Topic: Why There Should Be A Bitcoin Central Bank - page 10. (Read 18303 times)

This is somewhat how coinlenders worked, and is how bitfinex works, except that the loans are made for a very specific purpose. The loans are much more diversified when a bank is involved verses how coinlenders worked or how an exchange works. Bitfinex has been generally successful in managing their risk, and banks are much better at managing risks.

None of this however has anything to do with having a central bank. What a central bank does is regulate the supply of money. A central bank will make it more difficult to borrow money if too much money is being released into the economy and causing too much inflation. Say for example if it is the central bank's goal to only have $50,400 released into the economy every two weeks, if more money is released into the economy over two weeks then the central bank will make it more difficult to borrow, if less then as much money is released into the economy in as much time then it will make it easier to borrow.

For the same reason fiat needs banks.

It is not clear you mean by "Bitcoin IOUs". When you write "people will not accept Bitcoin IOUs in lieu of Bitcoins", it appears that you are referring to some kind of currency. But obviously you don't mean that because there would be no such currency in the Bitcoin case.

But people are really, really stupid though and will want it despite any problems. If you substitute the word dollar for the word Bitcoin in your statement how is it different? 

Anecdotal evidence suggests that the very founding of Bitcoin was predicated upon lies and chicanery, upon fraud and deceit. When I first came to this forum looking at mining Bitcoin many of the pools were ripping people off. I donated the very first Bitcoin to organofcorti when he came up with Neighborhood Pool Watch. Meni Rosenfeld and organofcorti would engage in long debates about the mathematics behind how the pools are cheating people. Bitcoin was only the currency of drug dealers when I first came here and about half of the threads were about SR. Scammers abound in Bitcoinland so much so that outside authorities needed to be brought in to capture the worst offenders.

Just because people have infiltrated a system and used it fraudulently for their own gain doesn't make the system at fault or you would have to blame Bitcoin too. Many people I talk to are having that issue with Bitcoin. They don't want to even let me talk to them about it because of all the problems at the start.

Anecdotal evidence suggests that the very founding of the institution of fractional reserve banking was predicated upon lies and chicanery, upon fraud and deceit.

Unlike the scenario where gold depositories violated their core oath to safely store their client's metals -- by loaning these assets out to others -- transacting in Bitcoin IOUs carries no advantage whatsoever from transacting in actual Bitcoins.

In contrast, transacting in depository-issued certificates or notes rather than the metal itself has very real advantages, in terms of the convenience of portability, divisibility, etc. (Ignoring for the moment the very real risk disadvantage)

With Bitcoin IOUs conveying no advantage to the user whatsoever as compared to transacting in actual Bitcoins, knowledgeable people will have no incentive to prefer them. With the very real negative of possible loss of value, people have every incentive not to accept Bitcoin IOUs in lieu of Bitcoins.

With no advantage, and a very real disadvantage, knowledgable people will not accept Bitcoin IOUs in lieu of Bitcoins.

If we can get the populace informed of the attributes of Bitcoin -- and more importantly the attributes of the fiat money system -- we can stave off any embryonic move towards fractional reserve bitcoining before it has a chance to take root.

To the extent that people accept Bitcoin substitute instruments to be as good as the real thing (Bitcoin paper, checks, notes, deposits, etc.) the Bitcoin Central Bank could inflate the money supply with these pseudo Bitcoins.

People "in the know" like you and me will accept no substitutes and demand payment in the real thing.

So it all depends on how gullible the general public is.  In other words without a lot of education we are doomed to repeat history.

However on the bright side, everyone I have taught about Bitcoin has "got it" and does understand, once explained, the difference between holding your own cash/value/Bitcoins and accepting a depository IOUs for them.

Just like it does today.

1) People deposit their BTC into the bank for the same reasons they do today:  security/insurance and earnings/interest
2) These people have accepted an IOU for their Bitcoins, the bank can now lend out some but not all of them - just in case someone wants some of them back.  This is called their reserve.  They can also, in order to stabilize a portion of their resserve, sell certificates of deposit that will cause people to deposit the BTC with them for an agreed to extended time frame, etc.  All the same things they do today.
3) The bank lends out let's say 50% of the coins on deposit and keeps 50% in their Trezor ( yes, banks will use Trezor hardware wallets )
4) Assume the people that borrow the Bitcoins spend them all out into the economy
5) Some of the people who get the spent loaned out Bitcoins, let's say 50% of them, deposit the Bitcoins into the same bank
6) The bank now has more Bitcoins on deposit so it can lend out half of them again (!)
7) Rinse, repeat.  Every time the loaned out Bitcoins come back as deposits into the bank they get to loan 1/2 of them out again.

