Credit creation on a Bitcoin standard - page 2.

Dr.Bitcoin_Strange

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Quote from: themossinator on March 31, 2023, 03:21:52 AM

Wouldn't this mean there would be a limited amount of credit available to lend out then? Which could then hinder economic/growth expansion? Would be great to get an explanation on this, thank you

IMO, it wouldn't limit economic growth or affect credit creation if Bitcoin is the only global currency. Imagine when 0.001 is worth about $10,000 or more; then you wouldn't need 1 bitcoin, whose price is still $28,000 today. Probably, Bitcoin would have more value and the price would be high, and private individuals who have enough Bitcoin would have the advantage of lending some fraction of their Bitcoin to different business individuals. If the price of bitcoin is so high, and with a supply that is limited and can also contribute to the high value, then people can still collect loans in which a little fraction means a huge amount that could settle the desired project it intend to be used for.

hZti

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Credit system would be the same as it was when there was a cold standard. You can only lend out what you have and not more. The only thing possible would be to lend out paper bitcoins but you would probably only be able to sell those at a big discount. Actually paper bitcoins do exists already, just Google it.

retreat

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Quote from: themossinator on March 31, 2023, 03:21:52 AM

Hello, I have bitcoin since 2017 and follow all the various discussions about the future of bitcoin and how it may become the monetary standard one day.

One thing I can't really see an answer to is how credit creation would work on a Bitcoin standard (or gold standard for that matter) as the system would be fully reserved and not fractionally reserved as the current standard is...

Wouldn't this mean there would be a limited amount of credit available to lend out then? Which could then hinder economic/growth expansion? Would be great to get an explanation on this, thank you

Making Bitcoin the default in the credit system is reckless because the value of Bitcoin is quite volatile and when it is entered into the credit system it will cause problems for both borrowers and lenders. Moreover, the supply of Bitcoin is very limited and it will not be able to fully serve its customers.

Nwada001

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Quote from: themossinator on March 31, 2023, 03:21:52 AM

One thing I can't really see an answer to is how credit creation would work on a Bitcoin standard (or gold standard for that matter) as the system would be fully reserved and not fractionally reserved as the current standard is...

What kind of credit are you talking about? Is it the kind of credit that we take on to pay back in the future? If yes, then Bitcoin is not built for such.

For credit creation to be successful, one needs to keep enough reserves for that purpose. That's to say, since we have 21,000,000 bitcoins in total supply, part of the 21,000,000 will be reserved separately, which will mainly be for lending only, and the others are to be publicly acquired and held just as they are right now.

Bitcoin don't have such a feature, and I don't think that could be possible either in the near future. We can only use it as we see fit, and if we ever need credit for Bitcoin, it can be done on an individual contract basis, which will involve lending out one's holdings to another as credit, which will in turn be paid back with a certain agreed-upon percentage of profit.

Solosanz

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I don't think Bitcoin can be a good currency when it's about credit or lending system, because lending system mostly need of third party who act as an escrow to make sure the borrower already give a valid collateral to prevent the lender to get scammed.

Since Bitcoin is decentralized, there's no way to retrieve the coins whenever the borrower didn't want to repay the loan.

un_rank

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- Jay -

The current credit system is a creation of the past one or two decades and did not exist as it does now several decades ago. One could argue that we have had more incidences of recession during the early modern and modern economic era than we had in the times without an efficient credit system. Could the dependency of businesses on credit and countries running practically on debt be a creation of the current financial system?

Quote from: themossinator on March 31, 2023, 03:21:52 AM

Wouldn't this mean there would be a limited amount of credit available to lend out then?

Yes, there would be. Bitcoin has a limited supply and cannot service the current credit system.
But we are considering a situation where Bitcoin is a world currency and not an alternative. It can function as a reserve currency along with its other utilities, but not as the standard financial currency.

- Jay -

themossinator

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Hello, I have bitcoin since 2017 and follow all the various discussions about the future of bitcoin and how it may become the monetary standard one day.

One thing I can't really see an answer to is how credit creation would work on a Bitcoin standard (or gold standard for that matter) as the system would be fully reserved and not fractionally reserved as the current standard is...

Wouldn't this mean there would be a limited amount of credit available to lend out then? Which could then hinder economic/growth expansion? Would be great to get an explanation on this, thank you

Topic: Credit creation on a Bitcoin standard - page 2. (Read 237 times)