Default

A default occurs when a borrower fails to make a required payment of interest or principal on its debt. Defaults range from a missed coupon to full repudiation, and sovereigns default too: Greece's 2012 restructuring wrote down more than 100 billion euros of bonds, the largest sovereign debt restructuring in history, and Argentina has defaulted repeatedly since independence.

Why it matters

Default is the moment credit risk becomes loss. Bondholders may recover only a fraction of face value, banks holding the debt can become undercapitalized, and the shock often spreads through the financial system, as it did after Lehman Brothers failed in 2008. For savers, default risk is the hidden cost of any asset that is someone else's liability: a bond, a deposit, even a currency backed by a government's promise.

Ratings agencies grade this risk, but history shows they often recognize it late. The only assets fully immune to default are those that are nobody's liability.

In the gold vs bitcoin debate

This is where gold and bitcoin stand on the same side. Neither is a claim on any issuer, so neither can default. Gold has served for centuries as the refuge when sovereign credit fails, and bitcoin holders argue their asset now plays the same role in digital form. The debate is not whether no-default assets are valuable, but which one does the job better in a modern portfolio.