Is fractional reserve banking (i.e. lending based on a fractional reserve) incompatible with BTC?
This seems evil from the get go...
Topic: Fractional reserve banking (Read 2450 times)
Is fractional reserve banking (i.e. lending based on a fractional reserve) incompatible with BTC?
This seems evil from the get go...
If one of us setup such a scheme we would be labelled criminal, for setting up a pyramid style scam, and rightly so!
Mathematically any ecenomic system that relies on ever increasing growth to survive is destined to fail, because we live in a finite world.
The growth of the fruits of all labours is infinite, it cannot ever be properly represented by anything else that is finite. (without infinitely further subdividing that) for all practical purposes the BTC subdivided at $10 and again at $100 and maybe will again at $1000
The world may seem finite, but we and our knowledge of it, our productivities, ingenuity and capabilities are not. We have all already clearly seen that our hatefully evil, repulsive, soullessly bestial powers to desolate and destroy surpass any naturally disastrous power ever encountered during the recorded existence of our world. Our loving, creatively attractive powers shall surely far exceed those sadly most valueless, pointless and foolishly passed war-communist milestones. Neither is their any law nor impenetrable barrier that restricts us from exploiting other celestial bodies with greater "finiteness" beyond that of our own.
This is 18th century Malthusian physiocratic claptrap. Back then the farmers would have also scoffed at the "silly notion" that an arsenal of "petards" could destroy the world. They dwelt in a monopolized-gold debt-enslaved prison of ever-diminishing returns.
In the old book of Genesis' economics lesson of Joseph, the 7yr famine and a foolish gold-commodity Labour Exchange "currency" results in the people selling themselves into slavery to Pharaoh as soon as their gold (for grain) runs out. The same thing happened all over again to moron Wilson's enviously, greedily and lustfully expanding USA in 1913. They sold themselves through their (treasury) ownership of their National Medium of Labour-Exchanging Currency to the Rothschild/Morgan tory-Trotskyite boardroom-socialist Gold Pharaoh's "Fed, central bankstering syndicate", effectively reversing the outcome of the Civil War (all debt-slaves now).
You simply cannot use another finite, limited (and likely monopolized already) commodity-resource (gold, silver or DaVinci paintings) to represent an infinite and limitless and ever growing commodity (the value of all human efforts and labors). What this foolishly-pegged to another commodity-value dual-use conundrum in a nation's people's Labor Exchange Currency inevitably causes is assured monetary slavery! Sooner or later by means foul or fair one economic "winner (or boardroom-socialist group of them) will inevitably come close to owning all of the available gold or silver or DaVincis etc and all of the means to produce any much more of it! Thereafter everyone in the economy must go to the "winners cap in hand to borrow either some token of "their gold" or a fiat token that they mint which is backed by some fraction of their wealths just to use a pay toilet!
Well regulated "inflation' is just a symptom of "growth". As productive national economic populations grow so must (and should) the quantities of their national economic labour exchanging currencies.
Finite Rarities are Mediums of Savings
Renewable, Produceable and Less-Finite commodities are Mediums of Investment
A nation's people's Labor Exchange Currency is it's unique-economic Medium of Labor Exchange.
Since the "globe" does not produce nor exchange with any other planet, there is no such thing as a "global economy". The "world" is just a marketplace. A transnational-corporate cult of boardroom socialist Pharaohs in the Cayman Islands is not "another globe". But, the trans-nation of Bitcoin may well be the first globally "All-Human Currency" ever devised.
The economic value of a nation's people's Labor Exchange Currency can only be what it alone is, a fractional representation token-derivative of the values of their EXPORTS into the global marketplace.
The moral to the Genesis and the Wealth of Nations economic lessons is simple. As citizens of a nation we are "enslaved" through the instrument of our nation's Labor Exchange Currency tokens to the well-regulated export trading policies of our governments who's solemn duty it is to accountably and responsibly manage the value of those tokens of it's citizens wealth. When a government abdicates it's responsibility and duty to defend its trade balances effectively through such corruptions as "free trade" it has abdicated the economic defence of it's citizenry and it's right to be their national government.
A finite resource-commodity foolishly adopted as a Medium of Labour Exchange "currency" by a national economy is a recipe for enslavement. The "finiteness" of Bitcoins has nothing to do with stopping "inflation", nor should it be confused with the Austrian Fascist (Tory Trotskyite) notion of gold enslaved economies. All the "shortage" of BTC does is fund a transaction recording network that happens to also mine new coins as a profitably commingled pastime. So far absolutely nothing "regulates" the inflation or deflation of the value of the money supply of the derivative market speculated BTC Derivative Tokens.
