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When I read about BitCoin a while back I thought it might be a cool startup idea to build an "online banking" interface around it, along with mobile apps, etc.

When I read about BitCoin a while back I thought it might be a cool startup idea to build an "online banking" interface around it, along with mobile apps, etc. To sort of, bring it to the masses (non-technical folks). One analogy might be Github which took another burgeoning open source project and made it more accessible through an excellent web interface. However, I got discouraged after reading some things about the failed e-gold project: http://en.wikipedia.org/wiki/E-gold#2008_court_trial http://en.wikipedia.org/wiki/E-gold#2008_court_trial Namely that it looks like you'd need to be licensed as a money transmitter to avoid serious legal trouble if the thing took off. And I assume being licensed as a money transmitter means reporting identifying info on who is sending/receiving money. Anonymity seems to be big amongst the bit coin community but may not be as important to the masses. Not sure. There may be some way to avoid it, sort of like how torrent sites don't keep any copyrighted info on their servers, or actually going through the process of getting licensed, but I assume there would still be tons of legal scrutiny just like the torrent sites receive. The idea of running a startup where you are being sued by everybody is not especially appealing. Has anyone else pondered this?

teyc 16y ago
Yes, I wanted to do it, just to demonstrate that BitCoin is just as susceptible to problems of money supply as any other currency. The basic idea is to allow people to deposit BitCoins, but then issue a BitCoin derivative subject to fractional banking rules and charge interest. This should in theory give rise to the same problems current banks have, where the debt is never fully repayable (unless you create more money to pay the interest), and requires a banking system to continually generate debt.
- nazgulnarsil 16y ago
  watching a cartoon doesn't mean you understand banking. FUCK "money as debt". talking people down from their newfound expertise is tiresome.
  - teyc 16y ago
    Hardly. Bitcoin is somewhat of an improvement on gold, since you don't have to dig it out of the ground, only to bury it again and put guards around it. However, the monetary system is already hacked. I'm just hoping other hackers have some insight so that we can have a more effective, secure currency.
    - kiba 16y ago
      How is it hacked?
      - teyc 16y ago
        By hacked, I suggest that there are loopholes which allow some body/some group to have undue influence on the creation, destruction and distribution of money. In responsible hands, this level of undue influence doesn't lead to negative outcomes, but in irresponsible hands it is disaster. For instance, where we see hyperinflation in Zimbabwe, it is really about the government gaining "root" access on their Reserve Bank, and "creating" money, while diluting what others already have. On the other hand, when business confidence is low, people will store their "money" away for a rainy day, but that can lead to people sitting on the sidelines rather than engaging in production. i.e. people are poorer for it. The other thing about money is it is reputationless. Although governments have a notion of tainted money, or money which has to be "laundered" to become legitimate - when white collar crimes are committed, let us say Enron-style, the CEOs still have money that they can spend and lead a good life. Contrast this with some aboriginal cultures which were moneyless, reputation is very important, and reputation is currency in its own right. Perhaps the side effect of Bitcoin tracking transactions is that money no longer becomes reputationless. Society can choose to shun money that has a tainted reputation. I don't really know of any solutions. I'm just bringing this up for discussion.
        nhaehnle 16y ago
