You don't understand money – and it's a good thing for Bitcoin

> These also exist in the bitcoin world, and have already caused problems— How long did MtGox operate without reserves?

Exchanges are not part of the bitcoin world, they are bridges to it.

Longer version of the above remark: what bitcoin is truly about is financial sovereignty, or, to put it in more layman's terms, lack of counterparty risk. The bitcoins held in a bitcoin exchange are mismanaged funds, you should never leave your cryptofunds in the exchange: "not your keys, not your coins".

PS: These days, you can even find "bridges", i.e. exchanges, that don't have even this problem anymore, e.g. HodlHodl exchange, which doesn't hold customer's funds, so it's impossible to achieve a fractional reserve malpractice.

No, in fact they do not keep track of each individual dollar. At least for aggregate money supply; perhaps they do keep track of M0. I am not sure.

What confidence do you get out of serial numbers and existence of registry if there’s an entity that can freely print few more trillions?

Mtgox was a private enterprise that was managed by incompetent/malicious individuals, why does this always come up in bitcoin discussions? Mtgox is an example why you need to care about owning your money. People who lost money in mtgox didn’t own those money, they gave them away for a promise to have them returned.

Every greenback may be registered. But physical currency is only a small amount of the actual circulating money supply.

Due to fractional reserve banking, banks lend money they don't have. Banks are only required to have 10% of the money they loan on reserve.

Your description of money shows that you still treat it as an elementary system of debits and credits from a global ledger instead of an algebra of transactional commerce.

> All of the author’s core questions can be answered just as well for coins and notes as they can for bitcoin— Every greenback has a unique serial number, after all.

Most money (specifically, most US dollars) are not in the form of coins or notes. See: https://www.quora.com/How-many-dollars-are-there

~1.4 Trillion USD in notes ~60 Trillion USD total

coins are certainly less than notes, but I'm not sure how much less, so let's guesstimate no more than 0.5 Trillion, and that's a stretch. So, about 97% of money is not in notes and coins.

Tell that to a Zimbawean.

EDIT: Seriously. Just because our Western bureaucrats are comparatively honest these days, doesn’t mean how it functions doesn’t matter? Things could change, you know, as history repeats itself.

> "I can buy groceries just fine with my Euros, without wondering how exactly it has been created."

If literally all you know about money is that it is a token that lets you buy stuff at the grocery store, here is trwhat you don't know - how long is that situation going to hold up.

> "Just as I wouldn't tailor my own paragliding chute, because otherwise companies could rip me off."

I wouldn't try to sew a normal parachute let alone a paragliding chute. But one thing I know about safety-critical pieces of nylon or related things is that wear and tear is visible. A moderate rip, hole, tear in material, an engine that coughs, a tire that's deformed, all this stuff is a clue that there are problems ahead.

What signs tell you when there's problem in the relationship between your tokens and the grocery store? That's where a bit more understanding of money is useful. And, as the OP say, that understanding is difficult, actually (edit: tbh, that's literally the only worthwhile point in an otherwise terrible article).

I guess you could say that goldsmiths pretending they have more gold than they really do is kinda similar to cryptocurrency exchanges doing the same.

This. I have never heard a remotely sensible discussion from crypto folks around following points:

1. If fractional reserve banking is bad, what or who is going to stop the appearance of that in bitcoin world? You need to understand that literally only thing you need for that is a bunch of people trusting so much one organization that they are willing to use the IOU from that as payment method. (Cough, tether, cough)

2. If fractional reserve banking is good or even okay, first thing you need to accept is that the bitcoin guarantee of fixed monetary supply does not exist. Second, completely unanswered issue is that why the heck bitcoin would be any better from fiat as the base of a fractional reserve banking system.

Lombard Street

I haven't read it but I've been recommended Debt: The First 5,000 Years by David Graeber numerous times.

You might try the credit-based explanation by the Bank of England [1] (linked to in the above article).

I think the tricky bit is that when a bank makes a loan, it creates money, but usually in other banks. The loan-making process creates money "out of nowhere" by increasing a bank balance, but since the borrower got the loan for a reason, they will usually withdraw it and pay other people, increasing bank deposits somewhere else.

The bank needs funds to cover the withdrawal, so from their point of view, it doesn't look like free money to them. They need funding to make loans and they only make money on the spread in interest rates.

But there is new money in other banks as a result of them making the loan.

(A technical point: even without funding, the bank has a new asset - the loan itself. They could sell that to raise funds. Banks can "originate" loans they don't keep.)

The end result is that a new loan exists and there is also new money, somewhere. Whichever banks have more deposits will be able to afford to make (or buy) more loans.

[1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

I'm not saying you're wrong, but can you please state why this is a statement you find wrong?

There are so many levels to crypto, and my head is a bit too much in the crypto world that I can see a ton of reasons why this statement is correct. I can also see why it can be considered incorrect. What are the parts you take issue with?

In the absence of detailed understanding, it turns into a matter of trust.

Who will people trust more, banks and governments, or cryptocurrency nerds with untouchable money on the blockchain?

I think most people will opt for banks and governments, because when the going gets tough, the masses can overthrow them and expropriate from them. Cryptocurrencies put too many mathematical obstacles in the way of redistributing wealth against the owner's wishes.

It is a clever hack, but it can never work as money. The money supply needs to roughly match the size of the economy. If there is too much of it, you have inflation. If there is too little of it, you have deflation, which in many ways is worse. With Bitcoin you have too little of it, because the total amount is limited, and that limit is smaller than economic growth is. That's why Bitcoin's price as compared to major currencies has soared. But people who used Bitcoin years ago to buy pizza feel really stupid because if they had held on to it, they would be much wealthier today. When it works that way, it isn't money. It's a mathematically interesting investment vehicle, perhaps.

Yeah, the only thing the gets right is that few people have much awareness of theories of money.

But the thing with theories of money is that there isn't that much agreement among economists, bankers or government official on them. How much does it matter that the US government doesn't technically own/control the Federal Reserve? Opinions are divided. How bad is budget deficit? How bad is printing money? How exactly does one interpret fractional reserve banking? Opinions are again divided (that doesn't prevent periodic "everyone is ignorant on how money blah, blah..." article).