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What do you mean by an "account"? They could not credit my BTC address with BTC they do not own, no. Obviously they could give me a login to a webpage showing I

What do you mean by an "account"? They could not credit my BTC address with BTC they do not own, no. Obviously they could give me a login to a webpage showing I hold 10e99 BTC that I can't withdraw. They could do the same thing with gold bars and free Wendy's sandwiches. It's not the same thing as printing BTC, creating gold bars, or manufacturing actual sandwiches.

lottin 5y ago
What do you think printing BTC means? They don't have an actual printing press that prints bitcoins. Instead they create a transaction that credits a BTC address but debits no addresses, thus creating new bitcoins out of thin air. On the bitcoin blockchain the number of bitcoins that can be created in this way is limited, but off-chain there is no such limit. A bitcoin exchange can credit an internal account with a number of bitcoins that it has created out of thin air, in exactly the same way that bitcoins are created on-chain, in effect increasing the total supply of bitcoins.
- thebean11 5y ago
  > They don't have an actual printing press that prints bitcoins. Instead they create a transaction that credits a BTC address but debits no addresses, thus creating new bitcoins out of thin air. On the bitcoin blockchain the number of bitcoins that can be created in this way is limited, but off-chain there is no such limit. Crediting a Bitcoin address is an on-chain event, so I'm not sure what you mean. If the address was not credited on chain, my Bitcoin node will not reflect the new balance, so the credit simply did not happen from the perspective of any honest node on the network.
  - lottin 5y ago
    The transaction happens off-chain. If you struggle to understand this you need to look up "fractional reserve banking". As soon as crypto users flock to centralised payment platforms, fractional reserve banking becomes a possibility and the supply of bitcoins is no longer limited to 21 billion. In the real world, central bank money (which in the bitcoin world is the equivalent of on-chain bitcoins) represents only a small fraction of the money supply.
    - thebean11 5y ago
      A transaction that credits a BTC address cannot happen off chain. Do you know what a BTC address is? I understand that an exchange can show you a UI, saying you have BTC that the exchange does not own..
      - lottin 5y ago
        It DOESN'T credit any BTC address, that's why it's an OFF-CHAIN transaction.
        thebean11 5y ago
        From your comment: > Instead they create a transaction that credits a BTC address but debits no addresses Apologies if I misunderstood?
        lottin 5y ago
        This is how they print bitcoins on-chain. Centralised payment platforms can do the same thing, except they would credit an internal account, instead of a BTC address. Hopefully now it's clear.
        thebean11 5y ago
        Got it, yeah that's clear. Centralized platforms can certainly credit accounts for BTC that don't exist, on a technical level. Will this happen in practice? Will it be legal? Will it be possible to transfer these fake BTC to other platforms? I don't think so. In the case of USD, the answer is yes. Banks are incentivized to accept fractional reserve dollars from other banks, because in practice they are exactly the same. Why is that the case? Because the issuer of those dollars, the government, has specifically deemed it to be a legitimate practice. There's no risk in accepting fractional reserve dollars. Fractional reserve dollars can be withdrawn as cash, used to pay taxes, used to pay debts etc. Let's think about Bitcoin now. Fractional reserve BTC cannot be used to pay on-chain transaction fees. It cannot be used on the lightnight network. It cannot be used to participate in smart contracts. Would Coinbase accept fractional reserve BTC from Gemini? There would be no way for Coinbase to redeem them for on chain BTC, without trusting Coinbase to fulfill it. There's no government that can print extra BTC to fulfill Gemini's debts..so it would be surprising if Coinbase accepted these IOUs from Gemini. The issue with fractional reserve BTC is that they are completely unportable. Usable within the issuers ecosystem, sure, but not beyond that.
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lottin 5y ago

What do you think printing BTC means? They don't have an actual printing press that prints bitcoins. Instead they create a transaction that credits a BTC address but debits no addresses, thus creating new bitcoins out of thin air. On the bitcoin blockchain the number of bitcoins that can be created in this way is limited, but off-chain there is no such limit. A bitcoin exchange can credit an internal account with a number of bitcoins that it has created out of thin air, in exactly the same way that bitcoins are created on-chain, in effect increasing the total supply of bitcoins.

thebean11 5y ago
> They don't have an actual printing press that prints bitcoins. Instead they create a transaction that credits a BTC address but debits no addresses, thus creating new bitcoins out of thin air. On the bitcoin blockchain the number of bitcoins that can be created in this way is limited, but off-chain there is no such limit. Crediting a Bitcoin address is an on-chain event, so I'm not sure what you mean. If the address was not credited on chain, my Bitcoin node will not reflect the new balance, so the credit simply did not happen from the perspective of any honest node on the network.
- lottin 5y ago
  The transaction happens off-chain. If you struggle to understand this you need to look up "fractional reserve banking". As soon as crypto users flock to centralised payment platforms, fractional reserve banking becomes a possibility and the supply of bitcoins is no longer limited to 21 billion. In the real world, central bank money (which in the bitcoin world is the equivalent of on-chain bitcoins) represents only a small fraction of the money supply.
  - thebean11 5y ago
    A transaction that credits a BTC address cannot happen off chain. Do you know what a BTC address is? I understand that an exchange can show you a UI, saying you have BTC that the exchange does not own..
    - lottin 5y ago
      It DOESN'T credit any BTC address, that's why it's an OFF-CHAIN transaction.
      - thebean11 5y ago
        From your comment: > Instead they create a transaction that credits a BTC address but debits no addresses Apologies if I misunderstood?
        lottin 5y ago
        This is how they print bitcoins on-chain. Centralised payment platforms can do the same thing, except they would credit an internal account, instead of a BTC address. Hopefully now it's clear.
        thebean11 5y ago
        Got it, yeah that's clear. Centralized platforms can certainly credit accounts for BTC that don't exist, on a technical level. Will this happen in practice? Will it be legal? Will it be possible to transfer these fake BTC to other platforms? I don't think so. In the case of USD, the answer is yes. Banks are incentivized to accept fractional reserve dollars from other banks, because in practice they are exactly the same. Why is that the case? Because the issuer of those dollars, the government, has specifically deemed it to be a legitimate practice. There's no risk in accepting fractional reserve dollars. Fractional reserve dollars can be withdrawn as cash, used to pay taxes, used to pay debts etc. Let's think about Bitcoin now. Fractional reserve BTC cannot be used to pay on-chain transaction fees. It cannot be used on the lightnight network. It cannot be used to participate in smart contracts. Would Coinbase accept fractional reserve BTC from Gemini? There would be no way for Coinbase to redeem them for on chain BTC, without trusting Coinbase to fulfill it. There's no government that can print extra BTC to fulfill Gemini's debts..so it would be surprising if Coinbase accepted these IOUs from Gemini. The issue with fractional reserve BTC is that they are completely unportable. Usable within the issuers ecosystem, sure, but not beyond that.

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