        Your portrayal of hyperinflation in Zimbabwe is questionable. To understand Zimbabwe, you first have to understand that it suffered from a destruction of supply capacity due to a stupid land reform that had nothing to do with money. The motivation for reform was part good (white farmers who had profited from colonialism were disowned) and part bad (land was given to political cronies who had neither the knowledge nor inclination for farming). Once the supply capacity went to hell, price increases were a simple matter of supply and demand. Add to that that Zimbabwe had to start importing food, affecting its current account and causing their currency to drop w.r.t. foreign currencies. Add to that that Zimbabwe had significant US$-denominated debts at the IMF, and the required sum flow of US$ for debt payment plus imports out of the country simply overwhelmed the amount of US$ they could possibly hope to have flow into the country from exports - their exports basically collapsed, because the productive capacity of the economy was largely destroyed. At that point, instead of doing the only reasonable thing and defaulting on their debt, the Zimbabwe government decided to start the printing presses and print Zimbabwe currency, largely for the purpose of directly exchanging it against US$. Needless to say, supply and demand caused the Zimbabwe dollar to drop in value, which - via increased import prices - caused domestic inflation. The important lesson here is that initially, it was the hyperinflation that caused the printing of money, not vice versa as people usually assume. Of course, the fact that the government kept adding to demand helped the hyperinflation to continue. But given the desolate state of the economy, simply not adding to the demand wouldn't have fixed anything either.
- jsn 16y ago
  Interesting. Must be a scheme based on infinite supply of the said derivatives and, thus, the ability to create a lender of last resort with a printing press, right? Won't work, as far as I can see (one of the reasons being the absence of legal tender law for your derivatives). If your derivatives are redeemable in bitcoins, bank run is still possible (and easy). If it's not, then you can't really affect the money supply of bitcoins. Or is it some other kind of scheme?
  - teyc 16y ago
    Bitcoins still need to be securedly stored, and this is beyond the capability of 95% of the world. In the end you'll have a consortium of "guards" who will offer storage services. If humans in the future are like humans of the past, then fractional banking is assured. If there is an economic boom, then I can assure you that these new "banks" will offer letters of credit, which is essentially a derivative.
    - jsn 16y ago
      That's not enough for FRB to work. However big your consortium, bank run is still a very real possibility (the history of Bank of England has some insightful examples, Nixon closing the gold window is another recent one [and it wasn't even redeemable dollar! it was a restricted bullion standard.]). FRB can exist long-term only if bank runs are impossible. The only way to make bank run impossible is to have lenders of last resort which are able to redeem all the notes in circulation. With gold-backed notes, you can't issue more notes than you have gold (all the attempts to do so historically ended with bank runs pretty quickly). With purely fiat currencies, it's not a problem (you can print as much as you need to cover whatever derivatives are afloat). Bitcoin (or vanilla gold-backed money) does not prevent FRB per se. It just makes sure that FRB will be very limited and will usually go down with a bang fairly soon.
      - teyc 16y ago
        > Bitcoin (or vanilla gold-backed money) does not > prevent FRB per se. It just makes sure that FRB > will be very limited and will usually go down with > a bang fairly soon. What you say makes sense. Since Bitcoin has the same properties/faults as gold insofar as FRB is concerned, why is bitcoin interesting?
mrb 16y ago
This already exists: http://bitcoinusa.com http://bitcoinusa.com Easy-to-use web service, from a legitimate company that complies with all laws.
randallsquared 16y ago
e-gold primarily failed in the marketplace, like all the other gold currencies. This was really of a piece with PGP and the other cypherpunk notions: they didn't take off because people were not yet invested enough in their digital lives to care. It was largely experience with this that brought me to the conclusion that the end of privacy is inevitable. I wrote the software behind two of e-gold's "major" competitors, and contracted for e-gold as well very briefly, so I'm not exactly unbiased, by the way. I don't know much about BitCoin, though.

