Bitcoin Stack Exchange is a question and answer site for Bitcoin users, developers, and enthusiasts. It only takes a minute to sign up.
Sign up to join this community
In Fiat Standard lending creates money. Whenever the debt is fully paid the monetary supply increases (principal + interest).
What happens under bitcoin standard? Assume all the bitcoin has been mined and BTC has become the world reserve currency.
If some lending bank lends it's borrowers X BTC at some Y% interest rate, how can borrowers pay back the interest in BTC but not increase the money supply!
How this situation is handled in a deflationary Bitcoin Standard!?
The only way they can do that is through using their Bitcoin for a productive use case which will be more valuable to others that the Bitcoin that were used to create that value. In other more simple terms: Create a profit.
This will likely make lending much more difficult and saving much more valuable. To get Bitcoin you will have to convince the other person that they will get something more valuable in return. In a lending scenario with interest you will have to convince someone that you will be able to make a profit. Ultimately the risk of the lender would be total loss of funds, without the possibility for bailout.
In short: People will be incentivized to work very hard, much harder than they do today, to provide value to others.
This is actually very simple. The interest will come from the already existing supply. How it should be.
The problem with increasing the supply solely through loans, like feat does, is that this creates a perpetual debt since there will never be enough money to pay for the total debt + total interests. This is because every loan comes with interests, which means that the only way to create the money necessary to pay for the total debt + interests, is through another loan, but this new loan also comes with interests, so the cycle literally never ends. Basically, this is a slavey model.
Bitcoin, on the other hand, only increases its supply through mining, and it stops its supply growth at 21 mil BTC. This makes it incredibly good as a store of value, but not that good for an everyday currency.
