Topic: Why There Should Be A Bitcoin Central Bank - page 8. (Read 18284 times)

True words of wisdom here. Everybody: you should listen to this guy - he is telling it the way it is , in a straightforward manner and he's not mincing words.

Fractional reserve is legalized theft. Period.

The OP makes me feel like I've just read a post insisting that it would be a really good idea to hitch up horses to those new-fangled automobiles, because, well, you know, just because...

With the rise of crowdfunding along with cryptocurrency, it's hard to see why we really need banks at all in the long run.

Geeze - where to start? I'll just hit a couple of the high points.


No. Just plain wrong. That is not the way it works. Your assertion is a false oversimplification of the way fractional reserve banking actually works. The overwhelming majority that banks loan out is not the money of their depositors. It is new money, created by the bank itself, that is whisked into existence at the moment the loan is made. And every dollar of this newly created money gains its value by stealing wealth from everyone - in the form of reducing the purchasing power of every dollar that was in existence at the moment immediately before the loan was made. It is this theft of purchasing power which makes FRB evil. Well, one of the leading reasons why FRB is evil.


That's not what makes them evil (see above). That's merely what necessitates an entity like the FED, which backstops the whole unsustainable system, with a promise to step in and steal from every American citizen as much as is required in order to make sure that the system doesn't topple. Oh wait - that's evil too!


Except that's not what they do (again, see above).


You don't see a difference between Coinbase having limited access to the bulk of the funds in an immediate manner; and having a charter to print currency, then loan it out at interest, then collect not only the interest, but also the currency you whisked into existence in the first place? You are either ignorant is to how the system _actually_ operates, or you are evil too.


Which wouldn't be necessary if it were not for FRB.


2008 isn't just that they 'messed up'. The system is unsustainable by design.


Indeed.

Yeah... banker might have a bad thing planned. Scamming everyone will always be in his mind.

no

The only reason bitcoin has any value is because the market gives it value. The same is true for any other asset, including art, gold, and yes dollars.

Lots of "scarce" items don't hold their value.

Baseball cards were once routed (in the 1980's to early 90's) as great investments, alternatives to stocks, and, more familiarly, as "inflation hedges". Same for comic books.

Gold itself hit highs in the early 80's that took decades to reclaim.

And a LOT of people are now underwater with their bitcoin investment, having bought in at prices well exceeding where they're at today.

So, I'd be especially weary of assuming that ANYTHING can hold its value.


Those were the famous last words of the dotcom boom. People running around saying that the fundamentals that had been used to measure the worths of businesses didn't apply to the new era brought about by the dotcom age. Not long after that, the boom was over, and so many of those highly touted companies with such poor fundamentals that their investors were driven to believe that line went on to vaporize. So, no, economics matter to bitcoin. There might need to be a slight change in paradigm, considering it is an asset of strictly limited supply and speed of creation while the fiats don't have those characteristics, but to say hundreds of years of economic research don't matter to bitcoin, that strikes me as short sighted....

I would do business with an online service (wallet, exchange,bank) if they did 80% reserve and had bonds with multiple bitcoin holders who would make up for the 20% fake coins if there was a "run on the bank"

Do we need a central bank?  Hell no.  We need educated market participants.

Bitcoin banks will come first, central banks will come later. 

a central bank goes against everything Bitcoin stands for. The OP is out of his mind!

There shouldnt be.. It affects the brilliant concept of bitcoin.

Yes bitcoin is the first time in recorded history of having a virtual token of finite issuance.

When I call it an asset I mean that it holds value in itself because of its scarcity, similar to gold and art. A piece of paper with a dollar sign on it does not, it only represents something that supposedly holds value.

People needs to forget about all the economic mumbo jumbo. It doesn't apply to Bitcoin.

Backing up bitcoins with dollar bills doesn't make sense because it doesn't solve a problem. Thats where Bitcoin stands on its own.

The protocol Bitcoin (with a capital b) essentially acts as a central bank as it regulates how much bitcoin is "released" into the economy per time period. It cannot however react to economic factors that may, economically, warrant a higher or lower amount of money being injected into the economy.

