Topic: Fixed supply, really? - page 2. (Read 3494 times)

I'm sure the point is becoming belabored at this point, but the point that needs to be made again is that if you don't have sole possession of your private keys, you do not own any bitcoin.

un_ordinateur, your point is valid that the "majority" may want to engage in fractional reserve practices. But hopefully we can all educate the masses to understand that this is antithetical to the trust-less model that the bitcoin protocol itself provides.

Sure, that means I'll never earn 'bitcoin interest' from a 2nd party. But I will also never be goxxed, either.

You're correct that it's more about freedom, hence the reason everything is decentralized and open market.  If the market wants a fractional reserve system, then one will rise.  Hopefully what happens is people learn from the mistakes of the current fractional reserve debacle.  For instance, maybe it's not smart to have only 10% in reserves.  Maybe something closer to 50% is safer.  Just because a system is misused doesn't necessarily mean it's broken, I think this is essentially what you're trying to say?

Sorry about the interest thing. I've mixed things up. Yeah of course higher risk=higher reward. I was thinking about GICs: They offer an higher reward than checking accounts in exchange of the inconvenience of having your funds unavailable for a few years.


Yes... And no. Of course, SOME bitcoin idealists/early adopter, that see banks and fractionnal banking as being necessarely a bad thing see in Bitcoin a way to evade that. It is, and those people may freely chose to never entrust their btc in a buisness operating in fractionnal reserves.

But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Early adopters dislike fractionnal banking, but most people dont. If bitcoin ever gets mainstream, nothing will prevent people from operating a buisness operating in fractionnal reserve, and probably that a lot people will do buisness with them. Not the early adopters, but they don't care as long as some people do buisness with them.

This is starting to feel like a slow-troll.

Higher risks always match to higher rewards, not lower rewards. And if you want to deal with an enterprise that practices fractional reserve with bitcoin, it means that they have control over your private keys, not you.

Just as in the case of fractional reserve banking, you therefore don't really own any actual bitcoin. You only have an IOU from the bank.

This is antithetical to the bitcoin model. You understand this, right?

Maybe I fail to understand something (I'm not an economist, I'm a physicist), but what I understood from my introduction to economics class in high school was that deposit/loan banking = fractionnal reserve banking.

If I go to a bank to deposit my money, and then the bank lends that money to somebody else, then two people have some "claim" to that money. Of course, the lended does not "own" the money; he'll have to reimburse later, but he has it on hand, and may use it do do economic activity. On my side, by having lent money to the bank, I may legitimately claim I own that much money, especially if there's is a guarantee on my deposit, which I believe is the case in all western country for checking/saving accounts.

Of course, my money in that bank is not real cold hard cash (they don't have it, they lent it), but because it is guaranteed by governement, it has almost the same value. (To most people at least) The bank IOU for one dollar has the same value that a one dollar coin. I can transfer that IOU to somebody else (exactly what happens when I write a cheque, or use my debit card), in exchange for a good or a service. These are the same "virtual BTC" others have talked about.

Thus, for a given "amount" of $ deposited in the bank, twice as much economic activity has happened. Which is exactly what happens in a fractionnal banking reserve.

I guess the only way to prevent that would be that when people deposit a certain amount in a bank, it should always be locked for a number of years/equivalent to the duration the bank will lend it, so that it can never finds itself in a situation of a bank run, where people withdraw their money faster that loans are repayed. (But I'm not quite sure how this would work with bad loans). But I'm quite sure that even in a world ran by BTC, people would still like to have their money available at all time, even if this implies slightly higher risk/lower intersts, especially if the deposits are guaranteed by the government.

This.

I'm not sure why there are so many references to fears about fractional reserve practices relative to bitcoin. If you know better, then don't do business with someone who is practicing this.

It's so antithetical to the very purpose that the blockchain serves that it's just stupid. No enterprise or third party is ever going to hold my private keys. I'm the only one who has access to them now, and I'm the only one that ever will.

This seems to be made out much more complicated than it needs to be.

There may be fractional reserve money and there is no reason to worry. The difference, when it exists, between real money and fractional reserve money will be clear, because either you have bitcoins in an andress that only you have access or you don't. Bitcoin notes or digits in some bitcoin bank account will not be bitcoin and everyone with basic knowledge will be able do deduce this. The problem today is exactly the fact that this distinction between "real money" and "fractional reserve generated money" is not clear because there is no such thing as a the bitcoin protocol, adresses, private keys, etc for fiat money and because there are central banks to act as lender of last resort, which does not exist in bitcoin.

There will always be some kind of limits when it comes to supply of anything. Modern monetary policies lead us into probably limitless supply of money only in exchange of it constant fall of value. In general there wont be any real benefit between stable prices and inflation, in long run relation between prices and salaries shall stay the same, in short run it is different issue. Short run changes of price might create stress and confusion or even panic for consumers. Sudden growth of prices while salaries still stayed the same is not something that any one enjoy. Of course we are all aware that after some time it all would go back to balance.
Banks are well known for manipulation when it comes to monetary system. They are probably biggest reason for inflation over all. Every time when we keep some money in bank, and use same money to buy anything, bank still hold this money and do whatever it wants with it. Until elixir and actual movement of money between banks, we are all working only on virtual numbers that doesn't need to represent any actual value behind it. Bank from single 100 dollar bill can make 200 $, 300 $, 400$. Doubling its value with every transaction. Cheque and other kind of financial papers creates even bigger manipulation.

