Topic: Fixed supply, really? (Read 3477 times)

Thanks.

I am more of a minarchist, perhaps classical liberal or something between liberal and libertarian.

Not really; I just didn't express myself well.  I would actually object to "forcing people not to pollute the sea" (I'm an anarchist).


Thanks.  May we both continue to learn and grow.

There is a subtle difference between "forcing people not to pollute the sea" and "forcing people to take insurance". One is to force people to not do something, and the other is to force people to do something. I believe the first is a lot more easy to justify that the second; ones argument to justify to force to do something must be a lot damn stronger that ones that to justify to not do something.

Why? Because forcing somebody to do something he dissagrees with is a lot more "painful" to him than to not do something he'd like to.

I believe your objection might lie somewhere along these lines?


If the society was entirely made of democrats, then I'd believe that choosing if something is democratic or not is itself a democratic choice. (Which exactly is a Bill of Rights/Charter of Freedom: A democratic choice in which democrats decided to specifically exclude some choices as being democratic.) Thus if the majority decides that bank insurance is not a democratic choice, then it isn't until they decide otherwise.


Ahhh! Hmm. I guess you believe that the least government the better? I guess that's why you dissagree strongly here; because I do not have such objections. In fact, I believe that in every case the state decides, by a tragedy of the commons argument, that everybody should take/subscribe/use something, then the only "fair" way to do this is if the government takes the job itself. Because giving it to the private sector is essentially granting them a "free" monopoly, and letting the unavoidable profits (I'ts difficult to fail with a monopoly) end in the hands of a few, wheras the whole point of this was for the common good. So then the government should run the thing and use the profits for the common good. (I'm of course assuming the governemnt does a -good- job at managing those assets. Which it doesn't always do. But it is not impossible that it did, and in any case, that a give implementation of an idea is flawed does not undernmine the idea itself)

I'll take for example Hydro-Quebec, the power company from where I live. It is almost run as a private company, but the government owns all the shares. Hydro-Quebec is really efficient with it's assets, produces huge profits, (so huge that a lot of people pressure the government to pressure the company to reduce the cost of electricy even if it already costs us about 60% of the price of electricity elsewhere), and all those profits goes to the government.

A second point of view, specific to the bank insurance, was more what I tought when I said "Also, in the case of bank insurance, it is not even forcing individuals to take an insurance. It is the government that takes upon itself to ensure deposits." -> If the governement forces everybody to take their own insurance, that's one thing. If the governement provides insurance to banks, without forcing anybody to pay anything, except the usual taxes, then I might be seen not as "the government provides insurance to the people", it might be seen as "the government takes insurance for itself against civil unrest". The difference is subtle, and the end result, exactly the same. It's not just the same moral footing.

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Well thak you! I'm happy to see that my arguments are clear, because English is not my first language.

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I'd like to end this on a side note. It's a really interesting talk. I like debating with people of different opinion of mine. The Bitcoin community is interesting in that it provides an interesting sample of right-leaning people that have smarter arguments than I'm used to. I've have interesting arguments with the left two years ago during the Quebec student strike. I myself see myself as moderately left-leaning liberal-democrat. (I'm using these words in an "absolute" political sense, not in reference to any party that might have these words in their name)

In that, I'm not specifically excited by some of the features of bitcoin that excites most of it's early adopters. But I don't dissagree with those features eighter; I understand how some might like them.
-I don't really care about anonymity. (On the contrary, the ability to track funds troughout the blockchain will, someday, be very useful to law enforcement I believe. Bitcoin does help "small" crimes (drug transaction), but it makes impossible to launder huge amounts of money. Both things I like.)
-I don't really care about fixed supply. (in fact, I believe that a small but know inflation might be better. But it's just an intuition. In any case, if the fixed supply ever gets a problem, then this can be changed by concensus).
-I don't really care about the fact that it is not government issued.

What I -do- care a lot about is that it is trustless system that enables people to send money all over the world. No intermediates like VISA, paypal that take huge fees and get to chose who gets to use their service or not. Just that makes Bitcoin revolutionary.