teyc 16y ago

Yes, I wanted to do it, just to demonstrate that BitCoin is just as susceptible to problems of money supply as any other currency. The basic idea is to allow people to deposit BitCoins, but then issue a BitCoin derivative subject to fractional banking rules and charge interest. This should in theory give rise to the same problems current banks have, where the debt is never fully repayable (unless you create more money to pay the interest), and requires a banking system to continually generate debt.

nazgulnarsil 16y ago
watching a cartoon doesn't mean you understand banking. FUCK "money as debt". talking people down from their newfound expertise is tiresome.
- teyc 16y ago
  Hardly. Bitcoin is somewhat of an improvement on gold, since you don't have to dig it out of the ground, only to bury it again and put guards around it. However, the monetary system is already hacked. I'm just hoping other hackers have some insight so that we can have a more effective, secure currency.
  - kiba 16y ago
    How is it hacked?
    - teyc 16y ago
      By hacked, I suggest that there are loopholes which allow some body/some group to have undue influence on the creation, destruction and distribution of money. In responsible hands, this level of undue influence doesn't lead to negative outcomes, but in irresponsible hands it is disaster. For instance, where we see hyperinflation in Zimbabwe, it is really about the government gaining "root" access on their Reserve Bank, and "creating" money, while diluting what others already have. On the other hand, when business confidence is low, people will store their "money" away for a rainy day, but that can lead to people sitting on the sidelines rather than engaging in production. i.e. people are poorer for it. The other thing about money is it is reputationless. Although governments have a notion of tainted money, or money which has to be "laundered" to become legitimate - when white collar crimes are committed, let us say Enron-style, the CEOs still have money that they can spend and lead a good life. Contrast this with some aboriginal cultures which were moneyless, reputation is very important, and reputation is currency in its own right. Perhaps the side effect of Bitcoin tracking transactions is that money no longer becomes reputationless. Society can choose to shun money that has a tainted reputation. I don't really know of any solutions. I'm just bringing this up for discussion.
      - nhaehnle 16y ago
        Your portrayal of hyperinflation in Zimbabwe is questionable. To understand Zimbabwe, you first have to understand that it suffered from a destruction of supply capacity due to a stupid land reform that had nothing to do with money. The motivation for reform was part good (white farmers who had profited from colonialism were disowned) and part bad (land was given to political cronies who had neither the knowledge nor inclination for farming). Once the supply capacity went to hell, price increases were a simple matter of supply and demand. Add to that that Zimbabwe had to start importing food, affecting its current account and causing their currency to drop w.r.t. foreign currencies. Add to that that Zimbabwe had significant US$-denominated debts at the IMF, and the required sum flow of US$ for debt payment plus imports out of the country simply overwhelmed the amount of US$ they could possibly hope to have flow into the country from exports - their exports basically collapsed, because the productive capacity of the economy was largely destroyed. At that point, instead of doing the only reasonable thing and defaulting on their debt, the Zimbabwe government decided to start the printing presses and print Zimbabwe currency, largely for the purpose of directly exchanging it against US$. Needless to say, supply and demand caused the Zimbabwe dollar to drop in value, which - via increased import prices - caused domestic inflation. The important lesson here is that initially, it was the hyperinflation that caused the printing of money, not vice versa as people usually assume. Of course, the fact that the government kept adding to demand helped the hyperinflation to continue. But given the desolate state of the economy, simply not adding to the demand wouldn't have fixed anything either.
jsn 16y ago
Interesting. Must be a scheme based on infinite supply of the said derivatives and, thus, the ability to create a lender of last resort with a printing press, right? Won't work, as far as I can see (one of the reasons being the absence of legal tender law for your derivatives). If your derivatives are redeemable in bitcoins, bank run is still possible (and easy). If it's not, then you can't really affect the money supply of bitcoins. Or is it some other kind of scheme?
- teyc 16y ago
  Bitcoins still need to be securedly stored, and this is beyond the capability of 95% of the world. In the end you'll have a consortium of "guards" who will offer storage services. If humans in the future are like humans of the past, then fractional banking is assured. If there is an economic boom, then I can assure you that these new "banks" will offer letters of credit, which is essentially a derivative.
  - jsn 16y ago
    That's not enough for FRB to work. However big your consortium, bank run is still a very real possibility (the history of Bank of England has some insightful examples, Nixon closing the gold window is another recent one [and it wasn't even redeemable dollar! it was a restricted bullion standard.]). FRB can exist long-term only if bank runs are impossible. The only way to make bank run impossible is to have lenders of last resort which are able to redeem all the notes in circulation. With gold-backed notes, you can't issue more notes than you have gold (all the attempts to do so historically ended with bank runs pretty quickly). With purely fiat currencies, it's not a problem (you can print as much as you need to cover whatever derivatives are afloat). Bitcoin (or vanilla gold-backed money) does not prevent FRB per se. It just makes sure that FRB will be very limited and will usually go down with a bang fairly soon.
    - teyc 16y ago
      > Bitcoin (or vanilla gold-backed money) does not > prevent FRB per se. It just makes sure that FRB > will be very limited and will usually go down with > a bang fairly soon. What you say makes sense. Since Bitcoin has the same properties/faults as gold insofar as FRB is concerned, why is bitcoin interesting?

mrb 16y ago

This already exists: http://bitcoinusa.com http://bitcoinusa.com Easy-to-use web service, from a legitimate company that complies with all laws.

randallsquared 16y ago

e-gold primarily failed in the marketplace, like all the other gold currencies. This was really of a piece with PGP and the other cypherpunk notions: they didn't take off because people were not yet invested enough in their digital lives to care. It was largely experience with this that brought me to the conclusion that the end of privacy is inevitable. I wrote the software behind two of e-gold's "major" competitors, and contracted for e-gold as well very briefly, so I'm not exactly unbiased, by the way. I don't know much about BitCoin, though.