But, in honest fact, the "bitcoin derivative" itself is a so-called "pyramid scheme" as are all market traded stocks and commodity-derivatives. New fiat Federal Reserve Note "dollars" are also a once-gold-derivative, "derivatives" albeit that only an ennobled group of old boardroom socialist Gold-Pharaoh monopolists are still "trading" them to their political serfs for federal-socialist "bonds", that we all end up owing them tax-derivatives for.
That "fiat" Private Federal Reserve proprietary boardroom-socialist "dollar" in your pocket that we all use as our "Medium of Labor Exchange Currency" represents three things:
- TO THE GLOBAL MARKETPLACE; It is a national economic derivative token representing a fraction of the "currency" of the wealth of that nation's people's exports, both labours and products, as it, and they, are valued by global demands for it, and them. (a questionable It-Owes-Us note of theirs)
- TO YOU; It is a widely accepted derivative "It-Owes-You" token that represents the derived-value of what the previous holder of it got off of you for it. (a somewhat durable It-Owes-You note of yours)
- - AND EITHER:
- TO IT'S PRIVATE OWNER/ISSUER; It is the fractionally derived-token for part of a larger common debt owed to them, that your Tory-Trotskyite enslaved socialist-government is bond-indentured to them or to their bond clients for. (a fiat "Our-Slaves-Owe-Us" note of theirs)
- TO A CONSTITUTIONALLY RESPONSIBLE GOVERNMENT; It would (only theoretically, since almost none exist anymore) be a public treasury owned, issued and/or rented-out and profited from (greenback) derivative token representing a well-regulated fraction of the "current" wealth of that nation's people's exports, as it (and they) are valued by external demands for it (and them) from other economies in the Global Marketplace. (a well-regulated yet still fiat We-Owe-Us note of ours)
- TO IT'S PRIVATE OWNER/ISSUER; It is the fractionally derived-token for part of a larger common debt owed to them, that your Tory-Trotskyite enslaved socialist-government is bond-indentured to them or to their bond clients for. (a fiat "Our-Slaves-Owe-Us" note of theirs)
Through the mechanisms of trading speculation on exchanges a Bitcoin is STILL a "fiat" currency since it can clearly still be inflated/devalued or deflated/overvalued and by the activity of trading exchanges, without any regard whatsoever to it's finite rarity. Trading it just like some common commodity/stock derivative and thus unhinging it's value irrationally just totally negates the rather silly "finiteness" anti-inflation argument.
see https://bitcointalksearch.org/topic/m.1832923 Re: stable bitcoin pricing...The "Bubbles with Bitcoins" nightmare
The Economic Nation of Bitcoin's Labour-Exchange Currency has already suffered at least three major inflationary devaluations, over alarmingly short periods of time! I cannot think of a nation's economic-export Medium of Labour-Exchange "currency" that has ever been so radically scary, unstable and undependable in randomly "fiat" minute to minute valuations.
Were the value of Bitcoins to GROW ONLY in value, (deflate) generally always progressively in small increments and seldom or never to inflate in any more but negligible manner than their promise as a cooperatively owned global profit-sharing common, public Medium of Labor Exchange Currency be realized (item 4), and savers would earn "interest-dividends" on their wallet savings in their own wallets, but this is risky or nearly impossible to guarantee under current market manipulative valuation conditions.
In the matter of Reserve Banking nobody really banks Bitcoins but Exchanges. Some might even possibly be able to mount a small reserve-lending scheme. I tried out my wallet but kept worrying about a hard drive failure and a backup/ Time Machine restore nightmare, and simply couldn't see a way to have access to the same wallet on both of my computers (desk/lap/droid etc) unless i left them online at an exchange "bank".
A Bitcoin (unlike a nation’s people’s Medium of Labor Exchange “Exports-Currency”, has no “central authority” nor physical valuation (backing) such as even the “world marketplace’s good faith in the exports of Doofistan” (nor gold) to back it. When a customer shows up at a (say Canadian) Bitcoin Exchange with Doofistan Bitcoins in his wallet all his wallet contains is a pile of the “stock-derivatives” of the value that somebody else received for the assets he paid for them (a pile of derivatives).
This flaw raises an “MF Global” sort of an issue. The Canadian “MF Global Exchange” can’t phone up the Global (nor Doofistan) Bitcoin Reserve and ask them to send over some Loonies to compensate them for buying this guys Bitcoins, with Canadian Loot, can they?
So where does this Canadian Money come from? The exchange just has to wait until there are enough customers to buy them (at current valuation) to show the seller his money. The real problem comes from many traders trading-up into a balloon, and in what (or how well) the exchange chooses to segregate it's assets..
Say a trader trades dutifully and productively out-of and into a series of big run-ups and valleys in wildly fluctuating Wild-West Bitcoin speculation prices.