I also like that it gives back to the people some power over the monetary policy. The fact that we are currently all dependent upon banking institution for our money gives them way too much power. If something gets too big to fail, It should be dismantled. (I did say earlier that "I don't really care about the fact that it is not government issued" -> I don't see contradiction here as I believe that a (good) government expresses the will of the people. But currently, government prints money, but banks dictates money policy.)

Yes, this is certainly one issue.  I think un_ordinateur is accepting this setback as being outweighed by the benefit of reducing the risk of civil unrest.

By the way ZephramC.  May I ask: Are you an anarchist or more of a minarchist?

This seems pretty reasonable to me.  I'd give an example as something like "forcing people not to pollute the sea".  I believe that this is not legitimate myself but the argument is subtle and would take us too far astray.  Perhaps we can just agree to disagree on this.

Anyway, I think you're arguing well here.


I would debate several of your assumptions but see how, under these assumptions, bank insurance becomes a tragedy of the commons and therefore fits your criteria for being legitimately democratic.

One question:  What happens in a society composed entirely of democrats that accept your "common-good + common-tragedy" axiom but where the majority don't believe that bank insurance follows this axiom.  Would it still be a legitimately democratic matter?


You're letting yourself down here.  Government forcing individuals to pay for their own bank insurance would be less objectionable (still not good).  The original proposal implies government forcing people to pay for other people's bank insurance.

As I said earlier, the fact that the majority decides something is good for everybody does not gives, by itself, that majority the legetimity to force something onto everybody. Only when it is both done in the for the common well being, AND that people opting out is detrimental for the succes of the measure then it might become legetimate to enforce it.

To take your smoking example, I do not think banning smoking (wether it be tobacco of pot) should be forbidden. However, forbidding to smoke in public places is could be, because it causes inconvenience to other people.

In the topic of insurance, then, as I said earlier, some people are more wreckless that other. So some people do not see a clear and indisputable advantage to that. It is fully their right. But in the unfortunate event that a bank collapses, if not enough people (the vast majoryty of them) are insured, then it will lead to social chaos that it is in the interest of the whole society to prevent from happening. Now, if not enough people are willing to voluntary subscribe to such insurance, how do you determine who shall be forced to take it? It is a lot fairer to just ensure everybody.

(Also, in the case of bank insurance, it is not even forcing individuals to take an insurance. It is the government that takes upon itself to ensure deposits.)

If it is really everybody's well-being which is in stake, why do not leave insurance voluntary? All will insure themselves in a moment when they see the "clear and indisputable advantage." in insuring

... The problem is that insurance can be set with wrong parameters. Eg. too high insurance for too low risk. And it is everybody's task to decide what the right balance is. Not for some central "right balance" to be enforced (either by dictator, commission or democratic vote).
Should smoking ban, drugs ban, suicide ban, etc. also be enforced "for the well-being" of all?

Thanks for the detailed response.

Well, I may see this questions on two sides.

The first doesn't even need to see it as a "necessary evil" or not. Insurance, in general, exists because there are certain events that, albeit unlikely, can be very catastrophic to those caught in it. Someone's home burning up is an example. Someone's bank going bankrupt in another. Someone having cancer is a third. Insurance offers protection to that; in that you pay a small fee over time, but if something bad happens, then it'll pay for you.

If you're "lucky", and nothing bad happened to you, then you'll have payed for nothing. So you lost money with this deal. but a lot of people pay for insurance instead, because we cannot know beforehand if it will happen to us, and we prefer to be slightly less rich, but safe, than risk losing everything.

But all insurance program rely on the fact that most (or at least, some) members will be "lucky" and that nothing bad will happen to them; and that therefore the payments of these members will subsidise those who are unlicky, because, otherwise, insurance would not exist; it would just be advanced payment for the eventual catastrophe.

But insurance is a "special" product that does not behave normally: for a given monthly payment, has "more" value the more people use it. It does not behave like a standart "free market" service where only offer and demand drive the value.

