Topic: Money creation system - is bitcoin creation resistant? (Read 1612 times)

I've decided to bump this thread because, after 4 years, I'm even more sure that fractional reserve system on centralized institutions holding bitcoin is happening and is diluting the BTC supply. Especially now, when we started to pump again and market seams to forget about what happened with FTX (failed fractional reserve).

Holding coins on exchanges not only puts you in a risk (not your keys not your coins) but also decrease bitcoin value.

Right when we hit 40k for first time.


I don't have paid account either. I passed this screenshot from my discussion with friend on telegram and didn't check it. Looks like i should. Sorry.

When was that screenshot taken?

Recent data showed BTC supply on exchanges spiking back up to mid-2020 levels. This coincided with the $42K top and subsequent correction.



I'm curious what Glassnode is showing, but I don't have a paid account.

I've decided to bump this thread because i feel like its perfect time for reminder. It is highly likely that most exchanges does not have enough coins to cover balances of all users, now, during days when total balance on exchanges are going down it is possible that we will see exit scams (fake hacks) soon.

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As far as I read, not traditional banking will be updated, but a mass issue of national digital money will be launched, in which all the issues of fast and cheap payment transfers between states and banks - will be successfully resolved.
In this model of the financial world, there will be no point in modernizing the payment system to improve operations with fiat currencies.
According to statistics 60% of all bitcoins are in a state of long-term storage and will not participate in payments for about 4 years.
This has a very bad effect on the growth of the value of this currency.
For bitcoin owners who use it as a means of saving, everything will be fine if the price rises in 4 years.
If the price stays at today's level, the storage operation will not pay for itself. Or it will cause losses.

As they say, saving a man who's sinking is the job of that very man who's sinking.

Bitcoin works very well with the current Blockchain system. The only problem is that time and block sizes are small. Great transfers for a different one. Small transactions can be used in different networks. Atomic swap offers an alternative to solve these situations. LN is also an alternative.
If traditional banking does not renew itself, it will perish.

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Verifying the existence, or belonging to us, of our crypto assets must be verified, but not in this way.  Technically, it can be done by the bitcoin owner every second, every hour, or every day.
But that part of the technology is not yet available to us.
And that's a significant flaw that should be corrected soon.

Cryptography in bank security systems is common, household, conditionally reliable.

Attacking a bank's security system through a cryptographic attack itself is not necessary.

Cyber security in banks is so low that there are many other, more effective means of attack. And scammers always choose the easiest way.

Very strange solved the issue of cryptography, without our consent, in the protection systems of all banks. 

Cryptography, the technology of information management, for a long time already allows to have mechanisms of protection of owners of bitcoins from theft on exchanges, from worrying about it the owner of the asset - a crypto-asset.
Somehow do not reach hands at administrators - to start these mechanisms excluding theft, basically and forever.

Here is an interesting example of how the security system is organized for ordinary currencies, in banks of fiat assets.

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They (I do not know who these people are) make a distinction between "commercial" or general cryptography (this is the one for us) and state cryptography.

Commercial cryptography must be based on the same standards throughout the world, because modern business, let alone banking, often goes beyond the borders of a single country.

But state standards for cryptography are much better, they cannot be distributed anywhere, they will only be used within government structures and as is done in the United States.

And despite this high level (relative to "our" bank cryptography), they must be updated every five years (at the algorithmic level).

Then it is even more interesting.

Commercial structures should not have access to this algorithm itself. Thus, it will be possible to apply simultaneously public "commercial" algorithms - for us, the simple and naive, and for the celestials - to ensure the normal preservation of state secrets and other important secrets.

We, bank customers, ordinary customers, not VIPs, are confronted by organized cybercrime, which has a huge, well-organized business that operates billions of dollars annually around the world.

Far from cyberattacks are not always protected by antivirus programs or data protection technologies, because hackers' technologies are always and constantly being improved.

I'll tell you one thing I am 100% sure. There is a 100% chance some exchanges, trusted or fishy have used this method
at some point. Your words Sir are worth billions of dollars in this industry and thank you so much for sharing. I am bookmarking
this as soon as I get merits

Just wanted to remind all of you that Proof of Keys Day will take place at third of January. It is important to withdraw all your funds from exchanges that day. In my opinion it is important to take part in this event not only to check if your funds exist but also to protect yourself from storing coins on exchange that will be exposed as cheating one.