Cool, eh?  Profitable?  Probably.  Inevitable?  Yes.  Inherently evil?  I do not think so but some here do.

To a certain extent what is causing our monetary issues is the fact that the banks don't have to wait for the customer deposits in order to make loans.  The can borrow money from the central bank, keep some of it and loan out the rest.  

Central banking evil?  Probably.  At least some of the founding fathers of the US thought so.

I don't think that there should be a "Bitcoin central Bank" but like BurtW said, when  bitcoin goes mainstream, a btc type bank is going to be inevitable. I believe they will be independent but a banking type system will be around. maybe it will take years for it to happen, but it will. I will have to wait and see how that bank operates, Most people will stay away from it, but some will flock to it.. Bitcoin created a brand new industry. Businesses and people will do anything to try to capitalize on it. If there is a demand for a bitcoin bank, there will be one..

How would a central bank print magic bitcoins? thats what central banks do.

 How would Fractional Reserve Bitcoin Lending work in practice? How would the Blockchain recognise any of the made up Bitcoins?
 Wouldn't that be like trying to double-spend the same Bitcoin?
 This sounds like it just wouldn't work to me. 

I am not going to argue for or against the necessity of FRB.  I am only arguing that it will happen and it will be up to you to decide if you want to participate in it or not.

The capability may not exist now, but it will exist in the future. P2P lending is growing.

What would motivate an individual to lend the equivalent of $500k to someone at a monthly compounded interest rate of 4.19% for 30 years? That is conceivably about the worst thing you could possibly do with your money.

You call me ignorant (or someone did) yet you have not one iota of an idea about the principals of fractional reserve lending.

Yes you can have loans without fractional reserve lending. It's called loaning money that is actually yours.

Why don't you explain to me the necessity of why we need people to lend money that does not exist vs. making loans with money they actually possess?

And stop calling it a "libertarian idea" that most oppose it. It is out of a humanitarian concern for all individuals and the value of the money they earn that I oppose it.

And what system will they be using to verify my creditworthiness? Equifax, Experian or TransUnion?

I don't think it is fraud to borrow and lend BTC.  Why would that be fraud?  Are you going to pass a law to make it illegal to borrow or lend BTC?  If a Bitcoin bank tells you up front that they will accept your BTC on deposit and that they will keep 50% of all BTC on deposit as reserve and they weekly publish their liabilities and assets, proving their reserve and you accept this contract to loan them your BTC - where is the fraud?

Would not they need to create a legal framework for FRB or otherwise it would be treated under fraud laws as it should be?

Simply NO.
This thread should be deleted!

You can sit here and discuss the evils of FRB all you want but the fact is that it will happen if profitable, and I see no reason that it would not be profitable - perhaps you can prove it would not be?  So once it does happen what are you going to do?

You are talking about a currency in its infancy stages vs. world wide and national currencies rammed down peoples throats through force. How can you even make this argument or comparison at this stage of the game? Who is to say loans will not exist in a crypto economy? If the market demands loans from bitcoin will it not spontaneously arise from the bitcoin economy like so many other necessary instruments have already emerged?

You are thinking in terms of the current system and trying to apply the current system to a new system that is in no way similar. You are applying an inherently inflationary system to an inherently deflationary one. The term loan as you apply it to a deflationary system has no credibility. The interest will come from the inherent deflationary nature of the currency. IE interest will come from the steadily increasing value caused by gradual adoption and usage of the currency. Conversely, in an inflationary system the hope is that interest rates payed back outpace inflation. In an inflationary system longer loan periods are encourage and paying back the loans in a timely manner is foolish. Why pay a loan back in a timely fashion when 10 years down the road it can be payed back with inflated money. In a deflationary system it is prudent to pay the loan back in a timely manner as the longer the loan is sat on the higher amount of actual value it would take to pay down the loan.

You're way creates bubbles, booms, and busts. Like I said I heard enough after you got into your argument about the merits of fractional reserve banking.