Topic: The Vault (Non-Fractional Reserve BTC Banking) (Read 2670 times)

Transparency would be key, and built in from the get-go.  Like I said in one of my earlier posts, this banks charter would be designed to restrain it from all actions besides that which it is explicitly intended for (so no mission creep), because any concentration of value like that is inherently dangerous.

If 'notes' were issued in any form, they would be 100% backed and waiting for withdrawl, which is vastly different than the current banking meme of exponential leverage using deposits as investment capital, and then making sure anything that fails, does so in a spectacular way so as to encourage the government to pick up the tab (lest there be a 'crisis').  Maybe we should just call this Whole Money Banking for simplicity sake.


A world without mandatory, "free" deposit insurance, and general government babysitting would keep ALL banks honest, because the ones that aren't won't have the blank check of taxpayer support, or the mea culpa of "Well, even if the bank goes out of business from all these dumb things we're doing, you as a depositor will feel no pain and thus have no reason to even care what we as a bank do with your money".  Failures need to fail.

The smaller modern banks will probably reconfigure to this model eventually, because it is in their best interest.  The bigger banks?   They're basically the Marketing division of the Cirius Cybernetics Corporation - And we all know what happened to them.


There is a reason I'm talking concepts and best practices on this now rather than setting it up myself - Timed Deposits require either the exchange rate to mostly stabilize OR for a pure BTC economy to emerge (even a small niche would be big enough to justify it by being involved and selective about where the loans will be spent.   The market isn't developed enough yet for most financial products, and frankly I hope it never is for some of it - I see lots of ideas coming over from real world markets and the flat reality is that not all of them are good - High Frequency Trading will do very bad things to BTC markets, just as they've destroyed USD markets.   I think there are potential futures where BitCoin exchanges are the black sheep used only for day trading, and most economic action comes from the BTC Eeconomy.

The reality is nobody knows what interest rates SHOULD be - We just know they're wrong now, and not telling us what interest rates are supposed to tell us - "How Risky Is This Thing I'm Doing". 

The numbers I threw out there were off the top of my head, but I think they're more realistic than what you see in USD markets. 

Personally, I'm betting on hyperinflation more than the Fed hiking interest from .5% to 20%, which is pretty much what would need to happen to fix the inflation we're at the beginning of.

I very seriously considered offering TD's (Term Deposits) back in late Jan when i first found out about BC and joined the forum...back when BC was about 0.80 cents to the USD...lucky for me i didn't because with the subsequent exchange rate blow out i would of been in big trouble having to come up with the USD to buy BC to cover the interest payments.

or least we would expect real-time auditing ... running totals of total BTC on account and total claims on thse funds ... no reason not to and if BTC addresses are supplied it could be publically auditable by third party.

... modern banks would hate a hard currency cause they can't just paper over the leaky cracks they live off for free. They have to go back to being vaults and nothing else. Financiers on the other hand may get a new lease on life, true entrepreneurs and risk takers.

Because Bitcoin is entirely digital, this might offer the possibility of organized bank runs to keep the banks honest.

Here we go again,    and the Vault issues certificates as a receipt for said BTC's right.

Because they would know what they're doing, whereas I really don't have a clue.

Hence why I said, for people who trust them can do so.

The paper talks about not requiring trust. If you have some trust take advantage of it obviously.

As some members have mentioned, that introduces the trust based model of operation. In Satoshi's whitepaper he addresses that Bitcoins operates free of that paradigm.
I do believe it can be applied to Bitcoins for people who wish to trust The Vault with their BTC.

However I myself would not use it as I would rather be responsible entirely for my BTC.

EDIT: Actually I would be interested in a Timed Deposit account, that is a slightly different trust (I trust The Vault to make intelligent investments etc), but they do not physically (or digitally) hold my BTC.

2%, 3%, 7% per annum is laughable for a CD. I realize that's what they are typically nowadays, but that's not what they used to be.

Just stick to the proven model of centuries like the Swiss bank vaults.

Privacy and security.

Apply it successfully to bitcoin digital currency and you'll be golden.

I think the current banking system has it all wrong, combining safeguarding money with speculating in investments. I believe a bitcoin vault should specialize on security and possibly payment services, timelock services, some kind of escrow, stuff like that. You can always invest somewhere else. Why would you want to put your money in an entity that could go broke on bad investments?