I choose the third state of affairs, as it is very risky today. Sorry, I can’t vote yet, but I think it takes time.

Thanks for the article, very technical and well structured.
Currently, bitcoin seems fairly protected from the "shrewdness" of politicians and bankers, even if it is already very unstable of its own.
It will be seen in the future if the strong powers manage to circumvent the technical limits of the blockchain. I do not think so.

"It means maybe one day someone will want to print out millions of bitcoins as well and if everyone agrees (or at least enough people)" well ... no! Do you imagine a situation in which majority of miners agree to kill bitcoin? Because such situation will destroy bitcoins fundamental value (limited supply). I do not.

This topic is about money creation system that base on fractional reserve implemented by companies that store bitcoin for their customers (F.e exchanges).

People forget that bitcoin COULD potentially be a creation system as well if given enough power to people who can change it.

Right now, we are using segwit for example, bitcoin when first created didn't had segwit, it surely didn't had whatever bitcoin cash or sv has but it didn't had segwit as well, which means we added something on top of the existing blockchain and bitcoin continued its existence like nothing happened.

It means maybe one day someone will want to print out millions of bitcoins as well and if everyone agrees (or at least enough people) that blockchain will be the OG blockchain and this one will become the hard fork alternative. I know that sounds very impossible but in theory it is still possible. So, we just have to wait and see.

I agree with you. In most cases (if not all cases) exchanges go into fractional reserve to avoid FUD after hacks, bugs or wrong investments. Even CZ during one of intervievs said that he knows about few hacks that happens recently on big exchanges that was not announced. The question is if they have enough funds to cover it from earnings or they have plan to cover it from future earnings implementing fractional reserve system now.
I've also heard that some exchanges simply trades with our coins. Free physical short. Quick dump our coins, trigger stoploss and rebuy them lower (they know where are stoplosses, they can count exactly how much of them will be triggered)


It's not quite that. If you borrow 100 BTC you are unable to use them. So the amount of BTC free to use (dump f.e) did not change. Problem starts when you hold your BTC in company that without your knowledge borrow them to others knowing that you most likely won't withdraw.

Fair point.

Vis a vis exchanges: I think some exchanges don't intend to be fractional-reserve or bucket-shops at first, but end up becoming bucket-shops, because if they're hacked or lose coins due to a bug, it is easier to fib that they're still solvent and remain popular than tell the truth and make everyone panic to withdraw. Easy for them to fool themselves that "we'll just keep it under wraps while we figure out some way to get solvent again".

Of course, it's hard to distinguish that situation, from the outside, against a situation where they planned to fool around with the deposits from the beginning.

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In the more general sense, though, I think the effective monetary base being able to grow bigger than the underlying asset, is impossible to avoid if we expect people to ever use BTC as money, because any lending activity at all increases M2/M0.

Imagine that I loan 100 bitcoins to someone. Afterwards, they have 100 bitcoins, and they have a 100BTC debt to me. And I now have a 100BTC credit against them.

For the moment, let's assume that the borrower is very low risk of defaulting. A well trusted, rich person with plenty of assets to seize if they default.

Now, this means that the market value of my 100BTC credit against them is really 100BTC, right?
And I can sell this debt on to people, for the same value as a bitcoin itself.
There have even been Bitcoin ETF proposals that base their asset management strategy on such an idea - buying BTC futures on CBOE rather than holding the bitcoins directly & having to worry about key control and so forth. These are debt instruments, not bitcoins, but if they are worth exactly the same amount as bitcoins at market, they still increase the "supply" of BTC on the market, don't they?

This is similar to how many countries use US dollars as a reserve currency, but they don't hold physical bills - they hold some treasury bond or long-term CD so they can at least get a little interest payment on it.

To imagine that Bitcoin will go mainstream and yet avoid this fate, you need to somehow imagine that people will stop borrowing money, which seems impossible in a world that invented debt long before it invented coinage (see also).

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Yeah, there's no such thing as absolute safety.
But let me point out that the current security model is weak in itself. Regardless of the precautions you take, it is not capable of performing its functions, because vulnerabilities are inherent in its design.

