At first glance, both traditional banking systems and Bitcoin appear to offer the same thing: numbers. Whether it’s your balance in a checking account, a paper bill, or the amount in your Bitcoin wallet, you’re dealing with digits, not tangible goods. In exchange, people trade real goods and services: houses, cars, food, labor.
Consider a bank issuing a loan. Yesterday, an individual had nothing; today, the bank creates numbers out of thin air, and suddenly, they’re driving a new car or living in a house. The seller of that car or house is left holding those numbers.
Bitcoin is similar in this sense: people plug in computers, burn electricity, a truly valuable resource, and receive more numbers on a screen. Bitcoin miners trade real energy and hardware for these digits, and others in the system trade labor, products, or services for them.
The difference lies in what happens next.
Banks, for all their flaws, have robust mechanisms to ensure those numbers translate back into real value for their holders. Bitcoin offers no such protections, leaving its holders vulnerable to market whims.
When a bank issues numbers, it does so as debt. Those who receive goods or services in exchange are obligated to repay the bank, enforced through mechanisms like collateral, credit scores, and legal contracts. If you take a loan to buy a house, you must repay the bank. How? By working, providing labor, goods, or services to others who hold those numbers, effectively returning value to them. This creates a cycle where fiat money, those numbers on your screen or bill, holds value because it’s backed by real-world obligations.
There’s another critical layer: if a borrower defaults, banks seize collateral, like a house or car, but they don’t keep it. Banks deal in numbers, not property, so they sell foreclosed assets at auctions to recover the loan amount. Who has access to these auctions? Holders of bank-issued numbers, or fiat money. This ensures that fiat remains a claim on tangible assets, like a house you could live in or a car you could drive.
In 2023, roughly 300,000 foreclosed properties were sold at U.S. auctions, giving fiat holders a direct path to real goods. This process not only recycles numbers back into the system but also reinforces fiat’s value by guaranteeing access to assets for those holding it.
Governments bolster this system by accepted fiat for taxes, which they need to settle bonds held by central banks. In essence, banks create a multi-layered system that ensures fiat holders receive goods, services back.
Without banks, this collapses. If we shuttered every bank tomorrow, there’d be no pressure on those who got cars, houses, land, labour to return any real-world value. Why would they accept your numbers? Those digits on your screen would become worthless. Banks, despite their complexity, are essential because they protect your money’s value through enforced repayment and asset liquidation.
Bitcoin holders have no such safeguards. The system generates numbers through mining, consuming vast amounts of real energy, and produces digits on a screen. But there’s no guarantee you’ll get anything back when you try to trade them. Bitcoin’s design secures the numbers themselves, not the people holding them. Unlike banks, it has no collateral system, no repayment obligations, no government bonds, and no auction process to ensure real-world value flows back to holders.
If you trade your labor or goods for Bitcoin, you’re at the mercy of the market. If no one wants your Bitcoin tomorrow, you’re left with nothing. The system doesn’t care, it’s built to protect bitcoins, not your livelihood.
Bitcoin’s advocates are misled by buzzwords: decentralization, scarcity, store of value, hedge against inflation. But do these guarantee you a house or labor? No. They’re abstract features, not protective mechanisms. Scarcity, Bitcoin’s 21-million-coin cap, doesn’t make it edible or livable.
The idea that Bitcoin could replace banking is not just laughable; it’s delusional. Banks maintain a balance between those who hold numbers and those who hold goods, enforcing accountability through repayment and liquidation. If a borrower defaults, the auctioned collateral ensures fiat holders can access real assets, keeping the system grounded.
Bitcoin is a one-way street, consuming real resources for numbers that offer no reciprocal protection. Advocates might claim Bitcoin hedges against inflation or government overreach. But what good is a hedge if it can’t buy a loaf of bread? Inflation may erode fiat, but banks provide mechanisms to recover most of real-world value. Getting back 9 instead of 10 apples is still something. Bitcoin offers no safety net. It lures you with promises of decentralization and scarcity while failing to guarantee that your numbers will translate into tangible value. It’s a system that prioritizes its own existence over your well-being.