Bitcoin Forum

So it's easy to understand that the total number of Bitcoins will never exceed 21 million, and will in fact only decrease over time as some get lost. 
It's further a simpler step to understand that they can be subdivided (to a point) so that they can be used to pay for all sorts of things.  I.e. if the price of a bitcoin climbs to about $2000 per usd, I can still get by coffee for 0.0015 BTC. 

But I've heard that reverse fractional banking will be the ultimate savior to bust through the roof of this limit, because it will allow the total number of Bitcoins in circulation to effectively exceed 21 million.  My only question is, how on earth do such things become regulated?  Would lending get out of control?

You can issue non-blockchain promissory notes in lieu of actual bitcoin. This happened with gold in the 19th and 20th centuries, for example.

Whether there'll actually be any incentive to do that voluntarily, of course, is another matter.

Correct, money supply as now measured with M2, include bank deposits, that means the supply can be multiplied. But bitcoin is different from fiat money since there is no central bank and lender of last resort, and it will not be possible to bail out a bank or having a government guarantee of deposits. There will be runs on banks and people will experience losses, therefore fractional reserve banking can not go so far as it currently does.

Bitcoin fractional reserve banks can be reulated by requiring a minimum reserve fraction for the bank. Of course, only 100 % reserves will be good enough to protect against a bank run, but in that case the bank would not be fractional. You will also not get interest on deposits in such a bank, and you will have to cover the cost of your deposit.

One might say that free banking is inherently regulated by bank runs.

That is one theory.  Another theory is that the limit is not a problem.  Another theory is that if the limit ever appears to be a problem, satoshis can possibly be subdivided.

The term you are looking for is Fractional Reserve Banking.

This thread died out when on top. Thats great guys.

How would subdividing a Satoshi work?

Create a separate cryptocoin that is pegged to the value of a satoshi rather than allowing the value to float freely.

or

Modify the current protocol and get an overwhelming majority of users and miners to all agree to use the new protocol.

Internal accounting off the blockchain.

In addition to what is already said: The nanobitcoin term could be used, even if it is not possible to pay such a small amount.

I wonder if the market for such financial tools is there. I personally would not want to involve my bitwealth in fractional banking.

Or use a 100% reserve bank.

Basically, you deposit 1 BTC in a bank to earn interest.  The bank lends out that 1 BTC.  Now you think you have 1 BTC and the borrower has 1 BTC.  So it is as if there are 2 BTC now in the economy.  Although technically, there is still only 1 BTC.


51% of the network would have to agree to allow you to transfer a smaller precision than currently allowed.  


Free markets are self-regulating.  If the bank lends out to too many bad people, it will go bankrupt.  Banks that lend money out to good people, will stay in business longer - attracting more business & getting a better reputation.  Trying to use regulation to babysit people will only keep them from learning from their mistakes, while punishing those that know the difference but have to pay for the regulation regardless.

I assume you are talking about changing the protocol.  In which case I FTFY.   :)

There are other solutions that don't require the network to agree at all such as a separate cryptocurrency that is pegged to the value of bitcoin or various off-blockchain accounting measures.

As I understand it, it depends on the change.  If the old blocks will continue to be valid in the new protocol, then you will need 51+% so that the chain with the more precision is longer.  If the old blocks will be invalid, then any percentage will work because you've basically just created a new cryptocurrency.

If the new blocks are not valid under the old protocol, then the blockchain will fork.

There will be 2 blockchains that share the same blocks up to the point where it forks.  Then those miners and users that run the new protocol will see only new protocol blocks added from that point, and miners and users that continue with the old protocol will continue to see old protocol blocks added from that point.

If the new blocks are valid under the old protocol, then you haven't really changed the protocol (since the protocol is what defines what is valid).

If even one miner continues to mine using the old protocol, then the "original" bitcoin protocol will continue to exist, and anyone who runs the new protocol will be running something different than bitcoin that the users happens to be trying to call bitcoin.  If any significant number of miners and users stay on the old protocol you will end up with two separate systems both trying to call themselves the "real" bitcoin.  There will be a period of uncertainty when you won't know if the payment you are making on "your" bitcoin will be received on the "receivers" bitcoin unless you first determine which protocol they are using. A user of the old protocol who still has unspent outputs in the blockchain from before the split will be able to "double spend" their bitcoins, sending them once to someone on the new protocol (which nobody on the old protocol will see), and then again to somebody on the old protocol (since they will appear to be unspent there).

If I write a new protocol to accept precisions up to 8 or 9, then my client will accept both blocks.  The old protocol will reject my blocks (because it only accepts precisions up to 8), but I don't really care as long as I have more than 50% of the hashrate because I will always have the longer chain.  Of course, all non-miners could abandon the new bitcoin protocol regardless of hashrate.  This would cause the hashrate to return to the original protocol because it'd be worth more.  At the end of the day, its really about what currency is most valuable.  And a currency with more precision (if needed) will be worth more.

And eventually all of that will get sorted out, as the market will develop mechanisms for dealing with those uncertainties and people make their own personal decisions about which blockchain or blockchains they want to stay with.

Exactly, but unless/until the new protocol has 100% of the hash rate, the old protocol will still exist.  It isn't enough for 51% of the network to agree to change the protocol.  Any protocol change requires a consensus (100%), otherwise the blockchain forks.