Lending to receive interest is perfectly sound, but let's not cast aside alexeft's attempt to distinguish bitcoins from "virtual bitcoins" by lumping it all under "money".


I'm 100% with you here (assuming "regulated" allows for market regulation).  Savings and investment are a wonderful thing.  Hopefully, people that are skilled in finding good investments will begin to offer their services to people that are prepared to take on some risk for interest.  Hopefully real banks will eventually emerge for the Bitcoin economy.


Aaaand, you've gone off the rails again.  You made a great case for deposit banking and loan banking.  What on earth does this have to do with fractional reserve banking?

... and on the other side of the coin, you can always owe your friend half a satoshi if you like.

You might deposit your bitcoins into a bank if the bank pays interest on them.

As for the "virtual bitcoins", here's how it (and FRB) works:

You deposit 100 BTC into the bank and you can withdraw at any time. The bank loans out 90 of your 100 BTC.

So, you effectively have 100 BTC (90 of which are "virtual") because there is enough for you to withdraw at any time, assuming that others have also deposited bitcoins.

The borrower has 90 BTC.

Your 100 BTC has become 190 BTC. If the borrower deposits the 90 BTC and the bank loans out 81 BTC, then it becomes 271 BTC. If that happens over and over again, then it eventually becomes 1000 BTC.

The house of cards falls down when people want to withdraw money from the bank faster than the loans are repaid, or enough borrowers default on their loans.

Because you may have more moneny on hand than you need in the next few years, so you'd like to earn interest from it.

Other people want to start a buisness, buy a house, a car, and need to be lent money.

Bitcoin WILL replace traditional bank when it comes to payment processing and checking accouts. But it does not provide an investment service, earn interests, of offer loans. Banks will coexist with bitcoin to offer those services.

And I do not consider those service fraudulents, if they are managed well/properly regulated. Such bitcoin banks can -prove- they have at least that much cash on hand, and thus can prove their compliance with laws requiring that their deposit must be over their loans by at leat 10% for example.

It would still be fixed because it would be similar to the gold standard in which everything is tied to something.  You needed to have some amount of gold to print notes, you would need some amount of Bitcoin to do the same.  This is different from now where most fiat in the world can just be printed with nothing but faith backing it up.

A "bank" would only be able to sell "virtual bitcoins" to unknowing people and then, only up to a point, just until they go bankrupt.
Why would I want a bank if the blockchain is so secure and why would I accept "virtual bitcoins"?

FRB is possible with bitcoin. But it would be much more difficult to get away with miscalculations and frauds.
Bitcoin bank can accept bitcoins and maintain "virtual bitcoins" balances for their customers. It can pay interest on bitcoins and lend bitcoins with (higher) interest. It can administer more "virtual bitcoins" than "real BTC" in its balance. And it can work well.
But it would be very easy to ask the bank about hard "real BTC" balance and quite easy for the bank to prove it owns this "backing". In light of this ease of proving real balance it would be much more difficult for bank to lie plausibly about its backing. (Bank can still issue false statements about its balance, but the extra careful customers will not be fooled.)
If the bank defaults there will be nothing like "too big to fail" no one will be able to (forcefully) bail out the bank and its customers.

Someone can consider situation: "Customer trusts untrustworthy bank, do not verify the information, is irresponsible and therefore looses all his money." a problem. Someone else can consider situation: "Customer trusts untrustworthy bank, do not verify the information, is irresponsible and he is NOT punished by loosing his money." a problem.

FRB will offer more possibilities and more profit with more risk and more need for trusting some institution (or persons, or safeguards). It will not affect the ones who will not want to participate. Virtual bitcoins will be clearly distinguishable from the real ones. It is up to everyone to decide his position.

In computational analysis, If bitcoin was treated as inodes (Filesystem), in the first layer, there are only 21M available.

However the first layer may be filled with reference "addresses" so the supply is not main problem as it can be fractional.

Please note that even if the supply of Bitcoin is capped, there will always be enough Bitcoins to be used. This is because digital currencies, very unlike gold or silver, are infinitely* divisible. Carrying or sending or storing 0.00000001 BTC is not much harder than doing the same with 100 BTC. Precious metals, even fiat currencies, don't have this property. Imaging chopping up a penny coin evenly into one thousand pieces. This can be very time-consuming, if possible.

Once having enough coins is guaranteed, the market will just adjust itself accordingly. (Well, this can lead to open discussions...)

Footnote:
* Infinite divisibility can be achieved either by extending the Bitcoin protocol (the current protocol supports 8-decimal-digit divisibility) or by the supports of 3rd-party payment processors that use Bitcoin as reserves.

goxbux?

I don't see how MtGox has anything to do with fixed Bitcoin supply.

MtGox was a vestige of which we need to get rid of to make Bitcoin helthier.