The full reserve nature of Bitcoin is often overlooked (or misunderstood - more below): "The [Bitcoin network] enforces the strictest deposit regulations in th

The full reserve nature of Bitcoin is often overlooked (or misunderstood - more below): "The [Bitcoin network] enforces the strictest deposit regulations in the world by requiring full reserves for all accounts. This is the digital equivalent of the Chicago Plan or the Austrian 100% reserve gold standard. Under this regulatory regime, money is not destroyed when bank debts are repaid, so increased money hoarding does not cause liquidity traps, instead it increases real interest rates and lowers consumer prices. This is a self-stabilizing cycle as higher interest rates incentivize hoarders to invest, while deflation increases consumption due to the wealth-effect on hoarders. The BCB prevents lending out of deposits so that it can properly target money supply and avoid the destabilizing effects of commingling the credit and payment systems." Others have argued[1] that fractional reserve Bitcoin banks can exist, but the point is that the Bitcoin protocol itself is full reserve. Yes, intermediaries may try to convince consumers to entrust their Bitcoin wallets with them, but that hasn't gone so well[2]; Bitcoin "banks" that fool around with fractional reserves are playing with fire. UPDATE: Coinkite, which describes itself as a "Cryptobank", addresses[3] the need to have verifiable, full reserves: "You should also be wary of bitcoin startups which claim some percentage of your coins will be in cold storage. If you do not know the details of the public keys used, it will be impossible to know if this is true, or if they are using those amounts as play money. With Coinkite, you can audit where all your funds are at any time." [1] Of course you can have fractional reserve Bitcoin banks http://www.cnbc.com/id/101048897 http://www.cnbc.com/id/101048897 [2] List of Bitcoin Heists https://bitcointalk.org/index.php?topic=83794.0 https://bitcointalk.org/index.php?topic=83794.0 [3] Coinkite FAQ https://coinkite.com/faq/money https://coinkite.com/faq/money