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If Greece had BTC instead of the euro, he would have again closed the banks and campaign for the blockchain to "forgive the debts of greece before i open them a

by return0 11y ago

If Greece had BTC instead of the euro, he would have again closed the banks and campaign for the blockchain to "forgive the debts of greece before i open them again". The situation with the euro is a lot closer to having BTC than drachma. You chose a bad example to defend BTC.

zanny 11y ago
Except you cannot do fractional reserve banking with actual BTC. Fractional reserve works by "saying" people have money in the bank that is not actually there. You could have a fractional reserve BTC bank but then every user could trace every coin they put in it and how it was loaned out, and how much money the bank has at any given time. For better or worse that kind of perfect transparency would mean its impossible to hide a failing bank. Note that some BTC enterprises today like Coinbase actually defer blockchain transactions when users are exchanging in their network. That way they can aggregate small transactions and enable temporary chargebacks. But that really is all a bank can do at most - delay doing the final transactions - because they have to commit them to the global blockchain or you never actually made a transaction.
- adrianmacneil 11y ago
  Of course you could do fractional reserve lending with BTC (technically at least, legal issues aside). When you deposit coins into an exchange today, the majority of them are sent into cold storage and remain untouched. When you withdraw Bitcoin, you are not getting the exact same coins you deposited. There is nothing technically preventing exchanges from lending out Bitcoin instead of keeping it in cold storage, which would increase the money supply. An analogy would be walking into a bank and handing the teller $100. This money goes into the cash draw (analogous to a hot wallet). When the customer behind you asks to overdraft their account and withdraw $100, your note is handed to them, but your account balance remains at $100. Now you both have $100. Coinbase does not "defer" or "aggregate" transactions between their customers. Most internal transactions are processed "off-blockchain", which simply means that ledger entries are being updated in the background and no actual Bitcoin is being transferred.
  - the-dude 11y ago
    Still does not sound fractional to me dude.
  - cvick 11y ago
    Actually, you can't. If I am in possession of 1 BTC and I give it to you, I am not in possession of it anymore -- there is nothing that I can do to get it back unless you give it back to me. There is absolutely no way to do fractional reserve lending with BTC because you can't 'lend' someone BTC -- it's either mine or it's yours. period. Fractional reserve lending "backed" by BTC is possible, but then, you're not actually lending BTC - you're lending something that is "not BTC" - namely, a promise to pay BTC on demand, which is no different than fractional reserve lending that was backed by gold in the past (or, as it is today, lending that is backed by the value of the thing that is being lent - fiat currency). The problem is that you can't think of BTC like a traditional currency because it isn't. Because it is digital in nature, it can act very much (almost exactly) like a modern currency, but when all is said and done, what you are left with is something that is much more like a commodity than actual currency. Coinbase is free to do their internal accounting in any way that they wish as long as the numbers come out 'correct' on the balance sheet, but if I deposit BTC with them and then subsequently use that BTC to purchase goods and services, actual bitcoin will be transferred from me (via coinbase) to the merchant. The merchant receives actual bitcoin as a result of that transaction, not a promise to pay bitcoin at some point in the future. This is not fractional lending. Banks are legally allowed to issue credit up to a specified multiple of their reserves, so, extending your analogy above, imagine an additional eight people behind you requesting to overdraft their account by $100. As a result of your $100 deposit, the bank is now legally authorized to approve each of those requests for a total of $900 in credit that was created out of nowhere. In point of fact, however, the bank can't just create money out of thin air. In order to extend this credit, they must have a reasonable expectation that the loan will be paid back - to act otherwise would have negative effects on the economy and the bank itself. You just can't do that with BTC, and, in my opinion, that is not a limitation, but a very positive aspect of bitcoin - it doesn't fit into the current economic model.
    - adrianmacneil 11y ago
- chkuendig 11y ago
  Of course it's possible, and the transparent ledger wouldn't help you estimate the value of the bitcoin-credit the bank has loaned out. MtGox operated as a fractional reserve for a while, and it failed due to two reasons: - Instead of investing the bitcoins to debtors they "lost" them. - The complete lack of deposit insurance ensured that a bank run happened as soon as doubts of their liquidity circulated. If you manage to fix these two problems (the second being the harder one - you'd have to work with different exchanges/banks and make sure they are regulated so they don't all fail) fraction lending isn't a problem.

