiniacs.com/
604-500-7980
6020 No. 3 Rd Suite 104, Canada Richmond BC V6Y 2B3
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