Topic: Good thing BTC isn't a debt based currency. (Read 4328 times)

The same way they do it today, you deposit bitcoins into their bank instead of having them in your wallet. You have bitcoins sent to your bank account instead of your personal wallet (it would eventually happen anyway), the bank becomes responsible if they get hacked or lose the money (just like it is today), so it would be served to the masses as a solution for having bitcoins stolen from personal computers. The masses will most likely do this.

If a thief steals $250,000 in cash from you, you're hosed.
If a bank gets robbed and a thief steals your $250,000, just 5 minutes after you deposited it at the bank, the bank is hosed.

As more and more people make deposits, they'll have a base reserve that they can use to make loans against. When they make a loan they don't just send you the full amount to your bitcoin wallet, but keep it in their deposit accounts so that you only use what you actually need at a particular time.

Just like in the real world when people borrow $50,000, they don't withdraw it all as cash and go walking down the street with it in a big money bag. That would be foolish.

The reserves would have to be much higher than today because, a bailout is not possible of 10:1 lending, but they can still engage in the practice nonetheless and if they are careful of who they extend credit to and charge the correct interest rates, it'll work just fine and be profitable.


This is only during a period when they make credit cheap, once they make credit expensive and stop renewing loans, the money exits circulation and the price level will eventually adjust downward.

For example, lets say during a economic boom, they fully extend their 10.5 million coins into the economy, the price level doubles as a result, someone buys a house and now has a mortgage at the new price level.

After a few years they as the loans are paid off they don't make new loans, the money supply starts to shrink as a result of the coins exiting circulation and over the period. The price level slowly starts to drop and it will eventually be a lower price level than it was previously (because the 10.5 million coins + whatever they collected interest - defaults), say their total profits was 1 million bitcoins, so they now have 11.5 million bitcoins, bringing the remaining bitcoins to 9.5 million available.

The actual price level then reflects the same as if there are 9.5 million bitcoins, but there will still be a significant amount of loans that reflect the price level at 21 million bitcoins.

Loans remain for the original amounts even though the price level drops, this basically increases the principle of those loans, on top of any interest charged.


Currency is a whole different ballgame, mankind has been enslaved by monetary systems since the beginning of civiliation. The government doesn't need to get control of bitcoin, just the private banksters.

The government isn't in control of the US Dollar right now anyway, the privately owned Federal Reserve is.

We'll focus on this since your argument seems to hinge heavily on this premise.  How are "they" going to set up a fractional reserve system for Bitcoin?  It was easy to do for gold since gold certificates were so much easier to carry around than the commodity itself.  That's not the case with a digital currency.  So, how do you think the market will value bank certificates promising Bitcoin?  If you guessed a lot lower than the actual Bitcoin it promises, if at all, then you're on the right track.

OK, now that we've dealt with BTC FRB, that means these evil bankers will need to loan out authentic BTC, which means it will be in circulation, which means they aren't being hoarded.  Also, it means that interest rates are reflecting the market's actual time preference and economic growth is based on actual savings.  All these are good for the economy.  Bubbles will still happen but on a much smaller and shorter scale than they do now.  Manipulation like you speak of could only happen on relatively short time periods as the market would quickly adjust.

Staking your argument on the prediction that "somehow" governments will get control of BTC due to historical precedent is a logical fallacy.  Go back a few hundred years and one could have argued that chattel slavery would always exist because it always had in the past.  Go back even further and one could have argued that separation of labor would never work because it never had in the past.  Things are the way they are until the paradigm shifts.  Bitcoin, or something similar, could very well be one of those shifts.

That's the number I got but it looks like I accidentally used the number 50 instead of 25 when doing the calculation. So my around 20% figure was for the wrong year as well.


I accept. Just please don't throw insults around, it will just create a hostile community and you don't want that. I don't mind being proven wrong, but I do mind being insulted.

Nobody knows everything and if I see you (or anyone else for the matter), say something blatantly wrong or stupid I'm just going to point out the flaws, I'm not going to call them a moron or an idiot or a nutjob.

Try teaching a class of students a subject and every time they make a mistake you call them an idiot. It's not gonna work out so well.

Remember, economics is not a class you can master in college, to think otherwise is the pretense of knowledge. (I stole this from a music video)


The only thing is the network is growing at a faster rate than the difficulty it appears, so the real creation is higher than whats on paper.

(7200 BTC per day * 7 days * 52 weeks) / (210000 * 50)
(2620800) / (10500000) = .2496 = 24.96%

I royally screwed that one up.  I apologize.  So dropping the block reward in half would drop the % APR to about 12.5%.  So was I off by a year?

(3600 BTC per day * 7 days * 52 weeks) / ((210000 * 50) + ( 52416 * 25))
(1310400) / (10500000 + 1310400)
(1310400) / (11810400) = 0.11095305832147937411095305832148 = 11.09%

Apparently not.