So say they came in last week with $1000, paid fees and consolidated gains in Bitcoin/Cash positions at various fluctuation points doubling their investment value to $2000. All of that value was paid for (locally) by somebody else. Now nearly half of that new value was probably eaten up in fees and maybe one lousy-timed trade ($400), so now they cash-out, after the crash, for $1600.
Where is that $600 going to come from? If the “exchange” kept most or all of their “floats” in cash, no problems, but if the exchange was also putting it (or putting it all) into Bitcoins (to lend them out)… different story!
This is why I don't see this happening in Bitcoin-land. So many of the core people involved with Bitcoin reject this argument, and to many, it is a core value that fractional reserve banking is, ipso facto, a form of fraud, that I think people would stay away from it in droves.
So I don't see it as practical because the community would reject it.
Personally, I think FRB has its merits in the so-called "real world" of banking, but it has significant demerits that I think most Bitcoin users do not want, at least not in Bitcoin. I do not want to see widespread FRB in BTC. If nothing else, it would take a lot of the fun out of the market.
So I don't see it as practical because the community would reject it.
Personally, I think FRB has its merits in the so-called "real world" of banking, but it has significant demerits that I think most Bitcoin users do not want, at least not in Bitcoin. I do not want to see widespread FRB in BTC. If nothing else, it would take a lot of the fun out of the market.
Of course if one has even a small amount of logical and mathematical ability then it is clear that FRB is legalised crime.
There is also a good chance that a new large FRB system might be built on the governments own altcoin with regulated but public miners, and then they would leave BTC alone. Let us hope so!
Yes the bitcoin trade market as it stands is certainly lively and fun to trade in. Viva bitcoin!
Some argue that fractional reseve is needed for inflation/deflation tweaks, and there is merit to that argument, but to use a ratio of 10:1 just takes the piss!
This is why I don't see this happening in Bitcoin-land. So many of the core people involved with Bitcoin reject this argument, and to many, it is a core value that fractional reserve banking is, ipso facto, a form of fraud, that I think people would stay away from it in droves.
So I don't see it as practical because the community would reject it.
Personally, I think FRB has its merits in the so-called "real world" of banking, but it has significant demerits that I think most Bitcoin users do not want, at least not in Bitcoin. I do not want to see widespread FRB in BTC. If nothing else, it would take a lot of the fun out of the market.
Should anyone want to really understand what fractional reserve banking IS then watch this very good youtube vid.
It is not mathematically heavy and does an EXCELLENT job of describing it.
It is logical and truthful in its explanation of FRB:
PLEASE FIND TIME TO WATCH THIS:
http://www.youtube.com/watch?v=jqvKjsIxT_8
It is not mathematically heavy and does an EXCELLENT job of describing it.
It is logical and truthful in its explanation of FRB:
PLEASE FIND TIME TO WATCH THIS:
http://www.youtube.com/watch?v=jqvKjsIxT_8
I'm already doing fractional reserve banking at coinlenders. You give me coins, I pay interest on them and lend it out to others.
Then you're doing banking, but not fractional reserve banking. Unless your lending out promisary notes at a 10X multiplier for bitcoins you dont have on account.
So say you have 10 bitcoins in your acount you lend out 100 bitcoin promises in the form of 10%bitcoin 90%IOUs but only pay interest on the real 10 to your lenders. This means you as the bank can collect interest on 90 imaginary bitcoins, sounds like an easy moneymaker eh? well it is so long as all the IOUs dont get called on at once.
Some argue that fractional reseve is needed for inflation/deflation tweaks, and there is merit to that argument, but to use a ratio of 10:1 just takes the piss!
If one of us setup such a scheme we would be labelled criminal, for setting up a pyramid style scam, and rightly so!
Mathematically any ecenomic system that relies on ever increasing growth to survive is destined to fail, because we live in a finite world.
With FRB all the money that goes around the world is credit. Usually there's something backing a type of money, like a commodity (Gold) that has a rather stable price tag, or a different kind of credit (e.g. foreign currency).
Bitcoin is in many ways like gold. There's a limited supply and a slow production rate. They are almost indestructible. It's also pretty easy to define whether someone owns Bitcoins or gold. There are many valuable properties in gold that can be found in gold, and those are the major reasons gold has grown to become an easy-to-recognize store of value. On the other hand Bitcoin has lower maintenance than gold (e.g. transportation and maintenance).
In the end it would seem that Bitcoin isn't competing with fiat; it's competing with gold. If banks lend out and take in Bitcoins, or even vouchers to redeem Bitcoins, I agree that this kind of system, as form of FRB, will fail. On the other hand, nothing stops forks from appearing. Maybe some day there will be a fork that works more like fiat money, except that banks themselves can't print it quickly themselves.