Brief analysis:

1. Cryptography.

Asymmetric cryptography (private and public key cryptography) is based on unproven mathematical assumptions (complexity of factoring and discrete logging of large numbers in a short time). For this reason, it is not used in military affairs, important diplomatic and government dispatches, etc. Only symmetrical.

Some class of elliptical curves previously successfully standardized by NIST (USA) proved unsafe. The information is not much disclosed, but it can be checked.

Elliptical cryptography itself (abbreviated as ECC) is full of unexpected surprises, details are carefully concealed, but there are verifiable facts.
Detailed analytical material, with references to sources, here:
https://bitcointalk.org/index.php?topic=5204368.40
- second post on the account of 04 December 19.

At first glance, it seems that these are sick fantasies, conspiracy theory, etc. Yes, you will have this impression until you read this analysis yourself.

Well, let me have a fantasy, then even more fantasy in the NSA and NIST (USA), the first refused the ECC categorically, and the second has nothing to do, actively looking for a replacement for all modern cryptographic systems with open and closed keys. The beginning of this story no later than 2012.  Strange.

2. Key encryption systems and password (even worse biometric) authentication.
These are problematic methods if you look at the statistics of attacks using the data theft.
You hid the key in your hardware wallet, or you wrote it down on paper, protect it, don't lose it. Because they will not be stolen while lying in a stash, but when used for their intended purpose. Phishing. It grows faster than the most daring assumptions. Fraudsters need not the key itself, but its hash, the one that you will transfer to the server. You can store the key further.
Secure connection to the server? Go deep into the details of its start, read the facts, perhaps you are a free-thinking person...

06.12, 20:15] The University of New Mexico has released information about a vulnerability affecting Ubuntu, Fedora, Debian, FreeBSD, OpenBSD, macOS, iOS, Android, and other Unix-based operating systems. The problem allows you to listen and intercept VPN connections, as well as embed arbitrary data into IPv4 and IPv6 TCP streams.

The vulnerability identified by CVE-2019-14899 is related to Unix-based operating system network stacks, in particular how the OS responds to unexpected network packets.
https://seclists.org/oss-sec/2019/q4/122

[15:14, 10.12.2019] A team of researchers from the Wooster Polytechnic Institute (USA), the University of Luebeck (Germany) and the University of California, San Diego (USA) found two vulnerabilities in TPM processors. The exploitation of the problems, which have become known as TPM-FAIL, allows an attacker to steal cryptographic keys stored in the processors.
This chip is used in a variety of devices (from network equipment to cloud servers) and is one of the few processors that have received the CommonCriteria (CC) EAL 4+ classification (comes with built-in protection against attacks through third-party channels).

And now our ESUs are under attack:
[15:14, 10.12.2019] Researchers have developed a series of attacks that they call "timing leakage". The technique consists in the fact that the attacker can determine the time difference when performing TPM repetitive operations, and "view" the data processed inside the protected processor. This technique can be used to retrieve 256-bit private keys in TPMs using specific digital signature schemes based on elliptical curve algorithms such as ECDSA and ECSchnorr. They are common digital signature schemes used in many modern cryptographically secure operations, such as establishing TLS connections, signing digital certificates, and authorizing logins.

"A local attacker can recover an ECDSA key from Intel fTPM in 4-20 minutes, depending on the level of access. Attacks can also be carried out remotely on networks by restoring the VPN server authentication key in 5 hours," the researchers note.

This applies to the question of both cryptography and keys. This is when you pass a hash key, it may not be on your server first.

The Turla cybercriminal grouping (also known as Venomous Bear or Waterbug) distributes new malware called Reductor to intercept encrypted TLS traffic and infect the target network.

For more information: https://www.securitylab.ru/news/501571.php

3. Phishing.
Why is it possible? Because the client has a permanent identifier, whose hash is the subject of hunting. The server checks you, and you are the server?
Do you know what recommendations to the user on phishing protection?
Carefully study all symbols of the name of all sites that you visit.
And do not let God miss the substitution of 1 character!
And this is in the 21st century?
We are led as a brainless herd...

Facts:
[10:27, 12/08/2019]
According to the annual Security Intelligence Report prepared by Microsoft, the number of phishing attacks in recent years has grown three and a half times.

What happened?
Are there more nonchalant people or are scammers working better?
Try to answer this question.

