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I'm with you so far, but the bit I don't understand is that for bitcoin to be said to support fractional reserve, don't you need to have the balance of your loa
by mseebach 8y ago
I'm with you so far, but the bit I don't understand is that for bitcoin to be said to support fractional reserve, don't you need to have the balance of your loan issued in bitcoin as well, so that you can pay other people for services in bitcoin, and they can use that to get a new loan etc? It doesn't seem fair to say that bitcoin works for a given purpose, if "working" presumes the presence of a trusted fiat money system?
- brian_cloutier 8y agoSorry, I don't quite understand your objection. It's true that today you would probably find it difficult to find someone who will take your Bitcoin and pay you Bitcoin-denominated interest with it. However, there's no fundamental reason why it couldn't happen. The process is: You give your Bitcoin to a bank. It is put into a UTXO which they control, and you don't control. In exchange, you have a balance in the bank which you can withdraw when you choose. Your balance is "virtual bitcoin", but is still real money, because it represents your ability to ask the bank to pay people for things. (By swiping your debit card) At the same time, the bank has the original on-chain Bitcoin, and is free to use it however it wants, probably by lending it out to somebody else. In this way, there is now more Bitcoin than there were previously. Fiat currency is not involved in any way. I'm not an economist, but I'm pretty sure it's exactly the same as the difference between M0 and M1.