Bitcoin is in many ways like gold. There's a limited supply and a slow production rate. They are almost indestructible. It's also pretty easy to define whether someone owns Bitcoins or gold. There are many valuable properties in gold that can be found in gold, and those are the major reasons gold has grown to become an easy-to-recognize store of value. On the other hand Bitcoin has lower maintenance than gold (e.g. transportation and maintenance).
In the end it would seem that Bitcoin isn't competing with fiat; it's competing with gold. If banks lend out and take in Bitcoins, or even vouchers to redeem Bitcoins, I agree that this kind of system, as form of FRB, will fail. On the other hand, nothing stops forks from appearing. Maybe some day there will be a fork that works more like fiat money, except that banks themselves can't print it quickly themselves.
Heavens to Betsy!
Fractional reserve banking is what gave Rothschild control over the world and at the same time made the people of the world debt slaves through usury.
BTC is not fractional. BTC is usury free. That is why I believe in it. That is why I bought it.
Hundredth or centiBTC (cBTC) and thousandth or milliBTC (mBTC) and millionth or microBTC (uBTC) need to be introduced as needed so BTC can continue to be used as currency which is where its value lies at a level which is confortable to people everywhere.
$266 BTC are unwieldly for most people to use as currency.
When BTC reaches $200+ again it should be reset to $2+ (cBTC) so it can continue to easily be used as currency. BTC value is as a currency. There are a fixed amount of units. To accomodate new users and fluid trade a currency reset or splitting at successive points is required. No wealth or value is ever lost and BTC stays at a currency comfort level for trade.
Fractional reserve banking is what gave Rothschild control over the world and at the same time made the people of the world debt slaves through usury.
BTC is not fractional. BTC is usury free. That is why I believe in it. That is why I bought it.
Hundredth or centiBTC (cBTC) and thousandth or milliBTC (mBTC) and millionth or microBTC (uBTC) need to be introduced as needed so BTC can continue to be used as currency which is where its value lies at a level which is confortable to people everywhere.
$266 BTC are unwieldly for most people to use as currency.
When BTC reaches $200+ again it should be reset to $2+ (cBTC) so it can continue to easily be used as currency. BTC value is as a currency. There are a fixed amount of units. To accomodate new users and fluid trade a currency reset or splitting at successive points is required. No wealth or value is ever lost and BTC stays at a currency comfort level for trade.
Gold is not fractional, yet the Bretton Woods system was built upon it, the same could happen to bitcoin.
Do you think a finite BTC coinbase limited to $2 per coin will go very far? maybe for a small island, but such a limitation would prevent global adoption. There's simply alot of cash out there looking for somewhere safe to go.
This is a quite scary possibility. But true, it could have happened.
Same with US gold reserves. Germany keeps their Gold at New York Fed vault. It has not examined it's holdings in 30 years. Many claim that US may not even have German gold, but for as long as it say it does have it, Germany can say it owns 200+ tons of gold. It is actually may not be smart of them to demand to examine it. Because if they do and Gold is not there, Germany loses it's credibility. Funny thing, it is sometimes better for somebody just say that you have it rather than actually having it.
Same with US gold reserves. Germany keeps their Gold at New York Fed vault. It has not examined it's holdings in 30 years. Many claim that US may not even have German gold, but for as long as it say it does have it, Germany can say it owns 200+ tons of gold. It is actually may not be smart of them to demand to examine it. Because if they do and Gold is not there, Germany loses it's credibility. Funny thing, it is sometimes better for somebody just say that you have it rather than actually having it.
This absolutely can work, and has happened (or at least I suspect it has).
mtgox keeps all of its bitcoins in its wallet and not tied to any particular users. It maintains user account balances in its database. It has been hacked before and I suspect lost a portion of its assets while maintaining user account balances. It also may have had occasional theft, accounting errors, and perhaps some investment spending using bitcoins. So if user account balances total 1000 bitcoins, it is totally possible that mtgox only has some fraction of those bitcoins (and USD) available to pay out. I suspect that many new investors in bitcoins don't even have a wallet outside of mtgox as they are just in the speculation game, so it makes it even easier for mtgox to maintain a only a fraction of the balances of the accounts in its reserves.
Now, this doesn't mean that they are really doing this, but I have no reason to believe that they are not, and they are not the bastion of transparency. Heck, if they sold off 50% of their stockpile into cash right now, they would have a lot of fiat to work with, and it would be likely that users would never be the wiser. Maybe they could play even riskier and keep only 10% of the bitcoins.
What makes this possible scenario interesting is that this actually inflates the money supply. If there were only 1000 bitcoins in existence, and 500 were in gox balances, and gox spent 400 of them keeping 100 in reserve, there would be in effect 1400 bitcoins in circulation, even though there are only 1000 real bitcoins.
