Isn’t bank capitalization largely bank stocks, which are valued largely on the number and performance of originated or otherwise held loans?

I feel like I have a pretty solid grasp on the operational mechanics of money creation, but I don’t for capitalization. The whole thing seems a little dippy though. For example isn’t the Fed “capitalized” by its largest borrower, the Treasury?

All that being said I doubt loan officers check their capitalization ratio before originating a profitable loan to a creditworthy borrower. I imagine another department checks the ratios from time to time and sells or resells loans for cash or stocks to increase the capitalization ratio as needed. I’d love to hear from someone who actually handles this.

OP was talking about financial capital. Financial capital is the difference between assets and liabilities. If the company was liquidated right now, what would remain is the financial capital, so in a manner of speaking it's the net worth of a corporation. Regulators require banks to keep a certain amount of financial capital in accordance with the risks that they take and various other parameters in order to make sure that they are able to absorb big losses without going bankrupt.

Yeah, I'm aware of the basic investopedia definition. What I don't understand is what are those assets exactly? What kind of assets can be counted as capital? Vault cash? Reserves held at the Fed? And is a performing loan capital? It's an asset that can be sold to other banks. If that's the case, then can't a bank increase its capital by originating good loans? If that's so, then capital requirements don't particularly appear to operationally constraint loan origination and deposit creation.

I think something is very wrong, when the base of the economy - money - is so complicated, that only few people understand it. This just gives room for fraud and bad conspiracy theories (the jews control all the money! .. so I heard couple of times)

But a better alternative? Well, cryptocoins are not exactly simple either(despite their other flaws). And most other concepts I have heard of, are hellish in the details, too.

Solana made me interested in cryptocurrency because it is actually possible to use it as a medium of exchange in theory. I say in theory because a volatile cryptocurrency isn't exactly what I have in mind when I think of a currency used for payments and business.

There is RAI which is an algorithmic stablecoin on Ethereum which fails to scale.

I can imagine a world where in 10 years people figured out how to build a price level targeting cryptocurrency with neither inflation nor deflation on a platform which is fast enough to process every day payments and which people in developing countries adopt to minimize volatility and avoid inflation in their national currency.

Those days are far into the future and they have absolutely nothing, nothing to do with Bitcoin. Maybe Ethereum if they solve the scalability problems. Maybe Solana if they build a RAI inspired stablecoin. Maybe a completely different platform but certainly not Bitcoin.

I'm not sure what you're saying here. You basically made the point that these other technologies don't work (especially Solana, which is a centralized mess that has required multiple network halts to fix issues), but for some unspecified reason Bitcoin isn't the solution (despite working exactly as intended for ~5000 days straight now without interruption).

Can you explain it to a child? I studied IT and I followed the whole thing and I barely understand it.

> I followed the whole thing and I barely understand it.

What don't you understand?

I do understand the basics. Enough to understand, that most who do talk about crypto, do not understand at all, what they are talking about. (not directed at you)

And I could not explain the concept of cryptocoins to children either. Nor adults actually, unless they have a background in math.

I mean the concept of the blockchain, allright. Even people who do not know cryptoalgorithms can get it. But mining coins? You can mine gold, that is understandable, but mining numbers? How do you explain that in simple terms?

> But mining coins? You can mine gold, that is understandable, but mining numbers? How do you explain that in simple terms?

Similar to how mining for gold requires repeated strikes of a pick to reveal nuggets of gold, "mining for Bitcoin" requires repeated attempts to guess a random number (strikes of a pick) which has a shifting difficulty due to how many miners are trying to do the same thing (not unlike an increased difficulty of finding gold when there are multiple miners prospecting in the area).

Assuming you didn't trade for/buy it off of someone, having a Bitcoin is analogous to having a gold nugget in that it proves you did the work (proof of work) to get it (picked at rocks, or, expended the necessary computation cycles to guess the correct number/nonce).

Edit: Just like the amount of gold in the world is dictated by how much has been mined, the same analogy plays out for Bitcoin. The only difference is that the maximum amount of Bitcoin that can be mined is known and enforced algorithmically whereas physical gold is a guess/estimate.