Nice, more insults instead of pointing out the math. Did you see me say "If my math is correct", that means I'm admitting that I could have a mistake. If I have a mistake, you're better off pointing it out instead of being a smart ass about it.

So, please show me the math.


They don't need the government.

They just loan them out their bitcoins, possibly engaging in fractional reserve lending (but on a smaller scale and only to those who are extremely credit worthy), over time they will accumulate more and more coins, and this process repeats itself over very long periods of time. Eventually they'll have enough of them to basically control the money supplys inflation and deflation.

If they keep 40-50% of the bitcoins out of the market for a long time, there will be a price level set based on 40-50% of the bitcoins in the hands of someone that is not using the money other than it sitting in someones wallet.

When they flood the system with new loans, you will have a cycle of inflation as now there is more money in the system, the price index will rise, etc etc.
When they make credit expensive again, there will be a cycle of deflation.
Whoever can't pay off the loan will have all of the physical assets forclosed on (collateral for the loans), and the bankers can rent out the property to further accumulate more coins.

So for example pretend I have 10.5 million bitcoins out of the 21 million bitcoins, I keep my bitcoins in my wallet and I never, ever spend them or use them on anything. The price level in the economy remains exactly the same as if the bitcoin project only had 10.5 million bitcoins in the economy.

Now what happens if I loan out all 10.5 million bitcoins into the economy after the price level has stablized? Remember I'm not increasing the amount of products, only the amount of currency units.

The price level is going to rise to the new level.

And what happens when I don't renew any of the loans as they are paid back?

The price level will go back to the previous level, oh yeah, and as long as I'm careful of who I loan money too, I will have more coins than what I started with because of the interest I charged.

Now to do it all over again. If I want to create a boom, I just make credit cheap. If I want to make a bust, I just make credit expensive and not renew loans.

Over generations my entity would be able to control the majority of the money supply.

Show me a time in history, where the bankers did not gain control of a particular currency. If bitcoins gains real traction, you're kidding yourself if you don't think it's going to happen.

It will.

How will "the few" amass all the BTC?  If they simply hold on to them, yes, they will appreciate in purchasing power but so will all other BTC, and "the few" won't be adding any more into their balances.  They will need to put their BTC out into circulation, through loans / investments, in order to attempt to increase their holdings.  The cartels you fear require violent intervention in the market, like government, in order to happen and sustain themselves.  Luckily, Bitcoin's decentralized, non-physical nature is highly resistant to such attempts.

Your math is as bad as your economics.  When the block reward drops from 50 to 25, the inflation rate will drop from 12.5% APR to 6.25% APR and continue to decline from there.

And over the long term if enough deflationary currency is held by a few, and they are able to single handedly create booms and busts by simply loosening and tightening credit at predetermined intervals (functioning as a cartel), bitcoins could become vulnerable to a new medium of exchange taking over (thanks to a free market), due to the manipulation.

It's not a problem now, and it won't be for a long time, but it will eventually be a problem. The few will eventually control the currency one way or another and then manipulate it.

By the way, when they reduce the currency creation down to 25 bitcoins per block, the inflation of the bitcoin currency (for that year), will be at around 20% if my math is correct.

I should have used the word "moot" instead of "contradictory".  All other factors being the same, the market will naturally choose a currency that retains or increases in purchasing power over one that loses it, no matter how slight.  Your proposed 3% inflation currency would lose out to BTC.

Do you know what a free market is? A free market is a market where anyone can participate in it without the permission of the government. If you have a cryptocurrency that inflates that is put out there by a non-government entity, and then people decide to use that cryptocurrency all on their own, that's definitely free market.


The savings rates would exceed the inflation. Inflation is just one possible method to make it more difficult for the few to be able to put a stranglehold on the masses. Since if they remove their money from the monetary system (by not using it and not loaning it out), they lose money.

The inflation wouldn't be subject to government lies, manipulation, etc. It would be enforced by the program.

You want to prevent a situation where a currency becomes manipulated by the few, and then the people have to create a whole new currency from scratch, because if that happens it will threaten bitcoins.

I'm thinking extremely long term, over a hundred years, by the way.

Perhaps there are other ways to solve this problem too, I'm just thinking of one possible solution.

Demanding a currency with 3% inflation while also advocating a complete free market in currency is contradictory.  Why would an individual choose to store their wealth in a depreciating (in value) asset when the opposite is readily available?  The market would choose BTC over any constantly inflating currency unless forced to do otherwise.  Then, Gresham's Law would drive BTC out of circulation wherever said force was applied.

1:10, they even operate at 1:70, the reserve ratio of Citigroup just before they collapsed was between 1:35 to 1:70. But the banks use different names for it, when you ask about fractional reserve what you really are asking for is leverage or gearing ratio, and that's why the bank may not know what you're talking about if you ask them about it with a non-financial language.


