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There is absolutely nothing to stop fractional reserve banking from re-occurring in crypto. In fact it's already happening on a massive scale with stablecoins,

There is absolutely nothing to stop fractional reserve banking from re-occurring in crypto. In fact it's already happening on a massive scale with stablecoins, which are pretty much doing all the same things as banks, but even less regulated. If you think the current capitalistic system is a fraud then it makes no sense why you would search for solutions in the form of unregulated "tokens" minted by random people and backed by nothing and it all can vanish in the blink of an eye. It's all the same scams but somehow worse.

osigurdson 4y ago
How does one lend out more Bitcoin / Ethereum than they currently have?
- only_human 4y ago
  You can just mint your own token and then lie to people about how much bitcoin/dollars/euros/pesos/whatever is backing it, or not disclose it at all, which is exactly what they already do. At least central banks require lenders to have minimum reserves and you can know that regulated banks aren't going below that limit. No such thing exists in crypto, it's the wild west.
  - osigurdson 4y ago
    One could also create their own gravel pebble based token and state that it is backed by something valuable. I don’t see how the existence of crypto changes much in this regard.
    - only_human 4y ago
      Yes, that's my point. Crypto doesn't change anything. It's just more of the same. And FYI there is nothing wrong with fractional reserve banking when it's done in the right way with some mechanism (like regulation) to stop the banks from lending out too much and becoming insolvent or causing runaway inflation. It is not a big scam for the banks to take your money. Central banks all over the world are using it successfully to finance their economies. It actually works and occurs naturally in any banking system, including those in crypto. Except in crypto there is no central bank to cover for bank failures, the only option crypto lenders have in the case of a bank run is to just halt withdrawals or go bankrupt like old times. Which has happened extremely often in crypto to every prominent crypto company I can think of, like the one that just caused the crash earlier this year. In my experience, people loudly saying on social media that fractional reserve banking doesn't work are trying to sell you a narrative of conspiracy theories, likely to promote their alternative "investments" that often seem to include, surprise surprise, selling you crypto.
      - osigurdson 4y ago
        It would be quite incredible to be able to lend out and charge interest on $1000 when only having $100. On the surface, that's pretty dumb and it's history has entirely fraudulent roots. However, it ultimately provides the needed entropy in the system to appropriately incentivize participants in the economy to produce goods and services at the lowest possible cost (in other words, optimize quality of life - or at least starvation avoidance). It isn't at all clear to me however that the current system is optimal as it favours participants closer to the money printing source yet these participants are not providing any goods or services - just measures of value. The size of the financial services sector of an economy is likely a reasonable proxy for how suboptimal the system is.
        only_human 4y ago
        >On the surface, that's pretty dumb and it's history has entirely fraudulent roots. This is again a conspiracy theory typically promoted by adherents of the long discredited pseudoscience known as Austrian Economics. Don't fall for this. The fact that it's working at the set interest rates is proof that the system is not a fraud, because the bank should absolutely be able to make more good loans when it knows it can. It's only a fraud if it there are no regulations or safety nets and the banks become insolvent and everybody loses their money. Which right now is mostly a problem that crypto has. Central banks have become increasingly good at preventing it from happening with their own currencies. >it favours participants closer to the money printing source yet these participants are not providing any goods or services - just measures of value Well this isn't true. Providing liquidity and assuming risks are actual valuable financial services that the current system gives. The demand for these services won't go away if you change how the banks work. And the alternative is even worse anyway, where banks wouldn't be able to make money from loans at all, and they would just charge everyone mandatory increasing deposit/withdrawal fees. Hey this is starting to sound a lot like crypto. The "rich get richer by doing nothing" effect is just a common feature of capitalism. In that aspect crypto is again, even worse. It provides no goods or services either, the entire thing is a waste, built on a technological fraud and propped up by "whales" who don't want to lose their investment.

osigurdson 4y ago

How does one lend out more Bitcoin / Ethereum than they currently have?

only_human 4y ago
You can just mint your own token and then lie to people about how much bitcoin/dollars/euros/pesos/whatever is backing it, or not disclose it at all, which is exactly what they already do. At least central banks require lenders to have minimum reserves and you can know that regulated banks aren't going below that limit. No such thing exists in crypto, it's the wild west.
- osigurdson 4y ago
  One could also create their own gravel pebble based token and state that it is backed by something valuable. I don’t see how the existence of crypto changes much in this regard.
  - only_human 4y ago
    Yes, that's my point. Crypto doesn't change anything. It's just more of the same. And FYI there is nothing wrong with fractional reserve banking when it's done in the right way with some mechanism (like regulation) to stop the banks from lending out too much and becoming insolvent or causing runaway inflation. It is not a big scam for the banks to take your money. Central banks all over the world are using it successfully to finance their economies. It actually works and occurs naturally in any banking system, including those in crypto. Except in crypto there is no central bank to cover for bank failures, the only option crypto lenders have in the case of a bank run is to just halt withdrawals or go bankrupt like old times. Which has happened extremely often in crypto to every prominent crypto company I can think of, like the one that just caused the crash earlier this year. In my experience, people loudly saying on social media that fractional reserve banking doesn't work are trying to sell you a narrative of conspiracy theories, likely to promote their alternative "investments" that often seem to include, surprise surprise, selling you crypto.
    - osigurdson 4y ago
      It would be quite incredible to be able to lend out and charge interest on $1000 when only having $100. On the surface, that's pretty dumb and it's history has entirely fraudulent roots. However, it ultimately provides the needed entropy in the system to appropriately incentivize participants in the economy to produce goods and services at the lowest possible cost (in other words, optimize quality of life - or at least starvation avoidance). It isn't at all clear to me however that the current system is optimal as it favours participants closer to the money printing source yet these participants are not providing any goods or services - just measures of value. The size of the financial services sector of an economy is likely a reasonable proxy for how suboptimal the system is.
      - only_human 4y ago
        >On the surface, that's pretty dumb and it's history has entirely fraudulent roots. This is again a conspiracy theory typically promoted by adherents of the long discredited pseudoscience known as Austrian Economics. Don't fall for this. The fact that it's working at the set interest rates is proof that the system is not a fraud, because the bank should absolutely be able to make more good loans when it knows it can. It's only a fraud if it there are no regulations or safety nets and the banks become insolvent and everybody loses their money. Which right now is mostly a problem that crypto has. Central banks have become increasingly good at preventing it from happening with their own currencies. >it favours participants closer to the money printing source yet these participants are not providing any goods or services - just measures of value Well this isn't true. Providing liquidity and assuming risks are actual valuable financial services that the current system gives. The demand for these services won't go away if you change how the banks work. And the alternative is even worse anyway, where banks wouldn't be able to make money from loans at all, and they would just charge everyone mandatory increasing deposit/withdrawal fees. Hey this is starting to sound a lot like crypto. The "rich get richer by doing nothing" effect is just a common feature of capitalism. In that aspect crypto is again, even worse. It provides no goods or services either, the entire thing is a waste, built on a technological fraud and propped up by "whales" who don't want to lose their investment.