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If everyone wants to take their $2000 out at once, can they? In most countries that's highly unlikely, so is it really $2000? Or something entirely different?

wingerlang 9y ago
I think it is common knowledge that banks use money to invest, lend to others for profit and so on. So no, not everyone could take it out at once as it would crash the bank. I guess you could say that they hold your $2000 most times, but at times they use it for something else and are in debt to you. I don't think on the user-level it is complicated at all. You can literally go to a bank, have them create your account and give them physical money. Then take it out.
- neilwilson 9y ago
  It's common understanding. It's also completely wrong. Banks are money factories, not warehouses. When you go for a loan the Bank creates the money for you on the spot. DR Loan Assets, CR Deposits. We pay for things by swapping somebody else's liabilities with each other.
- zAy0LfpBZLC8mAC 9y ago
  Which primarily shows that you don't understand the banking system? Banks generally don't invest (with the exception of investment banks, but that does not have anything to do with the money in your account). They don't hold your money at all, rather they are in debt to you the moment you put money into your account. Also, there are way more functions and processes at a bank than "putting money into your account" and "withdrawing from your account".
  - wingerlang 9y ago
    So where do the $2000 go when I hand the bills over? Surely they keep it somewhere. And when I want to take it out, they give it back to me (obviously not the same bills). But yeah, I don't really know how banks work and what they do. But for the average jo (me included) is is all extremely simple to use - which is my point, that Bitcoins are not.
    - stephen_g 9y ago
      Cash is an asset to the bank. If you give $2000 to the bank, they have an asset ($2000 cash) and a matching liability (they owe you $2000). They either keep that cash to use for a withdraw or can swap it at the central bank (the Fed in the US) for central bank reserves. Each bank has an account at the central bank, which they use for settling transfers. There are various ways for banks to send instructions to a clearing house (like ACH, Swift, etc.) but at the end of the day they settle the difference by transferring central bank reserves between their accounts at the central bank. Here's the important part - since banks are transferring both ways between each-other, generally the amount of reserves transferred between them is some fraction of the total amount being credited to each account. For example, if bank A needs to give bank B $100 million, and bank B needs to give bank A $99 million, then only $1 million actually moves at the end of the day. So banks don't need to hold anywhere near the full amount of deposits in reserves. If they don't have enough to make good, they borrow if from another bank, or the lender of last resort (the central bank itself). For this, the CB charges them the official interest rate. Anyway, that's how banks are able to create money to lend. Since money lent becomes a deposit, lending from existing deposits doesn't work if you want to follow the laws of double entry accounting. Instead, the bank creates an asset (the signed loan contract with you) and then deposits your account (creating the matching liability), creating new bank credit (which is considered money by people and the Government, even if taxes can only be settled in cash or reserves) as well as debt.
omarchowdhury 9y ago
What happens to Bitcoin if everyone decides to cash in?
- nileshtrivedi 9y ago
  Same as what would happen in case of USD - price would drop to zero.
  - kaffeemitsahne 9y ago
    Well, someone has to be buying all those btc at the other end. It might drop a lot but I find zero unlikely.
    - vertex-four 9y ago
      "Price drop to 0" literally means nobody's buying it, of course. If everybody (in the absolute) suddenly decided they didn't want to hold bitcoins, the price would indeed be 0, since there wouldn't be any buyers. (It might even be negative in some cases - you'd have to pay someone to take it from you.)
- Grangar 9y ago
  Price tanks. But your bitcoin remains.
qbrass 9y ago
It's debt, they're not storing money for you unless you get a safe deposit box and leave it in that. Deposits are loans you make to the bank. The interest rate is crap because you want the ability to call in that debt whenever you feel like. But like loaning anyone else money, they might not have it on them when you come to collect.
- omarchowdhury 9y ago
  Deposits are de facto loans, but not given the same rights as the actual loans the banks are creating. A long, long, long time from now they'll call that exploitation in the name of convenience and the status quo.
ForHackernews 9y ago
> If everyone wants to take their $2000 out at once, can they? They'd stand a better chance than everyone trying to withdraw their bitcoins from the various ~bucket shops~ er, bitcoin exchanges.
- vertex-four 9y ago
  Are you suggesting that bitcoin exchanges keep a fractional reserve? Nonsense. Also, there's no requirement that you keep your coins in an exchange unless you're, well, exchanging them. That's kinda the point.
  - ForHackernews 9y ago
    > Are you suggesting that bitcoin exchanges keep a fractional reserve? No, fractional reserve would imply transparency. I'm pointing out that historically, several large bitcoin exchanges have lost or stolen their customers' coins, and lied or tried to hide that fact.
    - vertex-four 9y ago
      And now we have large bitcoin exchanges which undergo regular, verifiable audits as a result.
      - ForHackernews 9y ago
        Last week: https://www.cryptocoinsnews.com/btc-e-domain-seized-by-authorities-alleged-operator-alexander-vinnik-charged-by-us-grand-jury/ https://www.cryptocoinsnews.com/btc-e-domain-seized-by-autho...
        vertex-four 9y ago
        BTC-e has never been a reputable exchange. Nobody has recommended its use ever since there's been reasonable alternatives, such as Coinbase and Kraken. Also, the fact that it was used for money laundering does not in any way show that the exchange system provided to customers was anything other than totally above-board. That the police are able to steal people's money when the issue at hand has nothing to do with those people's money is the problem here. HSBC isn't stealing its customers' money because it turned a blind eye to money laundering either.

