Topic: Bitcoins Can Inflate Too - Stop worrying about deflation. - page 5. (Read 12326 times)

Not yet. But I haven't seen any valid reason to believe that bitcoin banks won't eventually exist.

Dude, bitcoin is the bank. Your bitcoins arent in your computer. They are stored in the blockchain. In your computer, what you have is the key to access your bitcoins. There is no bank were you are going to send your funds.

And who will supply that "debit/credit card type deal"?  Quite possibly a bank.

This:

Since it will all be digital, a debit/credit card type deal will do it on its own, you wouldn't even need to do anything except swipe your card.

You can call it "accounting fraud" if you like, but it doesn't change the fact that there is then 110 bitcoins worth of spending power in the whole economy.

You are operating under the assumption that holding Bitcoin will continue to provide a higher "ROI" than other projects indefinitely.  I assume that the exchange rate will eventually even out and increase through deflation of the spendable supply at a slower rate providing an opportunity for other projects to provide higher (and safer) ROI.

You can say it, but that doesn't make it true.  Fractional Reserve is possible with Bitcoin. Banks are possible with Bitcoins (I'd even argue likely).

I think those zeros will become a headache for daily use, by that time people will start to use satoshi instead

Transactions could be free too, do you know how much the USA government alone spends keeping the USD in cycle? I think they can afford to turn on some computers to push transactions and still save money. Solar panels + super computers = save ton$


And why cant all the decimal numbers be used? If .00000000090000  was worth 9 cents, and I was selling something for 9 cents, id gladly accept it.


Banks for what? I'm not sure many people would trust that even the lowest ranking employee would have access to your untraceable money, and they don't even have to rob the bank in person.

I worked for an asset management company and one of their strongest mantras was "we are not a bank!"

Essentially frac reserve is just tricking people into temporarily thinking there are more coins than there are. That 'trick' is much less robust with Bitcoin than bank money because you can hold your own Bitcoin but not your own bank money. Whenever people notice that bitcoin is getting oddly easy to acquire they will hold the actual coins themselves, the frac banks will run out of actual funds and collapse, bitcoin will become harder and the people who kept the actual coins will prosper.

This is an accounting fraud, it is only 110 BTC on the bank's deposit record, at any time the spending power in the whole economy will never exceed 11 BTC, since that is all the BTC existed


Very true, these are some of the benefits of having a bank. But in BTC's case, things are different: Not so many people will take loan from a BTC bank, since the loan interest is just too high when no real world projects can have higher ROI than BTC itself. And without loan, banks can not make a living, or they simply become an asset management business

Yes there are, and there will always be banks.

BTC is a deflationary currency.

Despite the propaganda THIS IS NOT ALL A BAD THING!

-Your savings increase in value over time, this means you can retire, and let someone else take your job!

-It will mean the earth resources are not wasted to the never ending pump up of growth figures to fuel inflation.

-It will mean a more stable economy with less bubbles and cheaper housing/asset prices.

-Governments find it harder to fund their wars.

There are no banks in a bitcoin economy, it's peer-2-peer, fraction reserves are for fiat debt notes.

In theory fractional reserve banking is possible however there are some unique constraints.

1) There is no central bank.  Central banks also engage in FRB except they create the monetary base out of thin air.  With Bitcoin the monetary base is fixed at ~21M BTC.

2) There is unlikely to be anything like FDIC.  FDIC distorts the market in that the cost of insuring funds is paid for by taxpayers not depositors.  While it is possible that in the future Bitcoin banks will exist and will even be insured it almost certainly will be private insurance.  This makes using a Bitcoin bank more expensive than simply holding the coins yourself.  Some people will still use banks but a smaller % than in most fiat economies.

3) The reserve ratio will likely be higher.   Private insurance companies will be profit driven (not public policy driven) and smaller reserves means more risk.

4) As long as BTC is appreciating in value relative to other currencies demand for loans will be modest.  Say you need to buy a car.  You could get a $10,000 loan in USD (which are dropping in value making repayment easier) or you could get a 100 BTC (assume $100:1 exchange rate) loan (which are rising in value making repayment harder).  Some people will choose to borrow in BTC but it will limit demand.