by return0 11y ago

zanny 11y ago

Except you cannot do fractional reserve banking with actual BTC. Fractional reserve works by "saying" people have money in the bank that is not actually there. You could have a fractional reserve BTC bank but then every user could trace every coin they put in it and how it was loaned out, and how much money the bank has at any given time. For better or worse that kind of perfect transparency would mean its impossible to hide a failing bank. Note that some BTC enterprises today like Coinbase actually defer blockchain transactions when users are exchanging in their network. That way they can aggregate small transactions and enable temporary chargebacks. But that really is all a bank can do at most - delay doing the final transactions - because they have to commit them to the global blockchain or you never actually made a transaction.

adrianmacneil 11y ago
Of course you could do fractional reserve lending with BTC (technically at least, legal issues aside). When you deposit coins into an exchange today, the majority of them are sent into cold storage and remain untouched. When you withdraw Bitcoin, you are not getting the exact same coins you deposited. There is nothing technically preventing exchanges from lending out Bitcoin instead of keeping it in cold storage, which would increase the money supply. An analogy would be walking into a bank and handing the teller $100. This money goes into the cash draw (analogous to a hot wallet). When the customer behind you asks to overdraft their account and withdraw $100, your note is handed to them, but your account balance remains at $100. Now you both have $100. Coinbase does not "defer" or "aggregate" transactions between their customers. Most internal transactions are processed "off-blockchain", which simply means that ledger entries are being updated in the background and no actual Bitcoin is being transferred.
- the-dude 11y ago
  Still does not sound fractional to me dude.
- cvick 11y ago
  Actually, you can't. If I am in possession of 1 BTC and I give it to you, I am not in possession of it anymore -- there is nothing that I can do to get it back unless you give it back to me. There is absolutely no way to do fractional reserve lending with BTC because you can't 'lend' someone BTC -- it's either mine or it's yours. period. Fractional reserve lending "backed" by BTC is possible, but then, you're not actually lending BTC - you're lending something that is "not BTC" - namely, a promise to pay BTC on demand, which is no different than fractional reserve lending that was backed by gold in the past (or, as it is today, lending that is backed by the value of the thing that is being lent - fiat currency). The problem is that you can't think of BTC like a traditional currency because it isn't. Because it is digital in nature, it can act very much (almost exactly) like a modern currency, but when all is said and done, what you are left with is something that is much more like a commodity than actual currency. Coinbase is free to do their internal accounting in any way that they wish as long as the numbers come out 'correct' on the balance sheet, but if I deposit BTC with them and then subsequently use that BTC to purchase goods and services, actual bitcoin will be transferred from me (via coinbase) to the merchant. The merchant receives actual bitcoin as a result of that transaction, not a promise to pay bitcoin at some point in the future. This is not fractional lending. Banks are legally allowed to issue credit up to a specified multiple of their reserves, so, extending your analogy above, imagine an additional eight people behind you requesting to overdraft their account by $100. As a result of your $100 deposit, the bank is now legally authorized to approve each of those requests for a total of $900 in credit that was created out of nowhere. In point of fact, however, the bank can't just create money out of thin air. In order to extend this credit, they must have a reasonable expectation that the loan will be paid back - to act otherwise would have negative effects on the economy and the bank itself. You just can't do that with BTC, and, in my opinion, that is not a limitation, but a very positive aspect of bitcoin - it doesn't fit into the current economic model.
  - adrianmacneil 11y ago
chkuendig 11y ago
Of course it's possible, and the transparent ledger wouldn't help you estimate the value of the bitcoin-credit the bank has loaned out. MtGox operated as a fractional reserve for a while, and it failed due to two reasons: - Instead of investing the bitcoins to debtors they "lost" them. - The complete lack of deposit insurance ensured that a bank run happened as soon as doubts of their liquidity circulated. If you manage to fix these two problems (the second being the harder one - you'd have to work with different exchanges/banks and make sure they are regulated so they don't all fail) fraction lending isn't a problem.