Governance vs Decentralised Systems, Gold, Cash, Cryptocurrency

grarpamp grarpamp at gmail.com
Wed Aug 23 08:19:09 PDT 2017


https://www.reddit.com/r/btc/comments/6rr6uo/just_a_quick_reminder_why_bitcoin_was_invented_in/
231 comments

People used to pay each other in gold and silver. Difficult to
transport. Difficult to divide.
Paper money was invented. A claim to gold in a bank vault. Easier to
transport and divide.
Banks gave out more paper money than they had gold in the vault. They
ran “fractional reserves”. A real money maker. But every now and then,
banks collapsed because of runs on the bank.
Central banking was invented. Central banks would be lenders of last
resort. Runs on the bank were thus mitigated by banks guaranteeing
each other’s deposits through a central bank. The risk of a bank run
was not lowered. Its frequency was diminished and its impact was
increased. After all, banks remained basically insolvent in this
fractional reserve scheme.
Banks would still get in trouble. But now, if one bank got in
sufficient trouble, they would all be in trouble at the same time.
Governments would have to step in to save them.
All ties between the financial system and gold were severed in 1971
when Nixon decided that the USD would no longer be exchangeable for a
fixed amount of gold. This exacerbated the problem, because there was
now effectively no limit anymore on the amount of paper money that
banks could create.
>From this moment on, all money was created as credit. Money ceased to
be supported by an asset. When you take out a loan, money is created
and lent to you. Banks expect this freshly minted money to be returned
to them with interest. Sure, banks need to keep adequate reserves. But
these reserves basically consist of the same credit-based money. And
reserves are much lower than the loans they make.
This led to an explosion in the money supply. The Federal Reserve
stopped reporting M3 in 2006. But the ECB currently reports a yearly
increase in the supply of the euro of about 5%.
This leads to a yearly increase in prices. The price increase is
somewhat lower than the increase in the money supply. This is because
of increased productivity. Society gets better at producing stuff
cheaper all the time. So, in absence of money creation you would
expect prices to drop every year. That they don’t is the effect of
money creation.
What remains is an inflation rate in the 2% range.
Banks have discovered that they can siphon off all the productivity
increase + 2% every year, without people complaining too much. They
accomplish this currently by increasing the money supply by 5% per
year, getting this money returned to them at an interest.
Apart from this insidious tax on society, banks take society hostage
every couple of years. In case of a financial crisis, banks need
bailouts or the system will collapse.
Apart from these problems, banks and governments are now striving to
do away with cash. This would mean that no two free men would be able
to exchange money without intermediation by a bank. If you believe
that to transact with others is a fundamental right, this should scare
you.
The absence of sound money was at the root of the problem. We were
force-fed paper money because there were no good alternatives. Gold
and silver remain difficult to use.
When it was tried to launch a private currency backed by precious
metals (Liberty dollar), this initiative was shut down because it
undermined the U.S. currency system. Apparently, a currency
alternative could only thrive if “nobody” launched it and if they was
no central point of failure.
What was needed was a peer-to-peer electronic cash system. This was
what Satoshi Nakamoto described in 2009. It was a response to all the
problems described above. That is why he labeled the genesis block
with the text: “03/Jan/2009 Chancellor on brink of second bailout for
banks.”. Bitcoin was meant to be an alternative to our current
financial system.

So, if you find yourself religiously checking some cryptocurrency’s
price, or bogged down in discussions about the “one true bitcoin”, or
constantly asking what currency to buy, please at least remember that
we have bigger fish to fry.

We are here to fix the financial system.


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