Now it is possible for the blockchain to fork for a while, and then eventually for everyone to abandon one fork or the other, but until one of the forks is abandoned, you have 2 separate cryptocurrencies.

If you don't care about splitting the blockchain, you don't need 50% of the hashrate.  Just change your protocol to no longer accept any new blocks on the old protocol.  Then you can add your additional digits of precision with a single miner and a single user.  If everyone likes the higher precision, they will switch over to your new protocol over time and eventually abandon the old protocol.  What is the benefit of allowing blocks from the old protocol after the split?

Right, and that may sort out by one version winning, or it might sort out by both versions coexisting indefinitely, or for a very long time.  This could happen even if less than 50% adopts a new protocol.

So we are in agreement then.  To change the protocol defined as bitcoin would require 100% of the network to agree.  Anything less than 100% and what you are doing is creating a new cryptocurrency that can co-exist with bitcoin and which may or may not replace bitcoin in the future.

No, no, no, no

You do not need fractional reserve banking for bitcoin, as it is very divisable. You have the ability to pay anybody in the world instantly, Why would you need a bank? if you need to store money you can create as many wallets as you want and back them up on to a flash drive. And for lending you have individuals or crowd funding, who needs banks???

First of all money is simply a paper contract, an obligation to pay, a promise, a promisory note, a letter of credit, just an I.O.U
You can write an IOU 1Bitcoin and try and spend it, heck if your wealthy and credit worthy people might even accept it, this is the same as money used to be- it used to be a note that indicated a debt obligation and years ago you could take your promisory note to the bank and redeem it for gold.

Now because everyone is lazy and were not redeeming there gold the bankers decided they can lend out more money then they have gold. Now they don't even need gold they just create money electronically, the sad thing is that people do not understand this;

they think there money means something. When lenders charge interest that interest is not already in the economy so there is always more debt (paper promisory notes) than the amount required to satisfy all the debt. So in NORMAL economic times when they are not doing quantative easing (printing fiat money or creating it electronically) The intrest rates charged by banks can be set arbitraraly and the money supply will never be enough so people are year by year working harder and longer and not getting any better off.

I think in the next few months years when things finally collapse economically big style you'll be sure you don't ever want to see another fiat money bill or a bank or banker.

This would not work as i dont believe that you would get 100% Agreement from everyone so the only option in my eyes would be that the protocal is changed and it is called bitcoinv2 so basicly there would be two diffrent bitcoin networks and i suppose there could be 3 or 4 diffrent bitcoin networks i n the future ,


The question is tho is if there were multiple bitcoin networks would it be possible to link them all together to them make the one currency again .

What's wrong with competiting cyrptocurrencies?  Naming convention?  You'll never have 100% of the vote.  It won't be easy to transition to a new protocol, but there are several hardcoded changes that will need to be modified to match demand if bitcoin continues increasing in popularity.  The benefits of creating a new protocol that works with both is that miners can try to straddle the fence during the transition.  Trying to figure out whether to use the old or the new will be a personal decision/vote for all of us.  It may be so difficult that exchanges open up between the different protocols.  Another cryptocurrency may have to start from scratch with the new implementations.

I've agreed with everything you've said there so far, except "The benefits of creating a new protocol that works with both is that miners can try to straddle the fence during the transition."

Since new blocks include the hash of the previous block, the miner will not be able to generate a single block that will be accepted by both systems.  To "straddle the fence" the miner will have to be searching for two different block hashes simultaneously, one for each system.  This can already be done if the new system doesn't accept blocks with the old precision, so there isn't any benefit to having the new protocol accept blocks that still use the old protocol.

My point all along was that it doesn't require 51% to enact a change in the protocol.  If you want a second competing crypto-currency, you can do that with a single miner and singe user.  If you want to completely replace the current protocol, you need 100% adoption.

If a miner has the new protocol, but only gets transactions with the old precision (either no one wanted the higher precision or they are using older clients), then the miner could mine the block & it would work with both protocols.  If the miner with the new protocol, gets at least one transaction with the higher precision, then the acceptance of that block will be based on the hashrate of the new protocol.  If the old protocol has the higher hashrate, then the block will be ignored, and the old protocol will continue to have the longer blockchain.  If the new protocol has the higher hashrate, then the block will be accepted by the new protocol (ignored by the old), making the new protocol's blockchain the longest.  At this point in time, the chain will fork into those using the old protocol & those using the new.  The old protocol and the new protocol can coexist as different blockchains if the new protocol's blockchain is longer.  If the old protocol's blockchain is longer, the new protocol will always try to add a block to the old protocol's blockchain.

Using this method of working with either protocol allows the miners to not risk losing all of their potential block rewards/transaction fees.  Because until the hashrate is higher for the new protocol, they will lose all of their reward/fees.  This also allows all the miners to setup ahead of time without bringing down the whole network.  A miner could make this change today & no one will notice until someone tries to submit a transaction with a higher precision & it gets accepted into one of the miner's blocks.  Of course if they are the only miner to update to the new protocol, the block will be rejected by everyone else & they will lose that reward/fee money.  It'd probably be best for the larger miners to get together and coordinate a day to start accepting the new protocol if they want to minimize amount of reward/fees lost.