The asset bitcoin (with a lower case b) is somewhat of a currency (it is getting to be more so like one over time). Any currency will always be an asset, as this is just what a currency is

I like it because it prevents dumb lazy jerk parasites stealing my wealth while sitting on their fat asses doing NOTHING!

Fractional reserve banking is not needed.

Many laud the benefits of fractional reserve "it gives banks a way to control monetary base within a regulated environment".

But those regulations are just limits on the fractional ratio, and throughout history those limits always creep up and inevitably give way to fiat, which inevitably fails leaving the rich with all the gold.... EVERY TIME!   (how dumb can the peasants be to do the same over and over lol)

From the perspective of us (the general public) it's a step down the slippery slope of money debasement. The myth that it is needed is propogated by folk wanting to funnel everyone elses wealth into their own coffers, and that's perfectly understandable selfish behaviour.

This need for monetary base control is a myth, the free market will do it without intervention. Global trade would work just fine with infinitely divisible gold coins (which is what bitcoin is very much like ). It wouldn't work fine however for fat asses who prefer to outsource their labor and pay for it with paper promises.

Money is just memory of debts between parties, bitcoin holds those debts in a ledger that can't be fucked with.

Why on earth would someone want to give some central body the ability to fuck with that ledger? It totally shits on what bitcoin IS!

Long post, so I'll do the TL/DR first:


TL/DR: 1) Fractional reserve banking isn't evil; 2) there is most certainly a role for banks in the future bitcoin economy; 2b) right now, those functions can be done in a P2P environment, but if the bitcoin grows exponentially, the economies of scale will give banks/centralized lending pools huge advantages over the p2p lending marketplace; 3) should all of those happen, then a bitcoin Central Bank should be a welcome addition to the bitcoin economy. All of this depends on what you view the functions of banks and central banks are though, you'll have to read the rest of this to see how i describe it though.

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Now for the lengthy post
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PART ONE:

P2P direct lending and such works in the bitcoin community right now because it is so small. Should bitcoin denominated economy really take off to the extent that it's marketshare against the big boy currencies (USD, EUR, etc) is sizable, peer to peer won't work so well anymore. Someone wants a loan and submits their request to this forum, for instance, which could trigger 1,000 potential lenders each having to perform their own due diligence. Just doesn't work.

So, if at some point in the future, people decide they're ok putting some of their wealth "at risk" (though ideally, the "at risk" shouldn't be any more risky than a dollar deposit in a bank), they could transfer funds to a company who's business is specifically lending funds at interest, performing due diligence before making such loans, etc.  People could even specify their liquidity requirements with that company - some funds they want to be able to transfer to their own wallet on demand; since those funds can be requested at any time, the company would be very constrained about what they could do with those funds; other customers might be comfortable taking, say, 5% of their funds and loaning it out for longer; they can earn a greater return, but would be constrained with their liquidity slightly. Maybe they can't access their funds at all for the time period, or maybe they can redeem their funds, they just need to pay a penalty of sorts for making the company find someone else to take out their position or, if no one can be found, using their own capital to cover the position of the exiting lender.

Sound like a reasonable business model?

Guess what? That's a bank, offering savings and money market accounts in the first instance and CD's in the second instance.

PART TWO:

People around here act as if the fractional reserve system is a crime, I just don't get it. Yes, it's true, if 100% of a banks depositors showed up at the door demanding to withdraw their funds in full on the same exact day, no modern bank would be able to accommodate that request. The fact is, though, that these events just don't happen anymore. And even if they did, such an event wouldn't necessarily mean the immediate insolvency of a bank - in their customer agreements the small print generally states that they can limit withdrawals in some instances - one instance would be depositors demanding all of their funds at once - so long as capital markets are functioning normally (like, we're not in a 2007/2008/2009 scenario), the bank might just need a couple of days to sell off assets that those deposits were invested in - loans, mortgages, credit card balances, those are all marketable securities. So, as long as every bank isn't trying to sell the same exact asset at the same exact time, a modern bank should be able to accommodate full customer withdrawals in a surprisingly short amount of time, without needing to declare insolvency.

