Bitcoin is Venice: Difference between revisions

When, and while, you physically hold it, for all intents and purposes, the money is not there. It is meaningless. Worthless. Valueless. (If you are robbed it only creates a (negative) value when it is taken away, because it deprives you of the value you could create by giving it away to someone else, in return for something).  

Holding currency in person is to take capital off the table; to withdraw it from the market completely. Since capital’s value is a function of time, you would expect a capital instrument you have disengaged from the capital market to waste away, and so it does. Cash in your wallet attracts no interest so, relative to the value of a capital asset which can be put to productive means, hard cash must depreciate over time. That is the consequence of inflation.

But cash you put in the bank ''is'' invested — with the bank. You have given the bank your token of abstract indebtedness in return for actual private indebtedness. The bank pays you interest — usually not much — but it pays you a return for your investment in its capital. It must sit on a portion of the cash its customers give it, but that capital reserve, too, will waste away. This is what  

bankers mean when they say capital is expensive.  

The rest a bank will punt out to its borrowers in the form of loans. The borrowers will want to use that cash quickly, because if they don’t, it wastes away, and they are paying interest for the privilege.

Its bankers will find creative ways of punting out as much as humanly possible, to increase shareholder return. This is the bank’s leverage ratio. Nowadays the supply of actual printed money that can waste away in your pocket is dwindling, and now most currency exists electronically on a bank’s electronic ledger, but the difference between the liabilities a bank has to its depositors - a positive number — and the claims for repayment it has against its borrowers — a negative number — represents “under the mattress” cash. A negative energy ''until you have to give it away''

But let's not get distracted. That cash flies around the system, perpetually depreciating as it does it is a hot potato — everyone wants to pass it on — invest it — as quickly as they can, as it weighs on anyone who holds it like a dark energy. The best thing to do is to convert it into — in the vernacular, “buy” — something that will hold its value. An asset.

The thing about assets is that they are awkward idiosyncratic fallible, not rust-proof, can go off can go out of fashion, and generally just difficult things to use as a medium of exchange. In the conventional (fairy) story of the history of money, this indeed was why money came about in the first place as a substitute for the inconvenience of barter.<ref>{{author|David Graeber}}’s book is compelling that this is a fairy story with no grounding in reality. Currency always was, from the outset, evidence of indebtedness.</ref>