As someone on the sidelines I eagerly wait until there is a run on mtgox and keep a stockpile of popcorn on hand. Only then will we see what is going on in their backrooms.
mtgox keeps all of its bitcoins in its wallet and not tied to any particular users. It maintains user account balances in its database. It has been hacked before and I suspect lost a portion of its assets while maintaining user account balances. It also may have had occasional theft, accounting errors, and perhaps some investment spending using bitcoins. So if user account balances total 1000 bitcoins, it is totally possible that mtgox only has some fraction of those bitcoins (and USD) available to pay out. I suspect that many new investors in bitcoins don't even have a wallet outside of mtgox as they are just in the speculation game, so it makes it even easier for mtgox to maintain a only a fraction of the balances of the accounts in its reserves.
Now, this doesn't mean that they are really doing this, but I have no reason to believe that they are not, and they are not the bastion of transparency. Heck, if they sold off 50% of their stockpile into cash right now, they would have a lot of fiat to work with, and it would be likely that users would never be the wiser. Maybe they could play even riskier and keep only 10% of the bitcoins.
What makes this possible scenario interesting is that this actually inflates the money supply. If there were only 1000 bitcoins in existence, and 500 were in gox balances, and gox spent 400 of them keeping 100 in reserve, there would be in effect 1400 bitcoins in circulation, even though there are only 1000 real bitcoins.
As someone on the sidelines I eagerly wait until there is a run on mtgox and keep a stockpile of popcorn on hand. Only then will we see what is going on in their backrooms.
I see a lot of people misunderstanding the topic at hand...
Some are talking as if more notes must be printed for FRB to work. Others are talking about it as if bitcoin would be what backs the notes. This isn't the case as the only "notes" that would be used are those of the account holder. Essentially, that's just a login stating that you own the account with the bank. In this case, the bitcoins wouldn't be stored, they would be what's given out as the notes. If it's gold you're talking about, think of it as holding an account with the bank, but the gold is lent out. That's the form that bitcoin FRB would have to take to work.
Others look at history and say that, eventually, all FRB schemes fail without government intervention without analyzing the causes for that failure. Most cases have government intervention in the loanable funds market in some way, such as the manipulation of the money supply or interest rates (monetary manipulation,) or problems with moral hazard (FDIC, etc.) Sans that manipulation, manipulation which is either extremely difficult or impossible to create in the bitcoin economy, such systems have existed and have created stability.
Others still seem to think that the only way for FRB to exist with bitcoin is for it to be melded into the current financial structure, but that's certainly not the case. What will most likely happen is that wallet services will become the more secure and more useful provider of funds management. For example, someone will most likely create a bitcoin based debit card or phone app that must work through their system (much like VISA for debit cards working through your bank account,) in which case there's reason to believe that others will create competing systems. Through this process, a depository system will be constructed in which interest rates will become a competing factor -- this will require a fractional reserve system, or deposits that aren't 100% on demand. The competing process here will set reserve rates as opposed to interest rates.
Hopefully this is helpful to those who have responded.
Some are talking as if more notes must be printed for FRB to work. Others are talking about it as if bitcoin would be what backs the notes. This isn't the case as the only "notes" that would be used are those of the account holder. Essentially, that's just a login stating that you own the account with the bank. In this case, the bitcoins wouldn't be stored, they would be what's given out as the notes. If it's gold you're talking about, think of it as holding an account with the bank, but the gold is lent out. That's the form that bitcoin FRB would have to take to work.
Others look at history and say that, eventually, all FRB schemes fail without government intervention without analyzing the causes for that failure. Most cases have government intervention in the loanable funds market in some way, such as the manipulation of the money supply or interest rates (monetary manipulation,) or problems with moral hazard (FDIC, etc.) Sans that manipulation, manipulation which is either extremely difficult or impossible to create in the bitcoin economy, such systems have existed and have created stability.
Others still seem to think that the only way for FRB to exist with bitcoin is for it to be melded into the current financial structure, but that's certainly not the case. What will most likely happen is that wallet services will become the more secure and more useful provider of funds management. For example, someone will most likely create a bitcoin based debit card or phone app that must work through their system (much like VISA for debit cards working through your bank account,) in which case there's reason to believe that others will create competing systems. Through this process, a depository system will be constructed in which interest rates will become a competing factor -- this will require a fractional reserve system, or deposits that aren't 100% on demand. The competing process here will set reserve rates as opposed to interest rates.
Hopefully this is helpful to those who have responded.
Well bitcoin IS like gold. FRB issues promisary notes for an asset, regulation fixes a maximum issuance:asset ratio.
In the case of the Bretton Wood System that asset backing was gold. A new Bretton Woods system could be created on top of bitcoin just the same.
I bolded the part in your quote that would be nice to happen, but probably wont, eventually mainsteam users will probably ride the fractional system on top. Which will allow inflation/deflation control for governments.