5) Less need for a bank.   Without a bank (or bank like entity) it is very difficulty and costly to engage in commerce in USD.  Imagine no PayPal, no credit cards, no prepaid payroll cards, no checking account, no direct deposit.  Even routine things like cashing your paycheck to buy a game on steam becomes next to impossible.  The utility banks bring drives deposits into the bank.

The effective money supply is Monetary Base * Money Mulitiplier.   

In most FRB systems the central bank can influence both the monetary base AND the Money Multiplier.
In Bitcoin the monetary base is fixed (once all coins are minted) and the Money Multiplier is unlikely to be very large.

Imagine a hypothetical scenario where 30% of all Bitcoins are in Fractional Reserve Banks.  The insurance company requires a 50% reserve.   That means the money multiplier is 1 + 0.3*0.5 = 1.15.   The money multiplier with no Fractional Reserve Banking at all would be 1. 

Traditionally the money multiplier in the US has been roughly 2.5 to 3.  This has crashed recently due to the recession (well due to Fed's policies) however a money multiplier to 2, 2.5 or 3 seems highly improbable in Bitcoin economy given the increased utility of the currency and the reduced utility of a bank.

Bitcoin is still in its infancy.  You are looking at a group of early-adopters and making assumptions that the general public has the same interests, knowledge, and skills.

If bitcoin successfully makes the jump to widespread mainstream use, there is a good chance that it will be because businesses like the reduced fraud and chargeback risk.  If businesses start accepting bitcoin instead of other electronic payments (paypal, mastercard, visa, etc) or start offering reduced costs to those paying with bitcoin, then the general public will begin to adopt it without caring about financial privacy and becoming your own bank.

As people lose their bitcoins to hackers, crashed hard drives, corrupted wallets, and forgotten passwords they will seek out a "safe" place to store their bitcoins.  The banks will offer safe, secure, insured storage.  Depending on the deposits, they may also offer interest earned on deposits which will draw those customers who know how to secure their own wallets, but don't want to put the time and effort into it.  As bitcoin becomes more popular, transactions will take longer and longer to get into a block without substantial fees.  The banks will be able to set up their own payment network and offer reduced fees on transactions.  The reduced fees will draw even more people in to using the bank instead of the blockchain for their transactions.

Will it reach 20%?   51%?   80%?  And if so, how long will it take? 5 more years? 20 more years? 100 years? That is all difficult to predict, but it will be interesting to watch.

That's the big assumption which underpins the OP and the viability of BTC fractional reserve, and which I have a hard time believing.  I don't think that in a Bitcoin future, all (or even a decisive majority) of BTC will be held within a banking system.  A big driver for Bitcoin adoption is, in my opinion, the idea of financial privacy and becoming your own bank.  Banking institutions might still be used as public-facing temporary BTC handlers for deposits and transfers for extra privacy, but once the BTC arrives at its destination, a large part then likely moves into private wallets.  Especially if bank runs and misadventures with hot wallets keep occurring.

Bottom line: how much money lives in Coinbase, Instawallet, MtGox, etc. versus private wallets, today?  Until that number gets to 51%, I won't believe that there is a preference for people to hold BTC in 3rd party wallets versus private wallets.

To audit bitcoins, you would need to know all the addresses that the bank is using to store the bitcoin reserves, and you'd have to have proof from the bank that they have access to all the private keys associated with those addresses.  I'm not sure that this makes it any easier to audit the bank.

If Bitcoin is worth a significant amount, then clients will simply display a different denomination.  Instead of showing you as having 15.25 BTC, it'll show your balance as 15,250 mBTC.  And then gas will be 3mBTC/gallon, an apple will be 0.97mBTC, etc.

It would be extremely easy to make a Bitcoin client show a different decimal point as the default value, and it wouldn't actually change anything behind the scenes.

Yeah, just like nobody ever buys computers over the last few decades because we know they will be cheaper in the future.  Also gas, according to your logic here nobody buys gas now because we know it will be more expensive later. 

WRONG.



Well there is nothing to *save* us from, as plenty of people have pointed out with more poise and grace than I.

And yes, you're right that the same FRB that rose out of gold could in theory rise out of bitcoin.  The differences however are substantial:

1) Physical weight of bitcoins much less
2) Easy to audit bitcoins

Especially number 2 would be very important when a bank tries to sell you their "bitcoin certificates".