"As I wrote a few days ago, Citi’s true leverage ratio (after backing out goodwill and intangibles from capital and adding back off-balance sheet liabilities and commitments) is somewhere between 35:1 and 70:1. "
- Quote from here: http://blogs.reuters.com/rolfe-winkler/2008/11/20/citi-weighs-options/

And anyone with basic mathematical and some accounting understanding can read the current leverage (or fractional reserve) ratio on the bank they have deposits in today, now if average joe isn't able to do it he/she is logically a disabled person and should not have the right to vote in democratic elections (in elections for violence against other citizens).


Exactly!

It seems i didn't get my point across.... The fraud is as i said in the government saving the bank, the bank simply utilizes the level of political corruption our system of government enables and we are stupid enough to support it (not all of us, not me, but the majority of the people think its a brilliant idea).

Let me explain how a fractional reserve bank would work in a freemarket then.

The bank finds an idiot to lend them 70 times their capital (likely that would be hard to get unless they'd pay extremely high interest), the bank then invests that money and gains much better return on equity. Or as it happens every 10 years or so, the bank loses on that investment and goes down under.
If the bank goes down under, depositors, bondholders and shareholders can take over the bank (voluntarily bail it out) or they can declare it bancrupt.

To emphasize my point here, so  i don't get misunderstood again. The fraud enabler is the government, the banks just like any other for profit business utilizes all regulations, law and lobbying (corruption) methods to maximize their profit and minimize their risk, the system we have today unfortunately encourages this.

I can agree with that pretty much 100%.


It embezzles it. Demand deposits are used as collateral for nearly ten times the amount in loans. $1,000 in deposits becomes collateral for $10,000.


Perhaps this would be a good video to make.

Go to every local bank, and ask to speak to the bank manager.

You just have one very simple question. Lie and saying you're doing it as some sort of college research thing.

Ask them on camera, to tell you what "Fractional Reserve Banking" is.

Nine times out of ten, the manager does not know what it is, and in some cases has never even heard the term before.

Therefore, to expect that the average joe will understand that banks do this when bank managers don't even know, is pretty laughable.

With bitcoins, fractional reserve banking probably doesn't even need to be outlawed though, since a bailout is pretty much absolutely impossible.

The money supply is too tight.

The problem is that this is not true. The bankers adquired control of the money supply through government intervention. Some times the government intervention meant imposing some kind of gold standard (never a free market gold standard, and btw I dont support the gold standard). In the free market the bankers never managed to control the physical gold. They used all kind of regulations to control the money supply, sometimes under the name of godl standard.

The problem with the idea of "gold standard" is that it can refer to may systems who are completely different from each other, just because they have some kind of relation to gold. But, f.e. Bretton Woods, a "gold standard", is more similar to the present system, than to a gold based free banking system, that could be called a gold standard too. In reality, "gold standard" means nothing and everything because each person refers to a different thing by it.

Except that they don't go under.  Therein lies the fraud.  It's called, "moral hazard" because they know in advance that the government will save their asses if they get into trouble at the taxpayers' expense, and thus it is an immoral business to engage in.

It isn't a fraud....

The bank finds an idiot to lend them 70 times their capital (in our crazy world thats the government because who else would be that stupid), the bank then invests that money and gains much better return on equity. Or as it happens every 10 years or so, the bank loses on that investment and goes down under.

The bank doesn't steal anything. The fractional reserve ratio is on their balance sheet which they post to public every quarter, something every depositor and shareholder can see.

The problem is, when a big enough bank fails the government intervenes, and decides to save a mismanged bank, you get the bill. < this is fraud.

Probably much the same.  Like most major wars, the Civil War was a conflict decided by economics, not tactics.  Inflation is, economicly speaking, just another tax as far as funding wars go.  It's just that it's a particularly regressive form of taxation.  The North won because they had the industrial base to support a war of attrition and enough unemployed young men to throw at it, not because they had a morally superior mission.

I've been in the same position with the gold standard. I failed to see that the bankers have most of the gold locked up and could manipulate the new government forced gold standard at will, I'm not married to an ideology like most people are.

Knowledge is a process, it doesn't do anybody any good to just call other people stupid and then not really explain why, which is why I hate generic comments such as "Wow Comic genius! HHHAAAHA U ARE EH STOOPID"

When something becomes bloody obvious to me I'll correct my facts.

I'm interested in those history books you were mentioning.

Ok, you are right. But I did not insult you. The thing is that I believed the nutjob because his movies are very well done and seem very real to someone not educated enough in economic and economic history. He sells you a dream and then become uncritical to him becose you get addicted to that dream. I felt so ashamed when I started reading economic history books that I just cant understand if the guy is very dishonest and has an agenda or he is really a complete nutjob. Its confusing people with stupid ideas and stopping real change.