Topic: Bitcoin major fail - doesn't allow credit creation (aka deflationary currency) - page 12. (Read 22242 times)

I disagree (With the first statement, not the second). A lot of the problem is the fiction that the bank can lend out your money and yet still have it available. Simply making it clear that your money is either here or there but not both would effectively put an end to runs.


Mostly. I suspect I could come up with a couple of scenarios where it would be advantageous for others to be holding my money but I agree that such a system would be largely superfluous for most of the population in a bitcoin economy.


Agree. I think hardware wallets may have a big future in the Bitcoin world.

That would be an undesirable 'trick' indeed.  The free market requires failures to actually fail in order to progress.  That is part of why we are stuck in an economic rut these days, because TPTB are making mistakes similar to 1933 when they should be doing the things their predicessors did int 1920. 


On-demand accounts are, for all practial purposes, entirely useless within the Bitcoin economy.  That's one of the functions that your bitcoin client provides for you at the cost of processor time.  No bank could compete with that, nor can any payment settlement system (think Western Union or SWIFT) compete with the Bitcoin network's cost effectiveness and speed in this catagory, either.  The only function that a traditional bank could offer the Bitcoin economy would be interest bearing accounts in return for investment lending. 

The greatest impediment to widespread Bitcoin adoption is the idea that credit cards are faster.  They are not, and any online vendor would be able to tell you it can take up to 40 days for such transfer to "settle".  Bitcoin transfers are usually settled within an hour.  Transfers among users of the same online wallet, so long as both users were trading using their online wallet account to trade, occur as fast as Paypal and for the same reasons.

Nothing "needs to be" here. There is no guaranted ticekt to eternal, infinite growth.

Indeed, anyone wanting just more apes jumping around at this crowded planet ist nuts, IMHO.
Like it or not, the free lunch is over. What's wrong exactly with having only two children?

Either we're doomed, or we learn to repay all the dept created by our parents and grandparents (economical, political and environmental) and make up for all that unjustified growth, and finally learn to keep an sustanable level of economy.

Incidentally, there is another escape from that catch: we could actually manage to expand to our neighbour planets.


Anything else beyond that are just pipe dreams.
Gowth is not a solution to any problems

The trick is to eliminate the possibility of runs. When you put your money in an interest paying account, it is agreed that it is not in the hands of the bank and it may take you time to have access to it. The fiction that you still have it needs to stop. If you want the bank to hold your funds, they would be required to actually have them on hand and provide them to you immediately on request (they would also likely charge you for the service).

This is a tired topic for me, but I will once again offer a quick response to the OP.

1) Bitcoin does not provide for fractional reserve banking (what you really mean by 'credit' here), because it's designed to be a rigid monetary base, just like gold was prior to 1900.  This does not mean that fractional reserve banking is impossible.  If Google or Amazon decided to jump on the Bitcoin bandwagon, and offer deposit accounts in bitcoin, they could rationally loan out more than they actually had because there would be at least some people willing to accept the word of Amazon as being functionally as secure as if Amazon provided the actual bitcoin transfer.  However, this would also mean that the ratio would be more rationally limited.  Instead of a 9:1 lending ratio, as is the current limit for FedReserve member banks in the USA; Bitcoin banks would not be limited by law, but by the threat of competitors forcing a run.  This would likely result in a ratio closer to 2:1 for healthy banks, and unhealthy banks would go bankrupt when a competitor forced a run.  Such runs would also destroy the value of deposits.  This is how banks worked prior to 1913.

2) Credit is not what you understand it to be.  Capital is not credit, that is mathmatically impossible.  Capital must always exist, so if credit is not sufficiently backed (i.e. not capitalized) then it will eventually collapse upon itself.  Capital isn't money.  Capital is productive goods and the knowledge to use them in order to produce.  For example, a tractor is capital to a farmer, and a tractor can be valued in monetary units, but that amount of money is not the captial.  To just create money to be used as credit for capital goods does not create more capital goods, it simply inflates the nominal unit price of such goods.  The tractor must exist.  Expansion of credit for the purpose of "stimulating" capital production is a useless endeavor.  It's akin to taking buckets of water from one end of the pool and pouring into the other end.  All you do is alter the flow of the water, not alter the amount or distribution of water in the pool.

