When it comes to banking, for example, financial institutions employ fractional reserve banking. With this mode of banking, only a section of the deposits is backed by actual cash on hand. Consequently, only this fraction is available for withdrawal.
Last week, the US President, Donald Trump, indicated that one of the reasons he hates Bitcoin is because it’s based on thin air. This raised the question of whether USD or fiat is actually based on anything solid. The debate is now on fiat banking.
For example, when a bank’s customer deposits $1,000, the bank may retain $100 in actual cash then use the remaining $900 to issue out loans. The $100 is therefore reserve. Although Trump thinks Bitcoin is based on thin air, fractional reserve banking creates money by using a percentage of the bank deposits.
Additionally, there’s a narrative that the USD is backed by debt, “and the largest army in the world is willing and eager to fight wars to protect it.”However, the crypto community noted that the USD and fiat are the ones based on thin air.
“If the issue of how money is created is put for debate, we will have a revolution next week… It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
Bitcoin Has A Higher Economic Value Compared To USD
Interestingly, Bitcoin has a higher intrinsic value compared to USD and fiat in general. For something to have an economic or inherent value, it must have utility and scarcity. Therefore, if it has utility but without scarcity, it is abundant and doesn’t have intrinsic value. Also, if it’s scarce, but without utility, it still lacks intrinsic value.
According to slvbtc, a Redditor.:
“Bitcoin has the most predictive mathematically-provable strictest scarcity ever conceived and has the potential to be the most useful form of money ever invented, therefore potentially making it one of the world’s most valuable objects. Scarcity is a done deal, and every day that passes with every newly added user of the network, new developer, new liquidity, new app, Bitcoin’s utility increases exponentially.”
The USD, as with other fiat currencies, has intrinsic value because the federal government accepts it as payment for taxes. Ironically, failure to pay the taxes prompts governments to “show up with riffles and take away your freedom.” Therefore, staying “alive and out of jail is intrinsically valuable.”
Then What Is the USD Based On?
As noted by a crypto enthusiast, in the early internet days, digital companies like Microsoft, Amazon, and Google were thought to be based on thin air. Fortunately, some investors recognized the power in their coded products and or services.
For example, as noted by elitistasshole on Reddit:
“Spreadsheet software was created 40 years ago first for Apple II and later on competing platforms. VisiCalc ad Lotus 1-2-3 had hundreds of millions of dollars in sales within a few years of founding.”
Since Trump says Bitcoin is based on thin air, can the federal reserve show from where it prints new money? Does he understand that every time another dollar is printed, the dollar previously in circulation decreases in value?