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Nothing about bitcoin's design prevents fractional reserve banking. You just have to place an inordinate amount of trust in your BTC bank (perversely misnamed

by hapless 13y ago

Nothing about bitcoin's design prevents fractional reserve banking. You just have to place an inordinate amount of trust in your BTC bank (perversely misnamed "exchanges") Central banking and fractional reserve banking are orthogonal concepts. One could, in theory, accomplish one without the other. (but I do not see why one would wish to do so.)

antr 13y ago
where do i talk about central banking? on "You just have to place an inordinate amount of trust in your BTC bank (perversely misnamed "exchanges")" my understanding of Bitcoin is that no same Bitcoin can be in two accounts at the same time. How is this a "trust" issue vs a design one?
- zmk_ 13y ago
  Im not a fan of bitcoin. But it cannot be in two wallets at the same time. If you deposit money in a bank it no longer is in your wallet but starts being a number on a screen. You transfer the money to the banks wallet. Then the bank can lend it to others by transferring it to their wallets. I think the biggest obstacle for bitcoin is that it is not a legal tender and it will not be because it comes with one to many sacrifice. You lose ability to have independent monetary policy while not getting benefits of a fixed currency.
- hapless 13y ago
  Right now a huge amount of bitcoin is stored in accounts in exchanges. Just as you exchange cash for bank-denominated currency ("checking"), you exchange BTC for MtGox-denominated "currency" (your MtGox balance) MtGox just as easily operate a fractional reserve system on that MtgOX-denominated balance as a bank does on cash. This is how all banks worked before the advent of central banking. As with MtGox, in the world before central banking, exchanging real money (coinage and federal certificates) for bank-denominated money (checking) was a risky choice.
  - antr 13y ago
    > This is how all banks worked before Yes, before the 19th century. I didn't live back then, but I'm guessing we've come a long way since then: the credit card, online banking, security, etc. Can you please explain to me how can a BTC exchange can run fractional reserve banking with the current design of Bitcoin? Because I can't.
    - maxerickson 13y ago
      It just has to make some loans. If it has 1 bitcoin of deposits and writes 0.5 bitcoin of loans, it can't cover the deposits anymore.
      - antr 13y ago
        fractional reserve banking != loans
        maxerickson 13y ago
        Yes it does. I think maybe you are talking about the money creation that a central bank can do. That involves more than just fractional reserve banking, but it often is done in the context of fractional reserve banking.
        antr 13y ago
        > Yes it does. Wow. Information/knowledge is one click away. I highly advise Google.
        maxerickson 13y ago
        I searched out this: https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/banking-and-money/v/banking-3--fractional-reserve-banking https://www.khanacademy.org/economics-finance-domain/core-fi... It would be useful for you to explain how 'making loans of deposits' is not a reasonable simplification of that. Of course actual banking practice is more complicated, but the core meaning of fractional reserve banking is to make loans (or investments, but that is a reasonable thing to leave out in a simplification) out of (demand) deposits (the difference between a deposit and a demand deposit is just a technical matter, for btc the lending institution and depositor would have to work out how immediately available the deposited coins would have to be).

by hapless 13y ago

antr 13y ago

where do i talk about central banking? on "You just have to place an inordinate amount of trust in your BTC bank (perversely misnamed "exchanges")" my understanding of Bitcoin is that no same Bitcoin can be in two accounts at the same time. How is this a "trust" issue vs a design one?

zmk_ 13y ago
Im not a fan of bitcoin. But it cannot be in two wallets at the same time. If you deposit money in a bank it no longer is in your wallet but starts being a number on a screen. You transfer the money to the banks wallet. Then the bank can lend it to others by transferring it to their wallets. I think the biggest obstacle for bitcoin is that it is not a legal tender and it will not be because it comes with one to many sacrifice. You lose ability to have independent monetary policy while not getting benefits of a fixed currency.
hapless 13y ago
Right now a huge amount of bitcoin is stored in accounts in exchanges. Just as you exchange cash for bank-denominated currency ("checking"), you exchange BTC for MtGox-denominated "currency" (your MtGox balance) MtGox just as easily operate a fractional reserve system on that MtgOX-denominated balance as a bank does on cash. This is how all banks worked before the advent of central banking. As with MtGox, in the world before central banking, exchanging real money (coinage and federal certificates) for bank-denominated money (checking) was a risky choice.
- antr 13y ago
  > This is how all banks worked before Yes, before the 19th century. I didn't live back then, but I'm guessing we've come a long way since then: the credit card, online banking, security, etc. Can you please explain to me how can a BTC exchange can run fractional reserve banking with the current design of Bitcoin? Because I can't.
  - maxerickson 13y ago
    It just has to make some loans. If it has 1 bitcoin of deposits and writes 0.5 bitcoin of loans, it can't cover the deposits anymore.
    - antr 13y ago
      fractional reserve banking != loans
      - maxerickson 13y ago
        Yes it does. I think maybe you are talking about the money creation that a central bank can do. That involves more than just fractional reserve banking, but it often is done in the context of fractional reserve banking.
        antr 13y ago
        > Yes it does. Wow. Information/knowledge is one click away. I highly advise Google.
        maxerickson 13y ago
        I searched out this: https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/banking-and-money/v/banking-3--fractional-reserve-banking https://www.khanacademy.org/economics-finance-domain/core-fi... It would be useful for you to explain how 'making loans of deposits' is not a reasonable simplification of that. Of course actual banking practice is more complicated, but the core meaning of fractional reserve banking is to make loans (or investments, but that is a reasonable thing to leave out in a simplification) out of (demand) deposits (the difference between a deposit and a demand deposit is just a technical matter, for btc the lending institution and depositor would have to work out how immediately available the deposited coins would have to be).