In the case of the gold system one might think: At least the asset backing (gold) can be audited, trouble is that some auditors can be persuaded to say anything when regularly gifted with a hotel room full of top class hookers etc. But with bitcoin the audit could be (and should be) public data, so that's a big plus to a FRB with bitcoin. There could be no shadow stats, the true FRB ratio would be public.
As i stated above there is a clear issue lending in BTC, first and foremost is trust. Assuming online banking in BTC somehow resolves this issue, how would the legal system handle an online currency, in issues like default, or fraud ? Also banks need to comply with things like anti-money laundering and anti-terrorism rules. There seems to be no clear way for that to verified in BTC.
Heavens to Betsy!
Fractional reserve banking is what gave Rothschild control over the world and at the same time made the people of the world debt slaves through usury.
BTC is not fractional. BTC is usury free. That is why I believe in it. That is why I bought it.
Hundredth or centiBTC (cBTC) and thousandth or milliBTC (mBTC) and millionth or microBTC (uBTC) need to be introduced as needed so BTC can continue to be used as currency which is where its value lies at a level which is confortable to people everywhere.
$266 BTC are unwieldly for most people to use as currency.
When BTC reaches $200+ again it should be reset to $2+ (cBTC) so it can continue to easily be used as currency. BTC value is as a currency. There are a fixed amount of units. To accomodate new users and fluid trade a currency reset or splitting at successive points is required. No wealth or value is ever lost and BTC stays at a currency comfort level for trade.
Fractional reserve banking is what gave Rothschild control over the world and at the same time made the people of the world debt slaves through usury.
BTC is not fractional. BTC is usury free. That is why I believe in it. That is why I bought it.
Hundredth or centiBTC (cBTC) and thousandth or milliBTC (mBTC) and millionth or microBTC (uBTC) need to be introduced as needed so BTC can continue to be used as currency which is where its value lies at a level which is confortable to people everywhere.
$266 BTC are unwieldly for most people to use as currency.
When BTC reaches $200+ again it should be reset to $2+ (cBTC) so it can continue to easily be used as currency. BTC value is as a currency. There are a fixed amount of units. To accomodate new users and fluid trade a currency reset or splitting at successive points is required. No wealth or value is ever lost and BTC stays at a currency comfort level for trade.
Is fractional reserve banking (i.e. lending based on a fractional reserve) incompatible with BTC?
They will show the bitcoin as collateral (asset), and lend money up to 10x value of that bitcoin. (horribly insane fractional reserve lending allowance in us law).
or, they can create an 'asset' (hedge fund) by indexing it on bitcoin, then start trading and inflating the hedge fund's value, and then show both bitcoin and the hedge fund as assets (duplicate !!!!) and then lend 10x value of those totals as money.
by the way, that last bit was how the financial scam was pulled in wall street - that lead up to the 2008 crash.
I'm already doing fractional reserve banking at coinlenders. You give me coins, I pay interest on them and lend it out to others.
I see a lot of people misunderstanding the topic at hand...
Some are talking as if more notes must be printed for FRB to work. Others are talking about it as if bitcoin would be what backs the notes. This isn't the case as the only "notes" that would be used are those of the account holder. Essentially, that's just a login stating that you own the account with the bank. In this case, the bitcoins wouldn't be stored, they would be what's given out as the notes. If it's gold you're talking about, think of it as holding an account with the bank, but the gold is lent out. That's the form that bitcoin FRB would have to take to work.
Others look at history and say that, eventually, all FRB schemes fail without government intervention without analyzing the causes for that failure. Most cases have government intervention in the loanable funds market in some way, such as the manipulation of the money supply or interest rates (monetary manipulation,) or problems with moral hazard (FDIC, etc.) Sans that manipulation, manipulation which is either extremely difficult or impossible to create in the bitcoin economy, such systems have existed and have created stability.
Others still seem to think that the only way for FRB to exist with bitcoin is for it to be melded into the current financial structure, but that's certainly not the case. What will most likely happen is that wallet services will become the more secure and more useful provider of funds management. For example, someone will most likely create a bitcoin based debit card or phone app that must work through their system (much like VISA for debit cards working through your bank account,) in which case there's reason to believe that others will create competing systems. Through this process, a depository system will be constructed in which interest rates will become a competing factor -- this will require a fractional reserve system, or deposits that aren't 100% on demand. The competing process here will set reserve rates as opposed to interest rates.
Hopefully this is helpful to those who have responded.
Some are talking as if more notes must be printed for FRB to work. Others are talking about it as if bitcoin would be what backs the notes. This isn't the case as the only "notes" that would be used are those of the account holder. Essentially, that's just a login stating that you own the account with the bank. In this case, the bitcoins wouldn't be stored, they would be what's given out as the notes. If it's gold you're talking about, think of it as holding an account with the bank, but the gold is lent out. That's the form that bitcoin FRB would have to take to work.
