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Crypto isn’t an alternative to a bank. Not any crypto I’ve seen at least. The primary purpose of a bank is to issue debt. That’s why they were created. A bank

by audunw 1y ago

Crypto isn’t an alternative to a bank. Not any crypto I’ve seen at least. The primary purpose of a bank is to issue debt. That’s why they were created. A bank has to be able to “print” money to issue debt. This isn’t a flaw as some crypto fans like to think, it’s a very important feature. Debt issued by banks replaced the informal promise-based debt people used before we had banks. You didn’t need money on hand, or to borrow some coins from some rich dude, to get help building a barn. You got help from people in the village in exchange for some other goods or service you’d provide them in the future. Bank issued debt with “printed” money is the replacement to that, and it only works if money can be created on demand. Crypto can’t “print” money on demand, by design. So it can’t replace banks.

immibis 1y ago
Bitcoin can't, but defi can. An entity can issue a ERC-whatever token that acts as a bond, minted in exchange for whichever other token (e.g. ETH), and redeemable for that plus interest at their discretion (e.g. you could create a redeem queue). The bonds can be traded in secondary markets immediately upon creation - no need to file for listing (you need to create a swap pool and seed it with a little of each asset though). An important difference is that your new token can't ever be confused with base money. In banks, we have base money, and we have bank money, and we pretend they're the same thing because banks are pretty reliable (not 100% but pretty). In crypto, the system won't let you lie like that. (Though you can create another new currency backed by a mix of currencies - this is what DAI does.) Another important difference is trust. I can easily issue bonds in the real world and then just run off with the money and not repay them. If I try, a lot of heavily armed men will hunt me down. That doesn't really happen in crypto, and as things are now it can't happen, because if you make your identity and location known and issue crypto bonds, the same armed men will hunt you down for issuing crypto bonds instead of ordinary bonds, which is a crime itself (see what happened to Kik/Kin). So you'd have to stake something else to make people trust you.
- Jarwain 1y ago
  I've always found it ironic how crypto basically make it not necessary to trust, but nobody trusts it.
  - immibis 1y ago
    Bitcoin is trustworthy. Monero is trustworthy. Ethereum is relatively trustworthy, but if you make a transaction that Vitalik doesn't like, he forks the whole coin to roll it back. Is Binance Coin trustworthy? Hell no (but it's fast and cheap - because it's centralized all the transaction limits are turned up to 11). Is Terra trustworthy? It's a neat idea if it works - real-world evidence proves it doesn't. Is Jarwain-Immibis Bond Token trustworthy?
    - Jarwain 1y ago
      Unfortunately, for most people, all coins get rolled up into "crypto" and "nfts" which share reputation. As for Jarwain-Immibis Bond Token, well that depends on how one assesses trust, which in the most cynical sense comes down to the repercussions involved in breaking the bond.
AnthonyMouse 1y ago
One of the things banks do is to issue loans. That's fine. Another thing banks do is, Alice is in New York and wants to pay Bob who is in Miami, or Kyiv, so instead of getting on a plane with a sack full of Benjamins she tells the bank to send money to Bob. Cryptocurrency is clearly an alternative way of doing this, with the advantage that then there is no middleman to refuse the transaction when the bank is being leaned on by a despot.
sofixa 1y ago
> The primary purpose of a bank is to issue debt. That’s why they were created Yes > A bank has to be able to “print” money to issue debt Absolutely not, especially not in the context which you just said ("that's why they were created"). When the banking industry started in various Italian city states, money was state issued and backed by precious metals, and banks didn't create any new money supply. They gave loans, invested, kept deposits, etc. but without touching the money supply, which was managed by sovereigns and sovereign states.
- ascorbic 1y ago
  A lot of people misunderstand what creating money means in the context of fractional reserve banking. Banks "create money" every time they make a loan backed by a deposit. They're not literally creating new money. This is how it works: - Alice deposits $100 into the bank. The bank owes Alice $100. - Bob wants a loan. The bank offers him a loan of $50, backed by the $100 from Alice. The bank owes Alice $100. Bob owes the bank $50. - Bob withdraws the $50 to spend on coke and hookers. The bank uses $50 of the money deposited by Alice to give to Bob. Bob has $50. Alice still has $100 balance. The bank has just created $50. Everyone is happy unless Alice (and everyone else) wants to withdraw their money and they aren't able to get it back from Bob. That's a bank run.
  - ivewonyoung 1y ago
    What's even more funny is that in modern times the required asset to debit ratio is only 10%. So in your example, the bank can lend $1000 to Bob, backed by Alice's $100.
    - ascorbic 1y ago
      That's not what the reserve requirement means. In this example it means the bank needs to reserve 10% of the deposit, so it can lend $90 to Bob. Now Bob can then deposit that money with another bank, which can then lend it out and so forth, giving a compounded effect on the whole banking system a lot beyond that, but the bank can still only lend $90 backed by that deposit.

