Topic: Bitcoin vs. the Banks - page 2. (Read 7523 times)

I never suggested IOUs should be prohibited. It's not accurate to say that credit bubbles won't happen in bitcoin though. They will happen but they won't be as severe.

However as a merchant I can choose not to accept those fractional reserve IOU of unknown quality.  A consumer can choose to hold their coins as non-fractionalized "real coins".  Try doing that with USD.  Even if you found a bank which didn't use fractional reserve the supply of USD (not IOU which are semi-comparable) continues to expand. 

You simply can not hold USD and "opt out" of any FRB system.
You can hold BTC and "opt out" of any FRB system.

Bitcoin is freedom.  No need to try and prohibit IOU which are partially backed by BTC.  Let the market decide but YOU (and me) have the ability to choose.

It is true the IOU is not USD, however if merchants start treating IOUs as fungible with USD then an increase in the IOU supply increases the total money supply just like a increase the USD supply.

When you swipe a Visa at the grocery store the merchant doesn't differentiate between credit created by your bank and "cash".

If in the future bitcoin merchants start accepting fractionally reserved bitcoins then it will result in a similar situation. The only difference is that with Bitcoin nobody has the ability to offer unlimited bailouts to cover unbacked credit.

You are of course right - this kind of  FRB where all we are creating is IOUs can be done with anything by anybody. But there is a catch - one which makes "real" banking FRB far more sinister. An example:

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Let's say you lend me 100 USD, and I give an IOU in return. Have we created new USD? No. Theres still 100 USD (and an IOU which is NOT USD).
Then I can re-lend, or spend the 100 (actual) USD -  and you can, maybe sell my IOU to someone for, say 90 (real) USD (assuming a 90% probability that I'll hounor my debt to the holder of the IOU). Have we now created any USD? No. There is still only the original USD plus an IOU in circulation, and that IOU looks nothing like a 100 USD bill.

Contrast that to me lending that 100 USD in a bank:
I go into the bank and sign an IOU for 100 USD to the bank and the bank writes up the balance in my account by 100 USD. (Notice that in this case the bank did not need a single USD of pre-exisiting money to do so - unlike the previous case. The money came from thin air.) For legal reasons, then the bank then promptly sells my IOU to a third party which completes the monetizization process creating 100 brand new USD.
The outcome: I get 100 real, legal USD - which I can get in an ATM as a nice bill and which is legal tender for all debts, public and private. The bank gets an IOU for 100 USD from the third party, and the third party gets my IOU.
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You see the difference? Banks use the legal tender laws and the UCC laws (re-sale of the IOU "in good faith") to legally turn my IOU into real USD.

Without the bank's trick, you and I can only create IOUs - not real USD. This is the banks legal monopoly on money creation. This is the important step in FRB. Not the creation of the initial IOU.

Therefore, it does not matter if mtgox issued 1E9 worth of bitcoins in vouchers - there would still only be about 9E6 (real) bitcoins circulating, but if BOA issues 1E9 USD in "loans" the total amount of (real) USD in the world increases by that amount.

The difference is crucial - and perhaps not understood by whomever wrote the wiki.

Yes, this is true. But that's still called fractional reserve banking.

It's something that's different from actually printing new money, but it shares some characteristics.

I thought so too at first but this is not quite right?  Sure, the amount of MtGox codes has gone up.. but the amount of verifiable bitcoins has not..  there are still only 1000 verifiable bitcoins no matter how they have changed hands.  So yes, fractional reserve banking can be practiced with bitcoin in the same way in which it was for gold.   

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There is nothing preventing Fractional reserve banking with Bitcoin.

Let's say 10 people have 100 BTC in MtGox, and MtGox decides to use 900 BTC to buy some BitBerries. The BitBerries guy then puts his 900 BTC on MtGox.
Now there's 1000 BTC on MtGox, but people's accounts show that they have 1900 BTC in total. This works as long as not everyone withdraws at once.


This is the core of fractional reserve banking, and it can be done with Bitcoins as well.

I agree 100% with this.
This, in fact, is why fractional reserve banking (in the normal sense of FRB) is not possible with bitcoin, seashells, colored glass beads or anything other than fiat money. Sure, we can exchange promisses or mtgox vouchers in arbitrary amounts - even if there is only a finite amount of BTC behind these vouchers, or none at all - BUT without the legal tender laws and the UCC rules that makes debt (checkbook money) exactly equivalent to any other money once it is monetized - no rule or law in the world can convert a mtgox voucher into a "real" bitcoin, if the bitcoin isn't there in the first place.

A Bitcoin IOU (like a mtgox voucher) has a
value [in BTC] = (face value) * (probablilty of payment)
The latter factor may well be zero (Pirate bonds come to mind) - but amount of IOUs will increase the number of real bitcoins in circulation by even one Satoshi.
This is fundamentally different from FRB money creation in fiat, no matter what the bitcoin wiki says about FRB.

We have an anti-economy based on a monetary system, and money is not real. Resources are real, and an economy based on distribution of real resources would be more effective in meeting basic human needs.

I, too, prefer very much to sit in a comfortable chair, than in these elongated things that tend to hide under the name sofas. Unfortunately I come across these a lot in my daily life, and have learned to adjust, living in an uneasy truce with these horrid spawns of cusheyness.

+1   ahahahahahahah

I hate all banks. Not the institutions themselves, or the people who work there. Just the buildings themselves. The actual bank.

My hatred has found difficulty since online banks have come into play. I have not actually seen the servers which house these online banks, but I do believe that I would hate that server just as much.

I destroyed all piggy banks I saw as a child.

My credit union is pretty good.

The jail time would have been too long.
He has to work hard to make sure the Ellet has a longer time-to-market then those BFL things.

WHAT?

No horse mask while in the bank?

I'd give it a shot.

The whole thing?

 

I'd eat that restaurant.

Economies are resource based by definition: Economies are how resources are distributed.

A "Resource Based Economy" is like saying a "Meal Based Restaurant"

This is why we should promote a resource based economy. All reality, no fantasy.