When you transfer money from one bank to another, are they just moving virtual bits around? Is anything backing those transfers? What prevents banks from just fudging the bits and “creating” money?

Question

When you transfer money from one bank to another, are they just moving virtual bits around? Is anything backing those transfers? What prevents banks from just fudging the bits and “creating” money?

In: 1559

Answer 1

When you buy bitcoins, the first transfer was from real cash to bitcoins, but let’s say you then only invest in stuff and gain interest with bitcoins, then that is all digital.

Bitcoin is specifically designed so you can’t hack the system, and there’s technically nothing banning banks from using a similar system as a backbone for monitoring currency flows.

But in the end you always have the possibility to exchange bitcoins for real cash, as long as you find someone interested in buying your bitcoins.