Others look at history and say that, eventually, all FRB schemes fail without government intervention without analyzing the causes for that failure. Most cases have government intervention in the loanable funds market in some way, such as the manipulation of the money supply or interest rates (monetary manipulation,) or problems with moral hazard (FDIC, etc.) Sans that manipulation, manipulation which is either extremely difficult or impossible to create in the bitcoin economy, such systems have existed and have created stability.
Others still seem to think that the only way for FRB to exist with bitcoin is for it to be melded into the current financial structure, but that's certainly not the case. What will most likely happen is that wallet services will become the more secure and more useful provider of funds management. For example, someone will most likely create a bitcoin based debit card or phone app that must work through their system (much like VISA for debit cards working through your bank account,) in which case there's reason to believe that others will create competing systems. Through this process, a depository system will be constructed in which interest rates will become a competing factor -- this will require a fractional reserve system, or deposits that aren't 100% on demand. The competing process here will set reserve rates as opposed to interest rates.
Hopefully this is helpful to those who have responded.
Well bitcoin IS like gold. FRB issues promisary notes for an asset, regulation fixes a maximum issuance:asset ratio.
In the case of the Bretton Wood System that asset backing was gold. A new Bretton Woods system could be created on top of bitcoin just the same.
I bolded the part in your quote that would be nice to happen, but probably wont, eventually mainsteam users will probably ride the fractional system on top. Which will allow inflation/deflation control for governments.
In the case of the gold system one might think: At least the asset backing (gold) can be audited, trouble is that some auditors can be persuaded to say anything when regularly gifted with a hotel room full of top class hookers etc. But with bitcoin the audit could be (and should be) public data, so that's a big plus to a FRB with bitcoin. There could be no shadow stats, the true FRB ratio would be public.
Bitfever, that really depends on what makes it deflationary. If it's an increase in productive uses, then it may actually be done with an increase in lending despite the higher real cost to borrowing. It all depends on what the market is "trying to get done," in a sense.
I have a feeling some are conflating FRB with "debt as money".
Interesting topic... If bitcoin is severely deflationary, then the amounts required to loan out would get smaller in the long run, so that could help bolster the reserve. Also, it would solve the hoarding problem to get bitcoins in circulation, but that would then inflate the coins, so some kind of equilibrium, and maybe value stability would occur to strengthen the currency function of bitcoins.
I see a lot of people misunderstanding the topic at hand...
Some are talking as if more notes must be printed for FRB to work. Others are talking about it as if bitcoin would be what backs the notes. This isn't the case as the only "notes" that would be used are those of the account holder. Essentially, that's just a login stating that you own the account with the bank. In this case, the bitcoins wouldn't be stored, they would be what's given out as the notes. If it's gold you're talking about, think of it as holding an account with the bank, but the gold is lent out. That's the form that bitcoin FRB would have to take to work.
Others look at history and say that, eventually, all FRB schemes fail without government intervention without analyzing the causes for that failure. Most cases have government intervention in the loanable funds market in some way, such as the manipulation of the money supply or interest rates (monetary manipulation,) or problems with moral hazard (FDIC, etc.) Sans that manipulation, manipulation which is either extremely difficult or impossible to create in the bitcoin economy, such systems have existed and have created stability.
Others still seem to think that the only way for FRB to exist with bitcoin is for it to be melded into the current financial structure, but that's certainly not the case. What will most likely happen is that wallet services will become the more secure and more useful provider of funds management. For example, someone will most likely create a bitcoin based debit card or phone app that must work through their system (much like VISA for debit cards working through your bank account,) in which case there's reason to believe that others will create competing systems. Through this process, a depository system will be constructed in which interest rates will become a competing factor -- this will require a fractional reserve system, or deposits that aren't 100% on demand. The competing process here will set reserve rates as opposed to interest rates.
Hopefully this is helpful to those who have responded.
Some are talking as if more notes must be printed for FRB to work. Others are talking about it as if bitcoin would be what backs the notes. This isn't the case as the only "notes" that would be used are those of the account holder. Essentially, that's just a login stating that you own the account with the bank. In this case, the bitcoins wouldn't be stored, they would be what's given out as the notes. If it's gold you're talking about, think of it as holding an account with the bank, but the gold is lent out. That's the form that bitcoin FRB would have to take to work.
Others look at history and say that, eventually, all FRB schemes fail without government intervention without analyzing the causes for that failure. Most cases have government intervention in the loanable funds market in some way, such as the manipulation of the money supply or interest rates (monetary manipulation,) or problems with moral hazard (FDIC, etc.) Sans that manipulation, manipulation which is either extremely difficult or impossible to create in the bitcoin economy, such systems have existed and have created stability.
