Another problem with BitCoin is that it is a weird kind of “physical currency”, even though it is represented electronically. And that’s a huge problem because it means you can’t issue a bank loan using BitCoins. You can pretend you are, but any time you require all money to be physically in existence, you cannot issue a bank loan.

That’s because banks create money out of nothing.

Since BitCoin must be physically present, and cannot be created, that means that the only kinds of loans that are possible are loans of the loanshark variety. Loansharking is also known as money-lending. In a money-lending system, no new money is ever created. And of course, that is the point of BitCoin. The designers of BitCoin actually think that being unable to create more BitCoins at will is a virtue! They don’t see it as a throwback to the days before banking.

Here’s the deal. If you don’t have banking, then you have a fixed money system. That means the total system is zero-sum. A zero-sum system means that for every winner there is a loser. I wrote about this in “Why BitCoin is Doomed.” But I think I presumed too much knowledge on the part of the reader. Take it stone by stone and you will see the problem.

Zero-sum societies with fixed amounts of money don’t work very well. They don’t work well because the investors usually lose money.

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