Customers of banks, payment systems and telecom operators are increasingly becoming victims of phishers. Internet fraudsters gain access to confidential user data (logins, passwords and plastic cards), directing potential victims to fake sites and services.
Check here:
 https://www.microsoft.com/securityinsights/

Obviously, if you have a key "from the safe where the money is", they will always hunt for this key.

4. The trust certificate system to confirm that the public key belongs to a specific person. You don't even want to write facts here. Just look at the name.
We are offered a game - "believe", "do not believe".
It came to the point that you can find software that automatically generates the necessary certificates of trust.

On the subject of concepts of modern security systems based on key cryptography and password authentication - I will soon open a separate topic, I wonder what others know about this pressing issue.

Blockchain, Bitcoin, is based on cryptography on elliptical curves (for signature), by the way. 

To sum up, I want to say my opinion because I know it would be hard to believe but there is no absolute system that is totally safe. No matter if it is decentralized or not, the safety of the system is not only depending on the system itself, but how the users are using it. If you want to secure your funds, you have the right to choose which platform to use and you have the right to execute which decision you want or in simple terms, your security mainly depends on you especially on how you handle your accounts safety and security, and how responsible you are in keep your private and public keys safe from vulnerabilities.

We must not forget why centralized exchanges and exchanges were created. Only for earnings owners.
You need to remember how many exchanges in history collapsed and what were the financial consequences.

Centralized exchanges cannot be secure by definition. Security only exists in decentralized systems.

We think exchanges are safe places. We want to believe it. But I don't know how much money is in the cold wallet. Decentralized systems are safer to use. Exchange owners can make great speculation. Constantly new developments. Need to follow.

This is absolutely correct. But in the existing blockchain system, this is possible only in one case - to facilitate the task of guessing the number when selecting a hash. But on the other hand, it is impossible to make this task too easy, otherwise there will be falsification. This is a dead end inherent in the technology itself. This is normal. Blockchain moves only slowly, but absolutely confidently. Until the cryptography method on elliptic curves collapses. And it could be.

According to Trace Mayer (entrepreneur, investor, journalist, monetary scientist, podcast host, and ardent defender of the freedom of speech. He is known for being the founder of the Proof of Keys movement.) and his calculations 1.9 M bitcoins - more than 10% of all bitcoins- are being stored on exchanges. If that's how much they have on their cold wallets means that they can create ~20M bitcoin based on money creation system and 10% of "mandatory reserves". Those are alarming numbers. It is possible that even now we have ~40M bitcoins.

No one knows the specific amount of money in the cold storage of exchanges. It is likely that there is only part of the money of customers, and another part of the money is used for their own investments.

Who thinks how. Is it possible in a decentralized blockchain system to create a register (accounting) of bitcoins based on the same blockchain technology ?. This registry (accounting) should be a consequence of the presence of bitcoin in us, and not the cause of bitcoin, of course. Then you can choose with a registered cryptocurrency to do an operation, or with an unregistered one. Maybe then, the value of Bitcoin will not be subject to inflation for the reasons described in this topic?

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Perhaps the reason for the blockchain network congestion is not associated with a large number of people placing orders on a decentralized exchange, but with the problems of the blockchain technology itself. Specialists have long said that a fully decentralized technology works well, only with a small number of transactions per unit time. In any case, this problem is expected and regular; it seems to be called "scalability".

This topic is amazing, it opens me up to a space in my head and reflect on Bitcoin and its future.  I realize that there are too many forms of business related to Bitcoin and make the value of Bitcoin significantly manipulated.  Using a decentralized exchange instead of a centralized exchange will help solve many different issues such as customer asset security, minimize the pump and dump.  Currently, there are many people who tend to hold Bitcoin rather than trading, which will result in low liquidity for Bitcoin.  The next problem is the congestion of the Blockchain network due to too many people placing orders on decentralized exchanges.

I've decided to bump this 10 months old thread because it is important for bitcoin future to discuss it and find solution. At least in my opinion. Otherwise, bitcoin will no longer be coin with maximum supply of 21 M.

Judging by the vote posted above by the poster, I would say that I am surprised to see that the higher number of people who voted supported that crypto exchanges are using Fractional-Reserve system. This is really alarming I must say and I think everything should be done to stop the creation of off-chain bitcoins.