Therefore, if a majority of the people decide that they'd be better off being insured than not, then they have the incentive to make everybody subscribe to that insurance.

And because it is a matter of collective well-being, then it is somewhat legetimate to bypass the individual freedom of not subscribing to insurance. (Especially since the reasoning here is that you are better off being insured, so your "right" to not be insured is only a "right" to be stupid. Because in the first place, if most people believed insurance was bad, then they wouldn't vote for such law to begin with. It is a completely different case of your example where "two wolf and a sheep cannot democratically chose what's for dinner", because, in that example, the democratic "majority" choses to vote to considerably diminish one of the members of the group's well being, wereas, in mandatory inusrance, in theory, the honest will of the majority is to increase everybody's well being)

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The other point of view does view it as a necessarely evil. A major bank collapsing would financially ruin a LOT of people. It would necessary lead to civil unrest, which is usually seen as a bad thing. (see: the Great Depression) Therefore, the government insuring the people's deposits in banks is a simple and effective way of preventing that from happening. It is less an an insurance for individual persons against bad banks, but an insurance for the society against the bad banks.

May I ask: Do you believe that bank insurance (as you outlined earlier) is largely just or more of a necessary evil?

I'm not judging; I'm genuinely curious.

Some of the better alt coins will add to the supply of digital currency

Yes. That is why there are charter of freedoms/bills of right/etc... It's a kind of a paradox though since those charters were decided democratically, so democraty has decided to put a limit on itself.

Anyway, it's getting side topic, but I do agree what matters should not be decided democratically can be the subject of disputes. I believe that banks insurance is a democratic matter, but I conceive that you may not agree on that.

Reports about gold being limited supply are greatly exaggerated, there is plenty of silver for back up (and copper and iron and aluminum). 

yes limited supply, besides theres always litecoin for back up

Well. There are some things which should remain "unenforcebale" even by popular vote or "will of the People". Of course there will always be discussion which things this should be. Common example is that two wolves and a sheep can not vote "what is for dinner?". Some believe that by the same logic you can not have 100 people voting if 95 of them will (steal and) redistribute wealth of the remaining 5. Even if it is will of the (majority of) people. Some believe that you can not have (even "perfectly democratic") referendum about killing innocent man.
If the majority of people wishes that their deposit to be guaranteed by their government they can do that. But this guarantee should not use money of the ones disagreeing. If I wish my deposit NOT to be guaranteed (perhaps because I believe that this offers greater profit with acceptable risk) and there is a company which will grant me this wish and provide me this service then by what right do other people force us to change this.

What do you make of the will of the People? If a majority of the citizens of the United States (for example), wishes that their deposit be guaranteed by their government, if
a) Only deposits made at an US based company shall be guaranteed;
b) The company is required to always keep at hand 10% of its deposits ready for withdrawal;
c) They are ready to pay some taxes for that service.

I'm not saying that the -current- government cares about the will of the people. I have not a real opinion on that; I'm not from the US. I'm more interested by the theorical possibility that a majority of the people dissagree with you; and be absolutely willing of something you seem to consider stupid.

The way I see it, my opinion or your opinion is one of many. I might disagree with it, but I'll always accept that the will of the People trumps my will. (If that will is legitimately expressed in a fair vote) I need not to be idle about it either: I can spend time convincing people why I believe the current policy is wrong, and why it should be changed, hoping it will be in 10-20 years.

I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.

Kind of.

Deposit banking is to "hiding your money under the bed" as loan banking is to "lend money to someone that promises to pay back more".  These are both ways of storing your wealth with different upsides.  With deposit banking, you have instant access to your money and no investment risk; with loan banking you get interest.  These are both sound forms of banking.

Fractional reserve banking is an attempt to get the best of both worlds.  A bank that practices fractional reserve banking does not balance the maturities of its assets with its liabilities.  Consequently, it's vulnerable to a "bank run" (where it is called upon to fulfil promises its made but can't keep).


