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Recent realization: Most Bitcoiners don't actually know how the fiat system works. On any level. They have superficial understanding that there's some monetary expansion going on (usually wrongly attributed just to the central bank). They have some understanding about how the payment networks work, mainly from the failures, but don't understand the details. They repeat mantras (which are usually true), but don't have any logical theory.

It's OK, even with this superficial understanding, you can see why Bitcoin is better. And their superficial understanding is still better than no understanding, which is 99% of nocoiners.

But still it's fun how wrong they are.

Good questions to figure out if they know what they are talking about:

- What is a dollar?

- What exactly is the balance in your bank account? What does it mean?

- What is eurodollar?

- How many dollars there are?

And my favorite:)

- How could you (even if you are not a bank) create new dollars today?

DasFrettchen 8mo ago 💬 1

Easy peace lemon squeeze:

- What is a dollar? IOU of nothing, debt

- What exactly is the balance in your bank account? What does it mean? Currently 0 😱, a database entry of the ledger. It means it is not money and not mine.

- What is eurodollar? Dollars lended out into existance by foreing banks.

- How many dollars there are? M2 more or less.

- How could you (even if you are not a bank) create new dollars today? I will do something for you and would owe me some dollars (like replying to this msg) Bam! New money 💰

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Discussion

Juraj 8mo ago 💬 1

Alright, let's deep deeper.

- What is a dollar..

IOU - what's the value of the debt? What has to be repaid? (Beware of circular definitions)

If I give you one paper dollar with a dead American president, most people would say it's a dollar. But that would mean it's an IOU. Who owes who what in this case?

- Bitcoin is arguably a database entry in a (in this case distributed) ledger. Is it not money and not yours? Or what is the difference?

Why would a bank give you cash when you make the number lower (also called a withdrawal). If it's not yours, they should not give it to you, only to rightful owner.

- how many dollars there are - relates to the previous question. Answer is surprising: no one really knows. Because of eurodollar system.

DasFrettchen 8mo ago 💬 1

The dollar was originally redeemable for gold, now it can be used to extinguish debt of the ammount of units on the bill. Redeemable for nothing at all. Legal tender on the USA and used for oil trading globally.

Bank ledgers are under centralized control subjected to coercion or manipulation (i.e. trucker protest event). Bitcoin is not subjected to these types of control (but I am).

The number in the bank is legally the bank's, you lent it to them (not yours), they repay the debt when you withdraw.

Juraj 8mo ago 💬 1

Yes, it was redeemable for gold, now it's not redeemable, but what is it? It is something, it's not air, otherwise you could take a mortgage and just walk away. What is the unit? The paper bill is not IOU.

Bank ledgers are subject to manipulation, but the number is not legally the bank's, otherwise they could not go bankrupt. What do they repay the debt with when you withdraw? What about when you send to other bank?

(The trick is that the dollar changes form, they are not the same, even though for practical reasons they look similar).

DasFrettchen 8mo ago 💬 2

Yeah that is a deeper question. Underneath everything you have treasury bonds, that is the underpinning reserve asset. That is what banks use to settle amongst themselves and what is required by the government to hold.

Juraj 8mo ago 💬 1

No, this is completely wrong. Treasury bonds are often used as a collateral for borrowing reserves.

Reserves are balances that banks have on their account in FED and cash (paper money).

Reserves are something that does not have a counterparty risk - you either have it or you don't. (They have fiat value risk, but you don't need anyone to provide you anything else, like is the case with normal bank balance).

Reserves are also used to settle payments between banks, which is the real limit to creating new dollars. If I get a mortgage and wire it to another bank, the bank needs to pay with reserves held in central bank.

If they don't have enough, they go to repo markets (which briefly dried up in 2019, that's why many people learned about them, but they are huge) where the gov bond is used as the most common collateral.

This is where it gets tricky - because you can create dollars completely without dollar reserves. Usdt, DAI, eurodollar...

So a funny question - what happens when you wire an eurodollar created by Deutsche bank to JP Morgan?

Diacone Frost 8mo ago 💬 2

it moves the dollars claims between the banks. one bank removes the liability the other adds it.

Diacone Frost 8mo ago

what is more fun is when the credit created as eurodollar cannot be repaid because of the defaults (usually when interest rates get higher).

behold boom-bust cycle

Juraj 8mo ago

How? What happens to the balance sheets? And how is it moved actually?

Diacone Frost 8mo ago 💬 2

As I understand it, they remove the liability to depositor/sender and the target bank adds a liability to the receiving account.

deutche bank's reserves in FED (NY branch?) are decreased, morgan's increased.

They clear the operation via something like swift or similar system.

It's been a while since I dig into this field tho.

Juraj 8mo ago

Eurodollar bank does not usually have an account with the FED. Otherwise they are part of normal dollar system.

Fun thing is - swift does not actually move the money, it's a messaging protocol to agree on how the movement is done.

Diacone Frost 8mo ago 💬 1

well, not directly, but there must be a corresponding bank (account) which does. Otherwise they couldn't endup in a US bank, could they?

(I know that swift is more of a protocol).

How they settle balance sheets is probably up to them, isn't it? It's really been a while since I read how all that works.

Juraj 8mo ago

Yes. Banks have accounts with other banks with balance. They can top them up short term with repo, long term with fx trade. It's basically a deposit account called nostro account. The key here is that eurodollars switch to dollars backed by reserves (central bank money) there.