Take JP Morgan for instance.

Balance sheet shows $1.287 trillion in "Other Current Liabilities"; those are customer deposits.

They also show $405 billion in long term debt; those are likely bonds and certificates of deposit - things that customers are either dissuaded from redeeming immediately (via a Certificate of Deposits' early withdrawal penalty), or simply CAN'T demand redemption on demand (in the case of corporate bonds).
 
To offset those two sets of liabilities, they have $604 billion in cash and equivalents, so they could accommodate almost 50% of their customer withdrawals from can on hand. I might take a day or two to shift the funds to the appropriate branches, though.

An on top of that, they have $1.5 trillion in long-term investments; these can be letters of credit, credit lines, mortgages, and the like; all of those are marketable securities which can be sold to other banks, to institutional investors (pensions, hedge funds), etc.

What am I saying?

Fractional reserve is not a crime or a fraud. If the business of banks was to hold customers cash and to keep it as cash, then what would be the point of banks? No, their business model has always been to take customer deposits and lend those monies to others of the banks customers. That's a completely valid business model, not fraudulent, not criminal or any of the other terms that get thrown about when they get whipped into a foaming at the mouth type frenzy.

Banks have found they can do business while only having a small fraction of their customers deposits on hand as actual cash, because even when many customers are requesting to withdraw funds, others are depositing new monies which offset those flows. No different than Coinbase determining that they can satisfy the day to day business demands of their customer while keeping 97% of their customer funds in cold storage.


PART THREE: Role of the Central Bank.

One of the most important things that the Central Bank does is establish reserve requirements that banks must abide by; they can do this because they have tremendous insight into the economy - insight that almost no one else has. They have this by being able to discuss, in complete confidentiality, current business environments of hundreds if not thousands of companies across a variety of industries. Information that wouldn't be disclosed to shareholders until it's time to make quarterly filings is disclosed to the Fed freely, so that it can have it's thumb on the pulse of the economy at all times. When they see that the economy is expanding, they lower reserve requirements, letting banks make more loans into the market and have less cash on hand, and when they see the economy is stagnant or contracting they raise reserve requirements, making banks remove loans from the market (that could be calling in debt, closing credit card accounts, lowering lines of credit, etc), in order to have greater amounts of cash on hand.

Sometimes they mess up. 2008 is a perfect example. But even in the face of that, it doesn't invalidate their role in the economy.

Circling back to the first point; fractional reserve banking is not an evil invention, despite all the hype to the contrary; and more importantly, as the bitcoin denominated economy grows, such services will not only spring up, but will likely be in demand; they will be able to provide services that just aren't viable in a peer-to-peer manner; why should hundreds of lenders do the same amount of due diligence on a potential borrower, when they could transfer funds that they're willing to lend to a separate company, where each of those other hundreds of potential lenders have also transferred funds, and rely on that one company to do the due diligence on their loans for them? The second scenario is far more efficient, and that, my fiends, is a bank.

And should these bitcoin denominated banks have a central bank?

To me, the answer would be "ideally", but only if that central bank was able to get equivalent or near-equivalent visibly into the economy as the true Central Banks do. There's no point in having an organization making rules the bitcoin denominated banks to abide by, if they aren't in a position of having more insight than each of those banks do. So initially, there's not really going to be a place for a bitcoin central bank in bitcoins earliest days. Until the bitcoin economy gets big enough, and more importantly, creditable enough that, upon formation of a "central bank" or its equivalent, which can actually glean more information about the economy than the bankers themselves, there's no point in having an outside organization make rules for those banks. But once bitcoin gets big enough that large companies are comfortable being candid with bitcoins' Central Bankers, those Central Bankers will be in a position, knowing more about the economy than the banks themselves, to be able to hand down general decrees to the bitcoin banks that had opted to operate under their umbrella.

That's about it. Sorry about the ramble.

I think it would be useless having a Bank for BTC.!! All the transactions that a bank does r done by many BTC users already..!

Bitcoin is the central bank, and the asset, and the currency, all at once. Thats why libertarians like it, finally they have something they can understand.