Bitcoin Forum

Don't banks fill an important role by allowing people to take out loans and so increasing people's capacity to invest in their businesses, buy houses, etc? How will Bitcoin replace that role if there's no third-party to store people's money, deal out loans and charge and distribute interest?

I'm sure this has already been covered somewhere but I haven't come across the answer yet.

very simple. people here can create a "bitcoinbank" to give out loans to make sure people get what they need. it's not that different from how banks work right now. only bitcoin is more open to new idea's where current banks are not.

My bet is it won't, at least in a meaningful way.

Banks have already the know how to do that, people recognition and all the infrastructure in place, if they also want to loan out bitcoin as they do with Euros or dollars it will simply be an expansion of their services.

There are already some platforms that provide crowdfunding loans like BTCJam, the default ratio is pretty high and I don't think there is any real way to get the money back, still very risky investment.

Look at the loans section here. The default rate is high. I think lending bitcoin on the internet without credentials is a high risk business.

I see that working but the only problem is bitcoin has a finite supply so adding interest to a loan seems like a growing burden as all coins are mined.

The difference is that there is no "lender of last resort". So the banks are on their own. The government does not have the means to insure deposits, so that would have to be private, if needed.

Banks (Savings and loan institutions) would have to balance timed deposits with the timing of the loans. If they lend for 3 years, depositors will have to first flag that they want to withdraw, then wait the aggreed time. (If not the bank will soon go bancrupt).

The interest would be the time preference + the risk of non-repayment + the inflation expectation, all elements decided in the market.

Banks will adapt to new situation and present new possibilities to the customers, so there won't be place for "home made banks". Also creating "bitcoinbanks" to give loans is basically... re-establishment of banks.
Don't forget that banks employ smart people to think how to survive and earn big money, so in my opinion banks will stay for a long time.

Everything starts from the beginning in the head of someone, so they are all "home made".

I'm not sure that lots of the answers here address the question.
If you are asking, how can a bank worth without fractional reserve banking, I would say that is can't really, or at least it would be very different.

A bank has no incentive to lend 500BTC to someone to buy a house, when they will only receive 500BTC back.  Given that sometime inflation of the BTC supply will be zero, they could not charge interest as the money simply wouldn't exist if this was repeated around the world.  As fiat money at the moment is debt, it works with the fractional reserve system, if the whole world used Bitcoin, it wouldn't.

Islamic banks as far as I understand would work with Bitcoin, maybe that would be the future..

It works the same exactly the role that you see banks are doing. You can actually set up a bitcoin lending business and just like what banks do by reviewing your credit rating, you can also apply the concept in order to mitigate risk of default. So essentially it's more or less similar and I don't see that as a problem in the first place.

You believe that interest can not be paid on BTC because there is no money volume inflation. This is bogous, and some misinformation about what interest is, is spread on the internet. The loaner has to get the interest from somewhere else, if it is for an investment, the profit, or if it is private, future work income.

Fractional reserve will certainly exist in a future bitcoin world, but it is risky for the depositors and that will become appearant when some bank collapses. It will have to be held back by the market, just as it is held back by regulation now. If there is going to be a regulation, the reserve fraction should be regulated. If you ask me, it could be plainly forbidden, but some genius would find a way to do it.

Islamic banks are no solution. They try to hide the interest part of the loan. The islamic ban on interest can not work, noone would lend, or lending would be a gift. Works only between friends and family.

Bitcoin is just money, and it would work like your familiar money. Still, the soundness (hardness) of the money will have profound consequenses.

I don't see it working. The "bitcoinbank" would give out loans to other addresses. Those addresses can possibly default on the loan by not repaying it. It's the same as if the "bitcoinbank" were to store bitcoin. The coins could easily be transferred elsewhere for the coins not to be returned. I also don't see a bitcoin bank being able to operate without anyone having an incentive to use their service. They won't be able to give interest as they would have to up the transaction fee a lot - which bitcoin avoids.

Yes, and that's why bitcoin will never replace banks, though it may influence or force them to change their ways. I see bitcoin more of an alternative system than something that is meant to destroy the banks.

People can still issue loans with bitcoin so nothing much will change there other than the use of the blockchain to send money. You can just check out the lending section here to see how people are providing loans.

It will be like going back to the past about 400 years. When there was no fractional reserve banking, interests were high and very few people were qualified to borrow money. It will be much better.

Because most (but not all) consumption can be done with money already earned, and all investments can be done with saved money (individuals or associations).

I don't think you are describing the Bitcoin that Satoshi wanted or made.

If there is fractional reserve banking, to allow bitcoin banks to make loans with interest, leading to banking collapses; and if Bitcoin is just money like our familiar money, then why not use Paypal on your mobile or Apple pay?

Bitcoin is supposed to be different, not just a new replacement currency in the exact same crappy mold of the current ones.

I think I am quite in line with satoshis thinking, he clearly wanted bitcoin to be sound money.

None of those two alternatives (Paypal, Apple pay) are money, they are services to transfer money.

There have to be collapses if fractional reserve is becoming rampant. By definition, the bank does not have the money to pay all depositors. The fractional reserve bank is by definition insolvent. Still, on a low level, it can work, and the bank (and depositors, if the deposit market requires it) can earn interest on the money not held in reserve. Therefore it will exist. They key is demand deposits, that is, deposits with no time limit for withdrawal.

Envision a prudent savings and loan institution, a traditional bank. Imagine that the deposit money (the actual paper rectangles) are stored in the banks vault, just to make it simple. Let's say the bank gets a hundred customers with 10K USD each, that is a million USD. Then the bank starts lending those money on a 3 year basis to ten customers with 100 K USD each, also a million. With time deposits of 3 years, the loans will be paid back in time for the depositors' withdrawal. With demand deposits, however, the bank is insolvent the minute it offers the first loan. This is currently legal, and the government backstops the losses with newly printed money. That is clearly not possible with bitcoin. The depositors must demand that the bank is solvent at all times.

With demand deposits, a bank can not pay interest, and at the same time stay sound. Another difference is, there will be no demand to just store the money in a bank, as in a demand deposit, with bitcoins. It is easy and possibly safer to store them for yourself.

There will still be demand for time deposits, because you might want the interest and free yourself from the risk. It is like lending directly, except the expertise of the bank in considering risk, and the pooling of small deposits into bigger loans (or vice versa), will make the bank service worthwhile. Also, the bank should have some equity at the bottom that you can rely on if a loan still is lost.

Bitcoin loan may be not secure like banks do , just we need to take a collateral in each
time or we can get some official papers to do it . but really will be harder then
using a bank .

Bitcoin Boy .

Yes, the services of the bank can be an advantage for the saver.