> With fractional reserve banking, it's not that the bank has to keep 1% of the money they have on deposit, it's that the bank gets to invent 1000% of the money

> With fractional reserve banking, it's not that the bank has to keep 1% of the money they have on deposit, it's that the bank gets to invent 1000% of the money it has on deposit. And it doesn't have to borrow money from the Fed in order to do it, it gets to make up the money on its own. Steps 2 and 4 should read $10 and Step 3 doesn't exist. I haven't studied this subject in some time, so can't remember the exact mechanics. This summary sounds accurate. I would like to say that "it gets to make up the money on its own", while correct from one perspective, is another way of saying "other banks can respect its credit (how much money it says it has) if it plays by a certain set of rules". I don't remember if this mechanically occurs via some kind of direct lending or via the Fed sanctioning "Bank A's" credit as satisfying reserve requirements for a "Bank B". The ultimate result is the same. > That's why pyramid schemes are illegal, the banks hate competition. I'm assuming that this is said tongue-in-cheek, but pyramid schemes are an example of perversion of credit and lending on a scale that separates them from banks. In particular, the core feature of pyramid schemes is a rate of return that is unsustainable, and thus requires rapid creation of new customers instead of gradual growth of new wealth. If fractional reserve banking is indeed really terrible, what is the alternative? I think a massive body of research is required for someone to assert the superiority of such a system. > So yes, it especially doesn't work for bitcoins, because how do you make a blockchain for fractional bitcoins based on a mined bitcoin? The mined bitcoin is the one that has the blockchain. You can't make a bitcoin transaction without first checking the blockchain for double-spending, say nothing about 10x spending. This was ultimately my point. The principles behind fractional reserve banking and bitcoin seem fundamentally incompatible. Given that fractional reserve banking has worked for many centuries, any alternatives that are radically different should be approached with caution.