One of Bitcoin's key advantages is that it is meant to be restricted to 21 million coins. As a result, it would be an excellent store of wealth and an inflation hedge.
But what stops banks from producing it out of thin air, just as they do with dollars and euros?
Let we look at it in monetary terms:
Joe, the entrepreneur, wants to start a business. He visits a bank and "takes out a loan." That is, the bank enters "Joe's balance is $100,000" into their computer. Joe then employs Sue. Sue works her tail off for one month and is "paid" $5,000. Joe instructs his bank to "pay" Sue $5,000.
As a result, the bank records it in their computer "Joe's account balance is 95,000 dollars. Sue's account balance is $5,000 ".
The tale would be the same if you changed "Dollar" to "Bitcoin" or "Purple Diamonds" or anything. The bank's computer is unconcerned with the number of Bitcoins or Purple Diamonds in circulation. It's simply a SQL database.
So, if Bitcoin becomes the new money, individuals will soon "possess" billions of them collectively, right?
Is there something I'm missing?
Well, Bitcoin blockchain is transparent enough for people to know whether those are real bitcoins or not... assuming the owners have the Bitcoin addresses & controls the private keys associated with the addresses. That is why self-custody is very important... meaning you control your Bitcoin private keys with the addresses associated with the keys (instead of a bank controlling them).
First of all, Joe & Sue need to make sure those are real bitcoins and that they actually control the coins by verifying them on public Bitcoin Blockchain using the Bitcoin addresses that contain the coins.
It's important to always educate people on the need to stick to Bitcoin Principles which include Self-custody and Transparency in order to be on the safe side.
I will also advice the Bitcoin community not to believe they have bitcoins if they do not have access to coins private keys. This should discourage people from accepting Bitcoin on accounts/addresses they do not control... You control the account/address means you have access to the Private keys.
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The tendency to inflate things and weaken the price of the Real One will be reduced if people only accept real bitcoins they control.