wingerlang 9y ago

I think it is common knowledge that banks use money to invest, lend to others for profit and so on. So no, not everyone could take it out at once as it would crash the bank. I guess you could say that they hold your $2000 most times, but at times they use it for something else and are in debt to you. I don't think on the user-level it is complicated at all. You can literally go to a bank, have them create your account and give them physical money. Then take it out.

neilwilson 9y ago
It's common understanding. It's also completely wrong. Banks are money factories, not warehouses. When you go for a loan the Bank creates the money for you on the spot. DR Loan Assets, CR Deposits. We pay for things by swapping somebody else's liabilities with each other.
zAy0LfpBZLC8mAC 9y ago
Which primarily shows that you don't understand the banking system? Banks generally don't invest (with the exception of investment banks, but that does not have anything to do with the money in your account). They don't hold your money at all, rather they are in debt to you the moment you put money into your account. Also, there are way more functions and processes at a bank than "putting money into your account" and "withdrawing from your account".
- wingerlang 9y ago
  So where do the $2000 go when I hand the bills over? Surely they keep it somewhere. And when I want to take it out, they give it back to me (obviously not the same bills). But yeah, I don't really know how banks work and what they do. But for the average jo (me included) is is all extremely simple to use - which is my point, that Bitcoins are not.
  - stephen_g 9y ago
    Cash is an asset to the bank. If you give $2000 to the bank, they have an asset ($2000 cash) and a matching liability (they owe you $2000). They either keep that cash to use for a withdraw or can swap it at the central bank (the Fed in the US) for central bank reserves. Each bank has an account at the central bank, which they use for settling transfers. There are various ways for banks to send instructions to a clearing house (like ACH, Swift, etc.) but at the end of the day they settle the difference by transferring central bank reserves between their accounts at the central bank. Here's the important part - since banks are transferring both ways between each-other, generally the amount of reserves transferred between them is some fraction of the total amount being credited to each account. For example, if bank A needs to give bank B $100 million, and bank B needs to give bank A $99 million, then only $1 million actually moves at the end of the day. So banks don't need to hold anywhere near the full amount of deposits in reserves. If they don't have enough to make good, they borrow if from another bank, or the lender of last resort (the central bank itself). For this, the CB charges them the official interest rate. Anyway, that's how banks are able to create money to lend. Since money lent becomes a deposit, lending from existing deposits doesn't work if you want to follow the laws of double entry accounting. Instead, the bank creates an asset (the signed loan contract with you) and then deposits your account (creating the matching liability), creating new bank credit (which is considered money by people and the Government, even if taxes can only be settled in cash or reserves) as well as debt.

omarchowdhury 9y ago

What happens to Bitcoin if everyone decides to cash in?

nileshtrivedi 9y ago
Same as what would happen in case of USD - price would drop to zero.
- kaffeemitsahne 9y ago
  Well, someone has to be buying all those btc at the other end. It might drop a lot but I find zero unlikely.
  - vertex-four 9y ago
    "Price drop to 0" literally means nobody's buying it, of course. If everybody (in the absolute) suddenly decided they didn't want to hold bitcoins, the price would indeed be 0, since there wouldn't be any buyers. (It might even be negative in some cases - you'd have to pay someone to take it from you.)
Grangar 9y ago
Price tanks. But your bitcoin remains.

qbrass 9y ago

It's debt, they're not storing money for you unless you get a safe deposit box and leave it in that. Deposits are loans you make to the bank. The interest rate is crap because you want the ability to call in that debt whenever you feel like. But like loaning anyone else money, they might not have it on them when you come to collect.

omarchowdhury 9y ago
Deposits are de facto loans, but not given the same rights as the actual loans the banks are creating. A long, long, long time from now they'll call that exploitation in the name of convenience and the status quo.

ForHackernews 9y ago

> If everyone wants to take their $2000 out at once, can they? They'd stand a better chance than everyone trying to withdraw their bitcoins from the various ~bucket shops~ er, bitcoin exchanges.

vertex-four 9y ago
Are you suggesting that bitcoin exchanges keep a fractional reserve? Nonsense. Also, there's no requirement that you keep your coins in an exchange unless you're, well, exchanging them. That's kinda the point.
- ForHackernews 9y ago
  > Are you suggesting that bitcoin exchanges keep a fractional reserve? No, fractional reserve would imply transparency. I'm pointing out that historically, several large bitcoin exchanges have lost or stolen their customers' coins, and lied or tried to hide that fact.
  - vertex-four 9y ago
    And now we have large bitcoin exchanges which undergo regular, verifiable audits as a result.
    - ForHackernews 9y ago
      Last week: https://www.cryptocoinsnews.com/btc-e-domain-seized-by-authorities-alleged-operator-alexander-vinnik-charged-by-us-grand-jury/ https://www.cryptocoinsnews.com/btc-e-domain-seized-by-autho...
      - vertex-four 9y ago
        BTC-e has never been a reputable exchange. Nobody has recommended its use ever since there's been reasonable alternatives, such as Coinbase and Kraken. Also, the fact that it was used for money laundering does not in any way show that the exchange system provided to customers was anything other than totally above-board. That the police are able to steal people's money when the issue at hand has nothing to do with those people's money is the problem here. HSBC isn't stealing its customers' money because it turned a blind eye to money laundering either.