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> 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,
by 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 agoIt 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 agofractional reserve banking != loans
- maxerickson 13y agoYes 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 agoI 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).
- hapless 13y agoYou give your BTC to MtGox. At this point, you no longer hold your BTC. You have exchanged BTC for a MtGox-denominated currency that is ostensibly convertible to BTC. At that point, nothing stops MtGox from operating a fractional reserve bank. Or just stealing your deposits. Substitute any other "exchange" name for MtGox. The principle is the same.
- antr 13y agothat's is not fractional reserve banking. on top of that, yo required another currency (another risk), a requirement you don't need with the current system