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In terms of explaining it to others, they don't need to understand all of the technicals to "get it." People don't understand (technically) how their iPhone works but they "get it" and are able to use it.

"having a Bitcoin is analogous to having a gold nugget in that it proves you did the work (proof of work) to get it (picked at rocks, or, expended the necessary computation cycles to guess the correct number/nonce)."

It is really not analogus. A gold nugget is something material, with a practical value. You can make electronics or jewelry out if it.

But some random "mined" numbers? Why do they have value? They don't. Unless others accept their arbitary value. Which to me is not much different, than fiat money.

It somewhat works, if people accept the weirdness of the concept, but a intuitive understanding of value, like with gold, I cannot see.

> But some random "mined" numbers? Why do they have value?

The random mined numbers are not where the value is stored. Those numbers just confirm that the miner who finds/guesses that number did the necessary work to find it, and in turn, validate the authenticity of the current block of transactions. Their reward being Bitcoin for doing the work (how Bitcoin comes into existence).

That Bitcoin has value because it represents energy or work expended, just like any currency—dollars, vodka, whatever. That's the whole reason any currency exists: as a medium to trade value generated by one person's work for the results of other people's work. Instead of physical labor, though, the work being done is computation.

It also has value because of how the underlying system that backs it works. In fiat systems, the rules about how much money is in existence, who can or cannot access the system, and the ability to accumulate savings is dictated by a central authority. With Bitcoin, there is no central authority. The amount of Bitcoin produced cannot be changed without fundamental changes to its halving algorithm which would result in a fork of the network, creating a brand new currency (with the original network continuing on uninterrupted by people who disagree with the new rules).

This is another reason Bitcoin is valuable: everything is driven algorithmically by consensus, meaning, humans can't alter it on a whim (like a fiat system). Instead, the only way to make a change is to propose it in the form of a code patch and then have the rest of the network accept that change. If the network doesn't accept it, the change doesn't occur. In terms of money, there's never been a more valuable form (there is no analog for a form of money that doesn't require human trust—Bitcoin is unique in that category).

Beyond that, it also has value because it's digital and permisionless. I don't have to get a bank's permission to do business or transact with someone else. I can just _do it_. And I can do that on a global scale, instantly. Contrast that with the existing system, any amount over a few thousand dollars triggers red flags, transactions get blocked, and insane amounts of time and energy get wasted just for you to get access to your money (that most people don't view that as patently insane proves how well the conditioning works).

Even further, Bitcoin isn't something that can be confiscated (like fiat, precious metals, or other assets). This means that corrupt governments and individuals can't just blindly steal from you. The only way to get your Bitcoin is to get access to your private keys. The only way to get those is, ultimately, by force/violence (i.e., they can't just dip their hand into your bank account and clean you out because of a "law" they invented). And that only works if your private keys are accessible—though difficult, you could memorize them creating the ultimate security system.

The best part and why Bitcoin is extremely valuable: its base cannot be inflated. Meaning, when I work and earn money, that money either retains its current value, or, increases in value. There's no potential for a government to randomly print off trillions on a whim and devalue the money I've already earned (essentially, stealing my life from me covertly).

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All of the above is radically different from fiat money. Again, we've never had a currency like Bitcoin in the history of humanity (in part, why it's so difficult for people to understand it). It's like showing fire to cavemen.

Bitcoin is pretty simple to understand.

In part, I think that is why so many criticize it.

I am a big fan of BTC and crypto and I see plenty of valid criticism. But most of it sounds like people wishing they got in at the beginning when it was offered to them. So now they must wish for its demise to counter.

Technically speaking, you can do this. For example you could create a private VC firm and convince people to give you their money. You could then "loan" that money to a start-up. That start-up would then pay its employees with the money who could re-invest it with you. You take that money and "loan" it to another start-up. Voila, you've created capital.

As soon as you start taking other people's money you are subject to a ton of regulations for limiting fraud. In the above example if you took the funds and bought a house you'd be potentially guilty of fraud.

That has 0 to do with what I said, please re-read.