Will the purpose of bitcoin creation not be completely be erased if it’s sent to a centralized exchange ? I feel there won’t be much difference between technological advancement and the already conventional system.

That the CEO of QuadrigaCx died and went along with all information’s of its customers having to make them align with other exchanges would not be a good reason to support fractional reserve system.

This  can just end up eliminating the reason behind the existence of Bitcoin and one of this reason is to ensure that there is limited and transparent supply of Bitcoin and there will not be any kind of possibility to bring more coin and if you say  QuadrigaCx should  have been printing and selling and selling X5, they probably may not have been transparent enough.

We will simply elect such governments that will make such regulations that will prevent centralized exchanges or other services fractional banking.

The same thing "money creation" was used a little bit differently to buy and sell synthetic CDO's which was the major spike to the 2007 crisis coffin.

Billion of dollars in leveraged bets with insane high risk followed one after another with an added multiplier.

This is how it works:

Synthetic issuance jumped from $15 billion in 2005 to $61 billion in 2006, when synthetics became the dominant form of CDOs in the US, valued "notionally" at $5 trillion by the end of the year 2007 according to one estimate.

Synthetic CDOs are controversial because of their role in the subprime mortgage crisis. They enabled large wagers to be made on the value of mortgage-related securities, which have contributed to lower lending standards and fraud.

right, transparency will bring us to a new system. with pumps or unhealthy dumps, it will certainly make the market unhealthy too. for this reason, it is necessary to expand the use of crypto so that the decentralization system is not easily controlled by several people

Last time I've heard about QuadrigaCX exchange. Its CEO died taking to grave all informations about how its customers funds was stored. Today I've read about rumours that they might be on other exchanges like Kraken, Bitfinex and Poloniex (in fact its ZeroNonCense rapport).

This may double money creation problem. If QuadrigaCX was using fractional reserve system (f.e. printing and selling x5 what they have) and storing their coins on other exchange (which also could use fractional reserve system on those funds (f.e. printing and selling x5 what they have)) than we have x10 and none of those exchanges actually know that they are operating on this risk. That way after 1 exchange crash we may have domino effect.

What you guys think about that.

Centralized exchanges only enables traders to speculate on coins/tokens. Traders by pumps bringing here lambo guys. Do this technology really need this?

Im not saying that they are bad and should not exist. Im saying that without transparency they will destroy one of the fundamential reasons crypto exist - limited/transparent supply without any possibility to print more and more coins.

Saying that crypto would become trash but more people will know about them by pump and dumps is not healthy for crypto...

I disagree. The hard truth is that Bitcoin and other popular cryptocurrencies like ETH, Litecoin, Ripple etc need greater adoption among the world population in order to help the market prosper in the long run.

I am not a fan of centralized exchanges, but centralized or decentralized exchanges are fine as long as they push for wider adoption of cryptocurrencies overall.

Besides, no matter what, everything in this world(FIAT, crypto etc) are centralized to a certain degree and this will most likely never change.

Sad thing is that it applyis to all coins/tokens not only bitcoin. I think that without "proof of keys" we wont be able to stop that. I dont think that decentralized exchanges will ever be as fast and convince as centralized. Traders will alwais choose centralized one.

It is very worrying if bitcoin is sent to a centralized exchange, I think it will eliminate the essence of BTTC. with a centralized system, technological advancements will be the same as conventional systems today

It won't be if we - crypto society - won't realise how big thread that is and start to figure aout how to solve it.

I added 2 extra options into poll.

Good writeup.  Centralized exchanges are cryptocurrency weak point. The whole cryptocurrency could be seriously harmed from them. I won't be surprised if few individuals own majority of the exchanges. Something similar to fractional reserve is most likely going on. Owners could be converting huge amounts of cryptocurrency to fiat and lending them to businesses for profit.
Hopefully in the future it will be possible to prevent cryptocurrency from being sent to centralized exchanges

For example something like "idk" "hard to say" "rather not" "maybe", you know less black and white.

What extra option would you like to see in this pull? I can update it for you and others.

To bad you gave us only two choices in the poll, because I simply don't know. It is possible, yet very risky.
Your doubts however are fully justified, lack of transparency and experience with most financial institutions of days past, suggests us that they do. On the other hand, there is no way of having metaphysical certitude that they in fact fractioning crypto.
For all that we know, exchanges will always explain themself with cold storage slogan. You know, for your safety.

