[tsimionescu]

It's very simple: you have a banking app that shows you an amount in bitcoin. If you want to send someone else money, you get their own bank account number, and ask your bank to wire that person 1 bitcoin. Your bank talks to their bank and tells them that they are now owed 1 bitcoin.

At no point does this bitcoin have to live in the BTC wallet of you, your bank, your friend's bank, or your friend. In fact, this BTC can be entirely fictional. As long as your bank has enough BTC in their actual wallet that they are at no serious risk of running out if a realistic proportion of their customers wanted to withdraw their BTC, as determined by the Fed or other national entity, then all is well.

This is anyway the only realistic possible use of BTC itself, as the blockchain is far, far too slow to use for day to day transactions even in a large village/small town. I can also promise you that this is exactly what day to day use of BTC in El Salvador will look like, more or less, if they do go through with it.

Edit to add: the dollar was once based on gold. We've moved on from that after realizing that doesn't work. Today's dollar is very much not tied to gold, and it is used in ways gold is not.

[lowkey]

El Salvador is using Lightning Network on top of Bitcoin for virtually free, instant payments without fractional reserves. Instead of using debt or fractional reserves, Lightning allows 100% reserve asset-backed exchanges.

> the dollar was once based on gold. We've moved on from that after realizing that doesn't work.

Citation needed.

My understanding is that governments moved off the gold standard because they couldn’t debase the gold-backed currency without getting caught. Moving off the gold standard was devastating for citizen’s savings and the constant debasement was used to pay for endless wars.

WWI was only made possible becauuse countries were debasing their currencies instead of raising taxes.

[tsimionescu]

The world moved on from the gold standard briefly at the start of WWI, but then returned. Then, during the Great Depression, the need to better control their currency and do large financial transactions for which they simply didn't have enough gold spurred most countries to move away definitively from it. This spurred recovery from the Great Depression and allowed huge investments in needed work.

All of a sudden, it became clear that well functioning economies could reliably promise money that would become available tomorrow, and use it to start getting there today. This is a major boon to any country, and having to save up resources until you can start huge infrastructure projects would be a return to terrible times.

Later edit: As for the claim that El Salvador would use the Lightning Network, I highly doubt that the citizens of El Salvador will each have a bitcoin wallet and lightning channel connected to it. Much more likely, some citizens will have some account with a bank (exchange) that will facilitate payments through the LN or whatever other mechanism they chose to use internally, that no one will really care about.

Of course, with bitcoin as volatile as it is, no one in their right mind would pick up a credit in BTC, so the greatest need for fractional reserve banking will be far away. Even so, if people start buying heavily into bitcoin, I wouldn't be surprised to see banks/exchanges start to offer BTC that they don't yet own.

[lowkey]

My understanding is that the only defect of a gold standard for countries was that they couldn't easily debase their currencies, which historically has been the easiest way to fund wars. Currency debasement hurts the citizens, particularly savers so the individuals never benefit from currency debasement.

For dishonest governments who wish to spend without limit but don't want to raise taxes, fiat currencies allow debasement which benefits dishonest politicians. It does not benefit the people - ever.

[errantmind]

This only works if people don't insist on custody of their bitcoin. Also, as was already mentioned, lightning network solves scaling problems while preserving users' custody