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If the supply of money is distributed it becomes more difficult to manipulate. Fractional reserves in a world backed by bitcoin can’t be bailed out if banks sc

If the supply of money is distributed it becomes more difficult to manipulate. Fractional reserves in a world backed by bitcoin can’t be bailed out if banks screw up. If people want to exchange whatever government backed medium might sit on top of it to actual bitcoin the banks wouldn’t be able to if they spread themselves too thin. It would create more accountability.

lottin 5y ago
That's not what I meant. The majority of money in circulation is not issued by central banks, but instead is money that is created out of thin air by commercial banks that operate under fractional reserve banking. In other words, fractional reserve banking expands the money supply. This means that if bitcoin became money, the supply of bitcoins would not be fixed at all, contrary to what many of its advocates believe, because fractional reserve banking would create a colossal amount of new bitcoins, just like now it creates colossal amounts of new dollars. So the promise of a fixed supply of money cannot happen, unless a world-wide ban on fractional reserve banking occurs first, somehow.
- didericis 5y ago
  Bitcoin and fractional reserve banking are compatible. And a fractional reserve system based on bitcoin would be different than what we have now. It’d be similar to what we had before nixon took us off the gold standard. Banks depend on reserves and rules issued by the fed, and those reserves and rules are subject to arbitrary supply changes. It is impossible for a non sanctioned bank to get reserve notes or have authorization to create notes banks lend out representative of that (dollars). In a world where fractional reserve banking still exists, but is backed by bitcoin, you’d have lots of “bitcoin notes” being created, NOT bitcoin. No one would be creating new bitcoin apart from miners. The faith in a “bitcoin note” would be tied to it’s ability to be exchanged for actual bitcoin in a wallet address. The benefit (or downside, depending on your perspective) is that a central government would not have complete and total control over the supply of reserves that the banks get, and if banks lent poorly, they couldn’t get new emergency reserves from thin air. They’d have to get bitcoin from someone or go under. There would be a fixed supply of the underlying reserve that people pass around iou’s for.
  - lottin 5y ago
    > In a world where fractional reserve banking still exists, but is backed by bitcoin, you’d have lots of “bitcoin notes” being created, NOT bitcoin. No one would be creating new bitcoin apart from miners. No, this is a misunderstanding of how fractional reserve banking works. Bank deposits are money, despite the fact that they might be only partially backed with reserves. Bank deposits are not IOUs. And the same is true of bitcoin deposits held by the public at crypto-exchanges. Theses bitcoin balances are bitcoins, despite the fact that they might be only partially backed with reserves. These are not a "bitcoin notes", but actual bitcoins. And therefore more bitcoins can be created by exchanges simply by lowering their reserve ratio.
    - didericis 5y ago
      > the same is true of bitcoin deposits held by the public at crypto-exchanges. These bitcoin balances are bitcoin No, those balances are not bitcoin. If it is not a balance assigned in the distributed ledger, it is not bitcoin. I understand that the ious in the dollar system are the money. You are misunderstanding the difference in how the reserves would be generated in a world backed by bitcoin. Saying bitcoin is the same as an iou not on chain is an egregious misrepresentation. Bitcoin in a world with “bitcoin notes” backed by fractional reserve banking would be very similar to gold when dollars used to be exchangeable for a set amount of gold. It is not the dollar in that comparison, it is the gold. But it has the added property that it is easily transportable and could also act as a direct form of payment. It is not practical to buy a sandwich with the equivalent dollar amount of gold, even when there was a static exchange rate between the two when we were on the gold standard. It would, however, be practical to ALSO directly exchange bitcoin, in addition to exchanging “bitcoin notes”. Direct exchange is the original vision of crypto, but a world where people primarily exchange “bitcoin notes” instead of bitcoin still benefits from the fixed supply of what the note can be exchanged for.

lottin 5y ago

That's not what I meant. The majority of money in circulation is not issued by central banks, but instead is money that is created out of thin air by commercial banks that operate under fractional reserve banking. In other words, fractional reserve banking expands the money supply. This means that if bitcoin became money, the supply of bitcoins would not be fixed at all, contrary to what many of its advocates believe, because fractional reserve banking would create a colossal amount of new bitcoins, just like now it creates colossal amounts of new dollars. So the promise of a fixed supply of money cannot happen, unless a world-wide ban on fractional reserve banking occurs first, somehow.

didericis 5y ago
Bitcoin and fractional reserve banking are compatible. And a fractional reserve system based on bitcoin would be different than what we have now. It’d be similar to what we had before nixon took us off the gold standard. Banks depend on reserves and rules issued by the fed, and those reserves and rules are subject to arbitrary supply changes. It is impossible for a non sanctioned bank to get reserve notes or have authorization to create notes banks lend out representative of that (dollars). In a world where fractional reserve banking still exists, but is backed by bitcoin, you’d have lots of “bitcoin notes” being created, NOT bitcoin. No one would be creating new bitcoin apart from miners. The faith in a “bitcoin note” would be tied to it’s ability to be exchanged for actual bitcoin in a wallet address. The benefit (or downside, depending on your perspective) is that a central government would not have complete and total control over the supply of reserves that the banks get, and if banks lent poorly, they couldn’t get new emergency reserves from thin air. They’d have to get bitcoin from someone or go under. There would be a fixed supply of the underlying reserve that people pass around iou’s for.
- lottin 5y ago
  > In a world where fractional reserve banking still exists, but is backed by bitcoin, you’d have lots of “bitcoin notes” being created, NOT bitcoin. No one would be creating new bitcoin apart from miners. No, this is a misunderstanding of how fractional reserve banking works. Bank deposits are money, despite the fact that they might be only partially backed with reserves. Bank deposits are not IOUs. And the same is true of bitcoin deposits held by the public at crypto-exchanges. Theses bitcoin balances are bitcoins, despite the fact that they might be only partially backed with reserves. These are not a "bitcoin notes", but actual bitcoins. And therefore more bitcoins can be created by exchanges simply by lowering their reserve ratio.
  - didericis 5y ago
    > the same is true of bitcoin deposits held by the public at crypto-exchanges. These bitcoin balances are bitcoin No, those balances are not bitcoin. If it is not a balance assigned in the distributed ledger, it is not bitcoin. I understand that the ious in the dollar system are the money. You are misunderstanding the difference in how the reserves would be generated in a world backed by bitcoin. Saying bitcoin is the same as an iou not on chain is an egregious misrepresentation. Bitcoin in a world with “bitcoin notes” backed by fractional reserve banking would be very similar to gold when dollars used to be exchangeable for a set amount of gold. It is not the dollar in that comparison, it is the gold. But it has the added property that it is easily transportable and could also act as a direct form of payment. It is not practical to buy a sandwich with the equivalent dollar amount of gold, even when there was a static exchange rate between the two when we were on the gold standard. It would, however, be practical to ALSO directly exchange bitcoin, in addition to exchanging “bitcoin notes”. Direct exchange is the original vision of crypto, but a world where people primarily exchange “bitcoin notes” instead of bitcoin still benefits from the fixed supply of what the note can be exchanged for.