I also like Gavin's idea a lot: http://forum.bitcoin.org/index.php?topic=19080.msg267432#msg267432

A vault that does not own your coins. You have two security devices, an every day one, and a master key that you put in a safe deposit box and is only used if the vault service is compromised. In every day use, you use your regular device and send transactions via the vault service. To sign bitcoin transactions you need 2 out of 3 of: every day security device, vault service, emergency security device. This means that the vault service can't spend any of your money, but they can make sure that if anybody gets your every day device, they can only spend a maximum amount per day that you set ahead of time. In order to lose all of your money, you have to lose both your security device and your emergency device.

This service can be made even more secure against loss, by adding in a timed transaction. The vault can set things up so that if you don't refresh your coins, say once a month, they will be sent to the vault service's private account. That way they never hold anybody's money, but if you lose both secure devices, the money will be recovered and they can send you new devices that will control it.

This has some great advantages: (1) You don't have to trust the service, (2) It's easy enough for the average person to actually use safely, (3) It can probably avoid all of the regulatory issues of being lumped in as a financial service or bank, it's just data security.

I would put some fraction of my coins in a thing like this. I think I have good security, but there is no reason for all my btc eggs to be in one basket, maybe I've overlooked something after all.

I'd imagine you would start the Vault portion of it ASAP as the security is a pressing issue now, and focus on Time Deposits once things settle.

For at least the near future, the only way to pay reliable interest on deposits in bitcoins is if you have a supply of people who wish to take a short position on bitcoins. Otherwise, the risk is unmanageable.

I know it seems like the BTC market is just volitile by nature, but it won't always be that way - The characteristics of BTC mean that we will eventually find ourselves in a state of equilibrium with a hint of deflationary pressure (assuming there isn't complete abandonment, in which case the currency has failed so all bets are off)  The other thing you're confused about is "losses" because of changes in value - You are assuming that value is denominated in US Dollars, but that was not always so and likely will not be for much longer.  BTC will eventually be valued as BTC, and the US dollar will fluctuate in value against it.  (In fact, that's already partly what's happening, it's just that nobody looks at it like that yet)

But the reality is that you can already buy some services and goods for BitCoins, and in the future you will be able to buy EVERYTHING for bitcoins, with no tie to the USD beyond people spending USD to buy BTC

Yes, this would be a secure location as well.

I might use it if it had extremely good physical security. Like CyberBunker, but devoted to the bank. Physical security is the only thing I can't do -- I have encryption and backups handled.

I've been thinking recently about the interesting security measures such a bank could use. It'd be really fun to build it.

Well the question is, what is the bank allowed to do with timed deposits?  You're assuming they would be free to invest said money in any way possible, but I had envisioned a specific focus on economically targeted loans (i.e. loans intended to enable creation).   Again, since this is 1:1 backing:loan the scope of this business would be much smaller than you see in commercial banks today, who are often leveraged 40:1, and during the peak of the financial idiot-fest saw leverage in the range of 140:1.

With a limited supply of BTC for loaning out, it makes sense to target specific financial uses - Really what I'm talking about here is a souped up credit union that acts for the benefit of its members, rather than viewing them as potential profit.

Regarding the manipulation - That is true of any major concentration of currency be it a bank, a company that transacts alot in BTC, or even an early adopter who bought thousands when they were .01/ea.   We only have these wild swings because the market is so freaking new, once it gets easier to get your money into and out of the markets, and they become a little more obviously secure you'll see things start to smooth out as people get used to the system and take advantage of arbitrage opportunities, which reduces pricing spreads. 

Beyond all of that though, the spirit by which such a venture is run is very very important.  Any time you have a concentration of "money", you have risk of pretty gnarly evils, so the corporate charter for such an organization would be designed to restrain the beast from all things but those it is intended to do.  Mission creep is the problem, but it can be avoided if that is your goal.

That's not really my point.  It seems like any loan made in bitcoins is inherently more risky because in addition to the normal risks of default you also have the chance that the principal could effectively increase by a huge amount, so that even if it were a good loan at the time it might turn south really quickly.  The bank loses out big time when the value of bitcoins skyrockets because there will definitely be some people who cannot pay back their loans in a currency that has appreciated much faster than whatever they used the loan for.