Yes, I think money in the bank has a similar value to money in one's pocket in most western nations.  The primary differences are in convenience and the risk of theft; consequently, most people put almost all of their money in the bank and carry around a little in cash as well as a bank card.

With bitcoin, everything is different.  A government guarantee can't mean the same thing (because the government can't print as a last resort; sure they can hold a treasury of bitcoins, but even this strategy I believe will ultimately fail, just as it has several times with gold).  Banks can't offer the same boost to convenience (as people can send bitcoins around the world cheaply and easily themselves) and I feel it's likely that they will be unable to offer much additional security.

All around, while the potential for fractional reserve banking is certainly there with Bitcoin, the extent to which it could develop is far more limited.

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.

In a world where Bitcoin is mainstream and fixed supply is a hurdle, a new, ideal and far better currency will be invented and all Bitcoins can be traded/converted to the new and infinite currency.

It already has been created. And they called it Mt. Gox 

FRB is an accepted practice in the world community, rage against it or not. If there is a profit opportunity to practice it, people can and will do it. Although bitcoin FRB will stand on a much slipperier slope because of its limited nature, that does not mean there aren't people smart enough to (for some time at least) get away with it. And it will probably cause the same economic problems that bitcoin is supposed to help avoid. In this instance, the problem is not the banking system itself but that bitcoin can't stop it.

The winklevoss twins already have a Bitcoin ETF in the works so you aren't wrong, what I will say though is that precisely because Bitcoin has only 21 million coins that it will be much more difficult for people to commit fraud with any kind of fractional reserve system, think about it, coinmarketcap is telling me that there are currently 12,450,125 Bitcoins in circulation at the moment thanks to the blockchain. So if somebody opens up an ETF with more than that we'll know they're faking how much they have for sure, while they could still commit fraud they won't be able to do it on the same scale that they can with paper money.

I believe there have been people who have already tried to fake their trade volume for example in regards to cryptocurrencies, there was a Chinese based exchange I think that did something like that and people though the numbers looked so strange for something that had only just opened they didn't trust it, scarcity and divisibility has many practical uses beyond just trade, you also see people dividing up Bitcoins for testing purposes and so on, I've done it myself because that way you don't end up using a large chunk of money to do testing before you even have the website up and running.

There's also something to consider in regards to the usual tactics central banks try, if they for instance, decided to try and buy out Bitcoin to try and restrict the trade completely, not only I'm sure would community members stop them but also they would be forced to buy it at a higher and higher price because of it's fixed supply, meanwhile they'd have to print more and more dollars completely devaluing their own currency.

My point was not "fixed supply is good or bad". My point was that even if Bitcoin is built with fixed supply hardcoded in, the -effective- supply will not by, with buisnesses operating in fractionnal reserve and governments building reserves.

You know, there are various altcoins out there that do not have a fixed supply. Why don't you go with them?

You are completely correct, but this is an old topic. Fractional reserve bitcoin banking is inevitable to some degree, and a bitcoin reserve bank functioning like the Federal Reserve could be created. Both existed in the U.S. when it was on a gold standard.

I think this most recent Goxxing is going to re-shape such practices within the bitcoin community. It is completely possible that the community will not do business with enterprises that practice fractional reserve policies.

That might seem like a stretch, but it is possible. Yes, banks will always exist who will try to use fractional reserve to glean profits from interest, regardless of the currency medium. But your own personal fears on the matter can be put to bed simply by not doing business with an enterprise that supports this.

One of the main feature of Bitcoin is that the supply of 21 million BTC is know and cannot be changed. Indeed it is.

But imagine a world where bitcoin is mainstream. Banks will still exist! People will have extra money on hand, and will want to lend it in exchange of interest. Banks will be an intermediate to offer that service. I know a lot of Bitcoiners hate fractionnal reserve, but if it ever gets mainstream, not everybody will be against that. So even thoug the "real" bitcoin supply is fixed, the effective supply will grow.

Also, governments could, and will, hold significant bitcoin reserves they can release, of increase, depending of the market factors, to affect economy to their liking.

I seriously believe that the purported benifit of the 21million cap are overrated.