Others still seem to think that the only way for FRB to exist with bitcoin is for it to be melded into the current financial structure, but that's certainly not the case. What will most likely happen is that wallet services will become the more secure and more useful provider of funds management. For example, someone will most likely create a bitcoin based debit card or phone app that must work through their system (much like VISA for debit cards working through your bank account,) in which case there's reason to believe that others will create competing systems. Through this process, a depository system will be constructed in which interest rates will become a competing factor -- this will require a fractional reserve system, or deposits that aren't 100% on demand. The competing process here will set reserve rates as opposed to interest rates.
Hopefully this is helpful to those who have responded.
Not possible. Regulators would need to verify the exact value of BTC held as capital. Why a bank would hold capital in the form of BTC would basically be an admission that the fiat they would regularly deal in is suspect. This is among many issues.
If they believe that the currency they deal is risky enough to not hold the fiat or deal in it, then why bother being a bank in that currency? The only real way for BTC to exist in fractional reserve banking is for it to be held as capital, or as a speculative asset. There are clear problems with both.
Given that banking is a risky business why add to the risk by holding a clearly risky currency which can't really be loaned, or transacted in without the assurances of the law itself? Not to many banks holding currency itself anyway, as it needs to earn carry. Not to mention that there are no current capital rules regarding BTC, so banks would have to hold the same amount of capital as investing in stocks.
Until BTC is integrated into the financial system there are likely to never be capital rules drafted, thus to banks it will always be a speculative asset. While we are on the topic of rules, if you were playing bank regulator and a bank was making a loan in BTC, in the event of default what legal recourse would the bank, or anyone else have to remedy the loss itself? If I could simply walk from a BTC loan the interest rate would have to be astronomically high. In that case why not just take a loan in fiat? Esp with the rise of internet banking.
As a speculative asset BTC would rank as less than penny stocks IMO. Your best case scenario is that you get in early. However any security issues, data problems and security could result in complete loss of capital. Most banks are to risk averse to be making this kind of bet. As if it can't be exchanged for other assets that banks can hold or exchange in to return seeking assets or currency for investments then its worthless to banks.
Not to mention the type of size that would be needed for transactions would mean >10% (very rough estimate) of people would need to hold assets in BTC. Something you just wont get people to do until computer literacy is ubiquitous.
Long story short BTC and online currency need some legitimacy from the system itself to integrate into the banking system, unfortunately this defeats some of the purpose of being a non regulatable entity under no government control.
If they believe that the currency they deal is risky enough to not hold the fiat or deal in it, then why bother being a bank in that currency? The only real way for BTC to exist in fractional reserve banking is for it to be held as capital, or as a speculative asset. There are clear problems with both.
Given that banking is a risky business why add to the risk by holding a clearly risky currency which can't really be loaned, or transacted in without the assurances of the law itself? Not to many banks holding currency itself anyway, as it needs to earn carry. Not to mention that there are no current capital rules regarding BTC, so banks would have to hold the same amount of capital as investing in stocks.
Until BTC is integrated into the financial system there are likely to never be capital rules drafted, thus to banks it will always be a speculative asset. While we are on the topic of rules, if you were playing bank regulator and a bank was making a loan in BTC, in the event of default what legal recourse would the bank, or anyone else have to remedy the loss itself? If I could simply walk from a BTC loan the interest rate would have to be astronomically high. In that case why not just take a loan in fiat? Esp with the rise of internet banking.
As a speculative asset BTC would rank as less than penny stocks IMO. Your best case scenario is that you get in early. However any security issues, data problems and security could result in complete loss of capital. Most banks are to risk averse to be making this kind of bet. As if it can't be exchanged for other assets that banks can hold or exchange in to return seeking assets or currency for investments then its worthless to banks.
Not to mention the type of size that would be needed for transactions would mean >10% (very rough estimate) of people would need to hold assets in BTC. Something you just wont get people to do until computer literacy is ubiquitous.
Long story short BTC and online currency need some legitimacy from the system itself to integrate into the banking system, unfortunately this defeats some of the purpose of being a non regulatable entity under no government control.
Is fractional reserve banking (i.e. lending based on a fractional reserve) incompatible with BTC?
I suppose not inherently, but it is not only rather against the philosophy of BTC and many of those who hold it, who would therefore probably never adopt such a system, but it is also against the current characteristics of the currency, which might make it very difficult suddenly to acquire BTC if there were a sudden demand.
So I'd say yes, it is incompatible with BTC and can be expected to be so for at least the short and mid-term future, and perhaps for the rest of its existence.
I would never keep BTC with an entity that did not have access to its full complement of deposited BTC, though I would prefer some large percentage of that store of BTC be kept in cold storage of some kind in case of hacks, even if that sometimes led to inconvenience.
Actually, I generally would not keep BTC with any entity other than myself for any length of time, if I could avoid it.
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