How do you reckon this will play out? Will the service providers who might be tempted to go down this route figure out it's a hopeless dead end? Will The People wise up before they attempt to take over the world?
i don't think the realities of fractional reserve banking have set in for most people. it's possible they never will, at least until bail-ins become the norm or banking failures cause a major economic collapse.
if banks become crypto custodians, fractional reserve is definitely inevitable. whether under the current financial system or a completely free market, more aggressive banks will take more risks with depositors' money. i don't think hal finney was too far off when he made this comment:
Actually there is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins. Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.
Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.
An interesting quote from Hal Finney.
I am typically more of the absolutist (against fractional reserve in bitcoin), but he made a great point.
There is one caveat: these 'banks" have to be freewheeling with NO government support.
If they fail, then they fail, bitcoin would not be affected.
I am not sure that it is possible, though, considering the wall street proximity of "new banks' (like bakkt, circle, coinbase, etc.).
Another thought: with fractional reserve, the hyperbitcoinization might set in motion and we will simply transition to a presumably planetary money system based on bitcoin plus fractional reserve units/derivatives of it. With fractional units present, btc price might be lower than some of the numbers suggested below.
https://nakamotoinstitute.org/mempool/hyperbitcoinization/ https://medium.com/coinmonks/hyperbitcoinization-winner-takes-all-69ab59f9695f