Fraction reserve is the cancer of this planet's economic system, when (if at all) this unfair process gets disclosed in the crypto world, an avalanche of dips so huge, like never before awaits us. That's why this proof of keys initiative is so important.
Thanks for sharing the information along with concerning thoughts, awareness of the potential problem must be risen.

Just thinking that crypto exchanges might be only small drop in sea of finantial institutions interrested in multiplying bitcoin. There are cryptocurrency banking icos, lending icos and even a big traditional bank might in future accept bitcoin deposits. We need to talk about that as much as possible and awoid storing coins on third party wallets. This destroys one of fundamentian reason for bitcoin to exist.

I encourage you to vote in poll. I'm very interrested in your opinion. I also created Polish language topic, where there are 3 votes for yes.

https://bitcointalksearch.org/topic/m.49397018

It means that its 7:2 that exchanges are using Fractional-Reserve system what means that most of You agree that there might be more than 21 mil btc.

We also need to remeber that many ICOs are related to crypto banking.

Interesting. I've never checked what's on my exchange addresses. Let's do it now... I've put my bitcoin exchange address into explorer to check if there are my coins. There were 2 deposits (all mine with total amount equal to my deposit balance). Since those deposits I've tripled amount of bitcoins due to trading and daytrading. Where are rest of my bitcoins? I don't know and i don't have any possibility to check it.

Then i realised that actually my bitcoin balance is currently equal to 0 btc because all my bitcoins are into trades. So I have 0 btc na x amount of etherum alts. I put etherum wallet into explorer and its empty. It means that i have someone bitcoins on my exchange address and someone has all my altcoins (if they actually exist). I think exchanges can cheat in this way without loosing trust because its untraceable. And of course they won't put that in terms.


As for the blockchain into wallet. If its possible to check if your ballance is ok by public key on other explorers than I think that its impossible to fake balances and move coins. Thus its impossible for them to function in fractional reserve system.

I encourage you to vote in poll. I'm realy interrested in your opinion.

Well, actually, we will have less in circulation, because 4 million btc are burned. But yeah, that's not the point of your story.
I never really thought about it, but it seems like you are right. However, I just decided to skim Hitbtc's terms of use and I didn't find anything about them using users' funds for their own purposes (the exception is security measures, but that's not what you were talking about). Moreover, when I went though blockchain.info terms, I found quite the opposite:
So perhaps, even though they could write down one balance and actually transfer money elsewhere, they don't do it, because they are not banks and don't want to lose the trust of people.

You are right that its overestimated and some of those "lost bitcoins" will be "found" someday, but no doubt amount of lost bitcoins is constantly incrising. Just imagine what will happend with your bitcoins after you die. Does anyone other knows where and how you store them? What is the password to unlock wallet? Maybye your whife knows that but what if you both die in car accident? This is happening every day. Every day amount of lost bitcoins is increasing.

Offline wallets are interresting. I need to read more about them but i dont see practical usage of transferring money without actually moving it, e.g. through a network.

I'm a big fan of hawala systems and the general idea of transferring money without actually moving it, e.g. through a network.

I don't know how common it is today, but I think people trading bitcoins as bearer instruments will become very common over time. A little while back, I discovered Opendimes which are little USB sticks that enable exactly that. You can plug it in to check the balance but trade with it offline. To spend, you break the seal and reveal the private key (rendering it un-tradeable afterward). Very cool!

Lost till they start moving again.

Physical Bitcoins such as Casascius coins can be used as means of exchanges without the coins themselves moving on-chain, and I am pretty certain that a lot of what people consider to be 'lost coins' are actually being used still, but just in form of exchanging private keys, because that's basically what it is.

I created a couple of physical Bitcoins myself for the sole purpose of having value in Bitcoin that I can use in case there is no internet, and obviously to maintain privacy. I like the fact that I can spend coins without anyone (aside from the party I transact with) noticing. We're at the very beginning of tools and technologies that will stimulate the exchange of private keys in a secure manner, so expect it to become more of a thing as time goes by.

