The thread on this forum that calls for a Bitcoin Central Bank based on an article in Forbes Magazine has overlooked something very important: Bitcoin allows for Proof of Solvency.
https://www.reddit.com/r/Bitcoin/comments/23m1de/vault_of_satoshi_launches_full_public_proof_of/
Mt. Gox failed essentially because it was doing what all banks always do. They only keep a small portion of all their customer's deposits in their vault and do whatever they want with the rest of it. At first blush you might feel like this is embezzlement, and you'd be right. But it's a very special kind of embezzlement called Fractional Reserve Banking. It's legalized embezzlement.
The problems with this practice are many, one is that there is risk of "bank runs" that occur when the customers of a bank or exchange that is practicing fractional reserve banking start to suspect that they may not be able to get their money back because the company is not actually holding it, and the realization that the only practical way to get their money out, is to withdrawal their money before anyone else does. This causes a very rational stampede of customers trying to withdrawal their money before anyone else.
The solution to this problem has been the introduction of central banks who are allowed to print money out of thin air (legalized counterfeiting) in order to assist these fractional reserve banks in paying back their customers the money they were in trusted to hold for them. All of this is legalized fraud, and the ramifications are a economy that is based on massive inflation, overextended credit and over extended debt, malinvestment, and essentially a false boom (called a bubble) produced by the introduction of new counterfeit money into the economy and the lending of money that belongs to other people unbeknownst to them. We get massive booms and massive booms and a cycle called the "business cycle". Virtually all of the problems we see with the economy including the recent 2008 crisis can be traced back to the practice of fractional reserve banking.
The author of the Forbes article and the author of the thread on this forum argue that bitcoin needs a central bank to avoid what happened with Mt. Gox when they tried to practice fractional reserve banking. But this is the worst solution imaginable. The solution is not to come with a way to protect the practice of fraud, embezzlement, and counterfeiting by introducing a central bank, the solution is to come up with a way to stop the fraud altogether. Luckily bitcoin has a way of doing that, and it is called PROOF OF SOLVENCY.
There are several exchanges that offer PROOF OF SOLVENCY, which basically consists of signing a proof of ownership of the cold storage wallets of the exchange or bank, and then allowing public inspection of those address on the block chain. Everyone can verify that the bank or exchange indeed holds the bitcoin that they are promising their customers they are holding for them, and their money is safe and sound. This instead of holding only a fraction of the funds for their customers and doing whatever they wish with the rest.
In the future, banks and exchanges will compete with each other by offering PROOF OF SOLVENCY, those banks that practice fractional reserve banking will not survive because customers will only choose banks that offer PROOF OF SOLVENCY. What would the incentive be to leave your money in a place where they take your money and gamble with it vs leaving your money in a place where you can verify it is held safe in a cold storage wallet and is waiting of you to withdrawal at anytime?
In conclusion, bitcoin does not need a central bank, exchanges need to implement PROOF OF SOLVENCY.
https://www.youtube.com/watch?v=yhUByjk9d0E
Topic: How Bitcoin Proof of Solvency Will Disrupt Banks (Read 311 times)
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