The big issue when presenting crypto: Where does the money come from?
During my holidays in Turkey I came to speak with friends about crypto and when I talk crypto, I always tend to be drawn towards Hive. My Turkish is really not that good and it was pretty challenging to try to present Hive. I can't even do it well in my mother tongue...
There is one crucial question that always comes up when I try to present Hive: But where does the money come from? People who are not dealing with crypto, simply can't understand that it's possible to earn money without selling goods or services. Let me assure you that it was a nightmare to try to explain how the supply of hive is increasing and how this supply is distributed among the users according to the votes given on posts. There was so much I wanted to explain and with my poor language skills, I quickly lost their attention.
Why Fiat is not better than crypto
I'm sure that there are still a lot of users on Hive that don't really understand where the money that we earn from posts and curation comes from. It's actually fresh printed money that has been issued by the blockchain. Most cryptocurrencies and tokens have a kind of mechanism to increase the supply of the token. The market defines how much value people give to a token and the more use cases it has, the more stable such a token can be. What we tend to forget is that fiat money isn't different at all...
Isn't it backed by the government? Yes but with what? It's backed by dept!
How fiat money is created
In one of my former lives, I was a banker and I was responsible for company credits and also mortgages. I tell you how I created millions of Swiss francs in this job:
Step 1: I created a fresh account with a zero balance in the name of the customer
Step 2: I took 500'000 from this zero balance. The new sold of the account was now negative 500'000. The customer would now have to pay interests on this money
Step 3: I then sent the 500'000 that I had created to the account where the money should go.
Step 4: repeat and rinse
I was quite new in the banking world and I wanted to understand how the savings that people were putting in the bank were actually securing the loans that we were giving out. I realized that nobody in the bank actually new how it worked. We were supposed to cover every loan that we gave out with savings that people put in the bank's accounts. I soon realized that this was far from reality and that there is this thing called fractional banking. Meaning that for a 500'000 loan, I would only need 10% or less deposits...
How the fiat money supply is managed
This is however not how the money is multiplied. After sending these 500'000 to another bank that's where the magic happens. This bank can now give close to 5'000'000 new credits because the money I sent works as deposit for further loans. That is how the money is created.
The central banks then play with interest rates to try to keep the inflation stable at around 2%. When the inflation is above that, they increase the interests and thereby decrease the loans and with it the money supply. If we are in a deflationary environment, they decrease the interests to boast loans and the money supply. The whole process is very empirical to say the least...
On Hive we know that about 8% of new tokens are printed every year. This amount will go down over time until it reaches 2%. When I look at both systems, I don't know which one I tend to trust more...
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