There are 2 definitions of deflation. The right one (decrise of supply) and the mass adoption scam one (decrise of average prices). I think that we should use the right one. Saying that bitcoin is deflation coin i mean that soonly it will become due to very low distribution and the amount of bitcoin beeing constantly destroyed due to wrong transfers, lost keys etc.

Perhaps its deflation coin now. We dont know exact number of bitcoins beeing lost each year. I heard that currently 30% of bitcoins are lost.

Bitcoin is very much deflationary, because if we imagine that it has replaced all fiat tomorrow, it would very soon (within a decade) reach the point when the amount of value created by its emission (network rewards) will become lower than the growth of economy, thus resulting in deflation, meaning the decrease general price levels. But since Bitcoin is too small to influence the economy, the most noticeable effect would be Bitcoin's own price increase over time, although this effect can easily be buried beneath volatility, just like it happens with gold.

Its frightening that, according to poll, everyone who voted, agreed that crypto exchanges are using Fractional-Reserve system. It means that we no longer have maximum of 21 mil bitcoins. I think that this should be spread widely and be beggining of long discussion ended with solution which will help us, crypto society, fight against creating off-chain bitcoins

I actually keep almost all my money in cash, I do not like to keep my money in my bank account since that would help them and I hate them. I have to use a bank and I selected one with a great mobile app that allows me to do anything I want from mobile without going anywhere and at worst I keep it at my account without putting it anywhere but I always keep a marginally small amount (like 50 dollars at most, never higher).

I have to have a bank account in order to withdraw my bitcoins to fiat and than cash out but aside from that I do not use any banks for any banking reasons, I do not even have a credit card. If everyone in the world lived like I lived banks would have so much trouble giving everyone their cash that eventually banks would go bankrupt from not having any money at all and failure to pay people their money.

Very interesting point, and is certainly more than plausible. At this point though, most people who hold a decent value in coins know not to keep them in exchanges for long term storage. I expect this mentality to be even more prevalent in the future, as more people immerse themselves in the community.

The problem is custodial services that target corporations. They'll be keeping more and more coins as financial entities get more interested in the market. Still, Bitcoin is for everyone; it's just ironic that a symbol of freedom can still be used by the financial elite to screw over the little guys lol.

From the mt gox scam we know that the exchange owners use our funds to invest for their own purposes. Fiat exchanges like coinbase and gemini have enough bitcoins in cold storage and cash that we pay in to cover any major dumps. They must be using any spare for investing

No my friend. I'm saying that it is possible that it is already happening in crypto and i'm saying that we need to find strategy how to fight with it.


Thats for sharing this. It confirms my thoughts that holding coins on exchange harms not only individuals who do that but whole crypto society.

Really interesting perspective. Good work OP!

I am already aware (and got chances to know from an exchange operator itself) that exchanges are misusing our funds for their own trading purposes but never thought about how it will impact for dumping bitcoin's price itself. I am personally following and keep suggesting not to keep cryptos in exchange but for the reason of hacking scare, but never got time to think in your perspective even after hearing about those misusing.

We all keep suspecting those mtgox treasury team for continuous dumps but the actual culprits might be exchange operators and web wallet providers (recently got chances to see coinbase's inventory maintenance tx, and lost sleep for 2 days).

Probably now many people may come out with their researches on why bitcoin is exactly following the dump sequences from 2014/2015.

So you are saying that the traditional money creation system is worthy and you want to bring it in a decentralized ecosystem?

No advantage stems from the bank money creation. It does only create bigger liabilities and debt. I see no reason to implement this feature to the currenct ecosystem.

Of course, I am sure that the exchanges will create clone-bitcoins and so that we can prevent it - this is a great way to display all bitcoins on January 3. But imagine what commission will be on January 3 in a transaction ...
The goal of Bitcoin is independence and this is not how it does not coincide with the requirements for exchanges about their responsibility for financial fraud.

We all know that we currently have 17 mil btc in circulation and there won't be more than 21 mil of them. Limited supply make it has a deflationary nature and that builds its long term value. But is it actually true? Is bitcoin creation resistant? To answer that question lets see how money are being multiplayed in tradition monetary system and if bitcoin is resistant to that ... or how to make it resistant in the future.

Money creation in traditional banking system: You can skip this part if you know what money creation is.

https://en.wikipedia.org/wiki/Money_creation - Its very well explained here. But i will try to short it in simple words.

