Sure they would…I don't consider a mtgox deposit to have the same value as BTC over any substantial length of time. But in the very short run I consider it more valuable than BTC because it can enable me to exchange those BTC for dollar deposits. The value of a mtgox BTC deposit can fluctuate independently of the actual BTC it represents.
At any instant the amount of BTC held by Mt. Gox is based on the perceived value. You can't break apart long term and short term. A million BTC in 1 day rolling deposits or a 1 million dollars held for 1 year is still 1 million BTC. You consider the value of 1 BTC on deposit at Mt. Gox to be worth at least 1 physically (as in exclusive ownership of private key) BTC. It would be illogical to do deposit otherwise.
Now Mt. Gox doesn't engage in fractional reserves so the money multiplier is 1x. They aren't a bank more like a safety deposit box. To attract deposits any Bitcoin bank (Mt. Gox or otherwise) would need to convince you the value of BTC on demand is equivelent to value of BTC you hold otherwise you wouldn't deposit. That means trust in the solvency of the bank which is a harder sell.
Not exactly…if it were an FDIC insured account, the depositor would not lose anything. In the BTC case, the depositor would lose actual bitcoins because there is no FDIC backing up the account. The FDIC backing increases the value of the deposits to the point were is makes those deposits a near perfect substitute.
No reason that Bitcoin banks couldn't be insured. FDIC insurance increases the value that most depositors feel their deposits have but some people in the US still don't use banks. They don't use banks because they don't trust them. The value of a deposit isn't universal it is based on the depositors belief. Things like FDIC, regulation, security of the bank, need to safeguard money, need to have easy legit access drive utility and thus demand for deposits.
Still in any bank anywhere in the world if people feel a deposit has less value than "cash" then don't deposit (and likely try to withdraw).
Thus if a Bitcoin bank had 1M BTC in deposits (right or wrong) those depositors by their actions have decided the deposit has equivelent or higher value than "BTC cash" and thus is a money-substitute.
I do agree it would be MORE DIFFICULT (but not impossible) for Bitcoin banks to attract deposits but once deposited those funds are money-substitutes.2) The money supply thus can be >21M
Yes, but I quibble with the notion that there is any single definition of money supply.
Well economists don't even agree so I doubt we are all going to agree. I am simply saying it is possible for the Bitcoin money supply to expand beyond 21M. Period. How much, how we track it, and how likely are all interesting topics that will require thought.
It is also possible that the Bitcoin money supply will NEVER expand simply because people never trust Bitcoin banks, never consider a deposit as having the same value as a coin they control and thus never deposit. If that happens the money multiplier will remain 1x. I know it may be a trivial distinction but
a money multiplier of 1x doesn't mean a higher multiplier is impossible. If any multiplier greater than 1 can exist then the money supply CAN (has the potential) to expand.
4) Due to inherent differences between fiat money and Bitcoins the money multiplier for BTC economy will likely be lower.
I don't know if I would make that assumption (it may or may not end up that way)…I can imagine scenarios involving a ripple-like debt network where p2p, short term lending would be far more common…you would have more adhoc, informal lending on a p2p basis where trust is more important than formal risk assessment…and you would also have your more traditional lending where risk assessment is rigorous. Under such circumstances, it's conceivable that the multiplier could actually be greater.
That is why I said likely. Thing like FDIC, need for security from theft, need for security from loss, need for access to money as needed all contribute to high multiplier in USD banking.
Simply put money in a bank has higher utility than a giant pile of cash in their house for more users. Bitcoin reduces those needs, and combined with the risk banks offer makes me think that the muliplier will be lower. I could see private insurance helping but those insurance companies will likely demand a much larger reserve fraction to underwrite any policy and that has a lower multiplier effect.
So you have a compounding effect where less of the monetary base is even subject to ANY fractional reserve and that fractional reserve is higher (lower multiple). It is possible that Bitcoin could have any multiplier but I think it is probable that multiplier will be low compared to other economies.
A side note I don't believe Ripple is a fractional reserve system. Even if Ripple "notes" sold on a secondary market they wouldn't be considered money as they aren't easily divisible or fungible.