3) When and if investment banks are necessary for the growth or health of the bitcoin economy, the market will provide such.

It matters because we will end up with the system that we have now. And imho Bitcoin is good because is nothing like the system we have now. It just has this tiny little problem of credit.

What you're describing sounds eerie similar with the early stages of the gold based dollar. Blockchain = gold reserves in the bank. Promisory notes = USD. And we all know what happened next. Who needs that pesky blockchain anyway?

That's pretty much the definition of fractional reserve banking, right?

"Real" bitcoin is nothing more than a promissory note recorded on a ledger that we call a "blockchain".  If fractional reserve banking develops within the bitcoin community, then the ledger simply moves from the blockchain to the bank's database, and the blockchain becomes a way for banks to settle up their inter-bank transactions at the end of the day.  So you are then talking about a fractional reserve bitcoin currency "backed" by the blockchain bitcoin currency.  If they are both just promissory notes, and are fully interchangeable on a one for one basis then which is the "Real" bitcoin?

The point that you are missing is that the capital was saved in advance either way.  Credit just changes who has access to it, and under what terms.  Equity investing does the same thing.  Neither one is required for growth.

And I disagree totally about the length of time it takes.  Accumulating the capital takes the exact same time either way.  Again, credit does not magically cause capital creation.  It can change the way that capital is allocated, but it doesn't create it.

Why does it matter if they are real bitcoins, or a system of credit built up on top of bitcoins?

I do. And I already replied to a similar question on the first page. So, are you also taking about the creation of some promissory notes or IOUs that are "backed" by deposited BTC?

Because with "real" BTC you can't make 12,000 out of 10,000.

You don't seem to grasp how fractional reserve banking works.

When the depositor deposits btc to the bank, the bank now has the btc, the depositor owns imaginary btc, call it iBTC, which cannot be sent through the blockchain, but is still an asset. Now the bank lends the btc to a loanee, sending the btc along, and the depositor and the bank now both only have iBTC, the loanee has the actual btc.

Nope. Depositors own 8,000; the business has 2,000. You can not create credit with BTC because you can not spend money that you don't have. Each transaction will remove btc from your wallet and add it to someone else's wallet.


I did mentioned previously about the savings which can be used as source of credit. Each company would save first the amount they need to built the new thingy they need to grow. Well, not so fast. Perhaps it can work with small companies that need to buy and hire an extra service desk or a small building, but with large companies or small companies that have R&D costs ... this is painfully slow. Think about mining companies. They have huge upfront costs when opening a new mine. Even with credit available it's hard for them to get all the capital they need. And then it takes years to do exploration, drill holes and setup shafts. Add more years to save all that money upfront.

People are already able to trade MtGox redeem codes rather than btc. Does that fit under the btc promissory note category?

Oops, this is where you go wrong.  Growth does not require credit.  Growth requires saved past production (commonly known as "capital").  Credit just means that it isn't the grower's capital.  Manipulation of credit also does not magically make that capital spring into existence.

The debt system allows businesses access to more capital than they would have access to on their own, and it allows savers more access to growth than they could do on their own.  Equity investing is another way to do this, and it offers different risk/reward profiles.  Having both gives both sides more options.

I don't see why Bitcoin and credit are mutually exclusive. Sure the people that are paranoid about banks and centralized control will keep all their coins in secure offline wallets, etc. But as is proved by the lending section, there are numerous people who are willing to deposit their coins with another person in exchange for a set return. Now take this number of people, who are willing to risk losing their coins by depositing them in very questionable places, and imagine the number of deposits if there was a brick and mortar place with fully available contact information and transparency as to how your funds are being managed. I would think this would get a lot more people comfortable with depositing than the current "banks" in the lending section of these forums. As Bitcoin gets more and more mainstream acceptance, there will be people who are not knowledgeable enough about computers and Bitcoin to secure their own funds, and they will be drawn to banks of this nature because that is the manor in which they are used to securing their money.

Any time there is an entity with more than one or two deposits, it's possible to engage in fractional reserve banking. If they have BTC10,000 worth of deposits, they can easily loan a business BTC2,000 because it is unlikely that all of their depositors will withdraw their total balances at once. So in essence they just created BTC2,000. Their depositors "own" 10,000, and the business that borrowed has 2,000. Hence, credit. It works the same way with any monetary system, why would Bitcoin be any different?