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There's no fundamental reason why Bitcoin shouldn't also have fractional reserve. I mean, cash also has a fixed supply! (from the Bank's POV) It's not like Chas

There's no fundamental reason why Bitcoin shouldn't also have fractional reserve. I mean, cash also has a fixed supply! (from the Bank's POV) It's not like Chase Bank (or whatever non-central bank) can just print more dollars. If you just sit on your Bitcoin it collects 0% Bitcoin-denominated interest. Maybe you'd prefer to make a loan to a bank and have them pay you interest. For the term of the loan that money isn't sitting in an address you control, it's been given to the bank and they're consequently free to lend it out to other people. Viola, Bitcoin have been created, just not on-chain. EDIT: I was referring to physical dollars. As in, dollar bills and actual coins. I'm aware that Chase creates money, but it cannot literally print money.

dogma1138 8y ago
I didn’t say it should or shouldn’t I said that currently they do not offer any sort of a built-in credit system. And if you do fractional reserve off the blockchain then your crypto isn’t currency but rather closer to say what gold was during the gold standard era. And yes Chase can “print” dollars that’s what the fractional reserve system means for every dollar they store in the central bank they can loan X dollars. When you ask for a mortgage Chase essentially creates most of those dollars out of thin air.
- Firadeoclus 8y ago
  > currently they do not offer any sort of a built-in credit system. Indeed, but what does credit mean in a trustless system?
closeparen 8y ago
>It's not like Chase Bank (or whatever non-central bank) can just print more dollars. Yes, it can, that's what fractional reserve means. Banks create (most of) the money they lend. This is regulated by the central banks but carried out via ordinary retail banking. When you swipe your credit card, buy a car, etc. money is being created out of thin air. The universe remains balanced because it corresponds to your obligation to repay; as you do, the money ceases to exist.
- brian_cloutier 8y ago
  I don't think you understand what I was trying to say. I'm well aware that they create money, but they're literally not printing dollars. They do not cause M0 to increase. Nobody but the Treasury can cause physical dollars to be created, but that doesn't prevent fractional reserve from occurring. So, anybody who claims Bitcoin doesn't support fraction reserve based solely on the fact that banks can't create new Bitcoin is incorrect.
  - philipwhiuk 8y ago
    Okay. I'm Chase Bank. How do I issue 600 BTC given I have 20 BTC in my account. There is zero allowance in the protocol for this to happen.
    - brian_cloutier 8y ago
      Say the reserve requirement is 10%. Wikipedia states [1]: > The minimum reserve is generally determined by the central bank to be no less than a specified percentage of the amount of deposit liabilities the commercial bank owes to its customers. If someone gives Chase $100, Chase is allowed to loan out up to $90 of it, and must keep the remaining $10 in reserve. 1: https://en.wikipedia.org/wiki/Reserve_requirement https://en.wikipedia.org/wiki/Reserve_requirement The protocol allows someone with 100BTC to send someone else 90BTC.
    - spookthesunset 8y ago
      Easy. As an exchange almost all your volume is “off chain” transactions between two traders. And since you aren’t audited or beholden to any financial regulation there is nothing stopping you from having one side of the trade be your own bot. All that bot does is sell newly created fake bitcoin and keeps the dirty USD fiat for the exchange owner. Again since the system isn’t audited, the exchange can have massively more “bitcoin” in its database than it actually has on the blockchain. The system (Er, scam) can work just fine until a bunch of folks start withdrawing bitcoin. Since virtually all of the exchanges are unaudited, sketchy “businesses” I wouldn’t be surprised if they all run this way. It might come to pass the almost all of the exchange volume consists of trading fake bitcoin that is backed by almost no real bitcoin.

dogma1138 8y ago

I didn’t say it should or shouldn’t I said that currently they do not offer any sort of a built-in credit system. And if you do fractional reserve off the blockchain then your crypto isn’t currency but rather closer to say what gold was during the gold standard era. And yes Chase can “print” dollars that’s what the fractional reserve system means for every dollar they store in the central bank they can loan X dollars. When you ask for a mortgage Chase essentially creates most of those dollars out of thin air.

Firadeoclus 8y ago
> currently they do not offer any sort of a built-in credit system. Indeed, but what does credit mean in a trustless system?

closeparen 8y ago

>It's not like Chase Bank (or whatever non-central bank) can just print more dollars. Yes, it can, that's what fractional reserve means. Banks create (most of) the money they lend. This is regulated by the central banks but carried out via ordinary retail banking. When you swipe your credit card, buy a car, etc. money is being created out of thin air. The universe remains balanced because it corresponds to your obligation to repay; as you do, the money ceases to exist.

brian_cloutier 8y ago
I don't think you understand what I was trying to say. I'm well aware that they create money, but they're literally not printing dollars. They do not cause M0 to increase. Nobody but the Treasury can cause physical dollars to be created, but that doesn't prevent fractional reserve from occurring. So, anybody who claims Bitcoin doesn't support fraction reserve based solely on the fact that banks can't create new Bitcoin is incorrect.
- philipwhiuk 8y ago
  Okay. I'm Chase Bank. How do I issue 600 BTC given I have 20 BTC in my account. There is zero allowance in the protocol for this to happen.
  - brian_cloutier 8y ago
    Say the reserve requirement is 10%. Wikipedia states [1]: > The minimum reserve is generally determined by the central bank to be no less than a specified percentage of the amount of deposit liabilities the commercial bank owes to its customers. If someone gives Chase $100, Chase is allowed to loan out up to $90 of it, and must keep the remaining $10 in reserve. 1: https://en.wikipedia.org/wiki/Reserve_requirement https://en.wikipedia.org/wiki/Reserve_requirement The protocol allows someone with 100BTC to send someone else 90BTC.
  - spookthesunset 8y ago
    Easy. As an exchange almost all your volume is “off chain” transactions between two traders. And since you aren’t audited or beholden to any financial regulation there is nothing stopping you from having one side of the trade be your own bot. All that bot does is sell newly created fake bitcoin and keeps the dirty USD fiat for the exchange owner. Again since the system isn’t audited, the exchange can have massively more “bitcoin” in its database than it actually has on the blockchain. The system (Er, scam) can work just fine until a bunch of folks start withdrawing bitcoin. Since virtually all of the exchanges are unaudited, sketchy “businesses” I wouldn’t be surprised if they all run this way. It might come to pass the almost all of the exchange volume consists of trading fake bitcoin that is backed by almost no real bitcoin.