Fractional Reserve Banking
A monetary system where commercial banks are only required to keep a small percentage of customer deposits on hand (as reserves), while the majority of the money is loaned out to other customers. This means the actual physical cash available at a bank is far less than the total amount people believe they have in their accounts.
In most modern economies, fractional reserve banking is the standard. While it allows banks to create credit and stimulate economic activity, it also means that your money isn’t actually sitting in a vault — it’s mostly lent out. This system can lead to bank runs, debt-driven economies, and inflation, especially when combined with central banks printing more money.
Why do Bitcoiners care? Bitcoin stands in direct opposition to fractional reserve banking because it allows for full self-custody — meaning you can own your money outright, without relying on a bank to “hold” it for you. Bitcoin is also non-inflationary and can’t be lent out without your permission.
Example Sentence: Bitcoin challenges fractional reserve banking by offering a fully backed, self-custody option.
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