by audunw 1y ago

immibis 1y ago

Bitcoin can't, but defi can. An entity can issue a ERC-whatever token that acts as a bond, minted in exchange for whichever other token (e.g. ETH), and redeemable for that plus interest at their discretion (e.g. you could create a redeem queue). The bonds can be traded in secondary markets immediately upon creation - no need to file for listing (you need to create a swap pool and seed it with a little of each asset though). An important difference is that your new token can't ever be confused with base money. In banks, we have base money, and we have bank money, and we pretend they're the same thing because banks are pretty reliable (not 100% but pretty). In crypto, the system won't let you lie like that. (Though you can create another new currency backed by a mix of currencies - this is what DAI does.) Another important difference is trust. I can easily issue bonds in the real world and then just run off with the money and not repay them. If I try, a lot of heavily armed men will hunt me down. That doesn't really happen in crypto, and as things are now it can't happen, because if you make your identity and location known and issue crypto bonds, the same armed men will hunt you down for issuing crypto bonds instead of ordinary bonds, which is a crime itself (see what happened to Kik/Kin). So you'd have to stake something else to make people trust you.

Jarwain 1y ago
I've always found it ironic how crypto basically make it not necessary to trust, but nobody trusts it.
- immibis 1y ago
  Bitcoin is trustworthy. Monero is trustworthy. Ethereum is relatively trustworthy, but if you make a transaction that Vitalik doesn't like, he forks the whole coin to roll it back. Is Binance Coin trustworthy? Hell no (but it's fast and cheap - because it's centralized all the transaction limits are turned up to 11). Is Terra trustworthy? It's a neat idea if it works - real-world evidence proves it doesn't. Is Jarwain-Immibis Bond Token trustworthy?
  - Jarwain 1y ago
    Unfortunately, for most people, all coins get rolled up into "crypto" and "nfts" which share reputation. As for Jarwain-Immibis Bond Token, well that depends on how one assesses trust, which in the most cynical sense comes down to the repercussions involved in breaking the bond.

AnthonyMouse 1y ago

One of the things banks do is to issue loans. That's fine. Another thing banks do is, Alice is in New York and wants to pay Bob who is in Miami, or Kyiv, so instead of getting on a plane with a sack full of Benjamins she tells the bank to send money to Bob. Cryptocurrency is clearly an alternative way of doing this, with the advantage that then there is no middleman to refuse the transaction when the bank is being leaned on by a despot.

sofixa 1y ago

> The primary purpose of a bank is to issue debt. That’s why they were created Yes > A bank has to be able to “print” money to issue debt Absolutely not, especially not in the context which you just said ("that's why they were created"). When the banking industry started in various Italian city states, money was state issued and backed by precious metals, and banks didn't create any new money supply. They gave loans, invested, kept deposits, etc. but without touching the money supply, which was managed by sovereigns and sovereign states.

ascorbic 1y ago
A lot of people misunderstand what creating money means in the context of fractional reserve banking. Banks "create money" every time they make a loan backed by a deposit. They're not literally creating new money. This is how it works: - Alice deposits $100 into the bank. The bank owes Alice $100. - Bob wants a loan. The bank offers him a loan of $50, backed by the $100 from Alice. The bank owes Alice $100. Bob owes the bank $50. - Bob withdraws the $50 to spend on coke and hookers. The bank uses $50 of the money deposited by Alice to give to Bob. Bob has $50. Alice still has $100 balance. The bank has just created $50. Everyone is happy unless Alice (and everyone else) wants to withdraw their money and they aren't able to get it back from Bob. That's a bank run.
- ivewonyoung 1y ago
  What's even more funny is that in modern times the required asset to debit ratio is only 10%. So in your example, the bank can lend $1000 to Bob, backed by Alice's $100.
  - ascorbic 1y ago
    That's not what the reserve requirement means. In this example it means the bank needs to reserve 10% of the deposit, so it can lend $90 to Bob. Now Bob can then deposit that money with another bank, which can then lend it out and so forth, giving a compounded effect on the whole banking system a lot beyond that, but the bank can still only lend $90 backed by that deposit.