None from us is withdrawing money from bank accounts. We are only using small part of them by paying with credit cards but it's the same as transferring money from bank to bank, sometimes its just change in the records of one bank. It is creating a situation in which we are using our moneys but bank still holds similar amount of funds. That's why Fractional-reserve was made. If bank is working processing thousands transaction a day while holding almost the same amount of founds than why not use part of them storing in reserves only amount that might be needed.

"Fractional-reserve banking is the common practice by commercial banks of accepting deposits, and making loans or investments, while holding reserves at least equal to a fraction of the bank's deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank's accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide." - wikipedia

Good example is better than the best explanation... imagine this situation:
I deposited 1000$ into bank with 10% Fractional-reserve system. Bank deposited 100$ into reserves and give 900$ in a loan to Peter. He bought TV set and transfer 900$ to AGD shop bank account. Bank accepted 900$ deposit and again store 90$ and AGAIN give 810$ in a loan to John. John bought new phone and transfer 810 $ to store bank account. Bank accepted 810$ deposit and again store 81$ and give 729$ to Mike in a loan. And again and again untill there is nothing to borrow. At the and, out of 1000$ banks created 9 000$. Its in 10% fractional-reserve system. In most countries mandatory reserves are around 3-5% (do your own math here ) ... and its legal !

Can bitcoin be affected by that?

Big part of all bitcoins are stored in crypto exchanges wallets. Daytraders are buying and selling coins every day but storing them on exchanges (amount of founds stored in exchanges are not changing, only records are being changed - whose coins are whose). Part of hodlers are storing coins on exchanges (not knowing how to store them safely). Crypto exchanges knows exactly how many coins they have and how many of them are needed for everyday withdrawals and which are never being used. That's why they are transferring part of founds into cold wallet and never withdraw. That's similar to banks situation and that's makes me think that exchanges may apply fractional-reserve system too.

Good example is better than the best explanation... imagine this situation:
Crypto exchange knowing a fact that (f.e.) 80% of their users founds are never being withdrawed they can create sell orders on market equal to 300% of their users founds. Where the hell 300% came from? lets put that into numbers.
Crypto exchange store 100 000 users bitcoins. Knowing a fact that 20% of users founds is enough to cover everyday withdrawals they know that they can create in their books 300 000 btc and sell to their users who came with fiat to buy btc (all users together has 400 000 btc now - in exchange books, 20% - 100 000 is needed to cover every day withdrawals). That way crypto exchange created extra 300 000 btc. Don't get me wrong. They are not true bitcoins which can be stored on blockchain and transferred to wallet. Those are bitcoins created in exchanges books into investors, storing founds on crypto exchanges, hands that thinks that they have real bitcoin. What if they know that only 5% is needed for everyday withdrawals? Do your own math . In worst case if they will sell too much they can dump altcoins to cover lack of liquidity on their on any other exchange. Why Mt-gox even said that it was hacked. Why didnt it start to work in fractial-reserve system covering loss from profit from fees? Maybe it wasn't hacked. Maybe mt gox set minimal reseves too low and it has to lie that it was hacked (https://en.wikipedia.org/wiki/Mt._Gox).

That applies also to every crypto not only bitcoin and not only exchanges can do that. Every company that stores your coin on their wallet can do that.

How to fight against bitcoin creation?

After I realized this I've started to search for a way to fight against coins creation. I found "proof of keys" initiative that encourage crypto society to withdraw all coins from exchanges in 3 of January every year to make crypto exchanges show us that they actually have our coins - they were not hacked and they are not working in fractional-reserve system. I think that it's the most important initiative in all crypto word. It's the only way for us to know that there is no 200 mil bitcoin in system (20 mil real and 180 mil fake bitcoins in exchanges books) and bitcoin is not similar to fiat (can be printed). The second way for that is to force on exchanges creating huge exel file in which every users founds will be written so everyone could check if his record is not faked and if sum of users founds is similar to hot and cold wallets exchange founds. But its more like a dream that will never happend.  We need to know that storing coins on exchanges is not only risky (they can be hacked) but doing that we are allowing exchanges to dump them decrissing prices. Storing bitcoin on exchanges or any other third part company wallet dumps and destroys bitcoin.