Bitcoin Forum

First off, note how I didn't say central bank. When I say that a Bitcoin Bank may be needed, I'm simply saying it may be best for the currency if somebody started one. I'm not implying that the actual Bitcoin protocol should change, except perhaps where necessary to allow greater transparency. Again, Bitcoin itself should remain entirely neutral, otherwise it will be destroyed. I'm im simply implying that business that make use of Bitcoin could perhaps improve the currency - and thus their business - by forming such a bank.

By Bitcoin bank, I mean an institution, controlling a range of primarily debt-based assets, whose purpose is to provide liquidity while ensuring greater stability, both in exchange rates, and interest rates. One problem with Bitcoin at the present is that, although clearly it has time value, it is extremely difficult to invest said Bitcoins without taking on a huge amount of risk. The reason for this is largely due to an inefficient Bitcoin credit market. Bitfinex is a great example of something that, with a little work, could become such a bank.

The first step is creating an actual margin credit market. Bitfinex's margin credit market is problematic since the debt is not transferable. In a true margin credit market, new margin loans would not be any different than existing ones. When somebody wishes to borrow Bitcoins, they would simply issue a security backed by the value in their account. The security would have an amount, limit, and time-span attached to it, and should be sold, just as it is now, on a free market. The important improvement would be that these securities could then be re-sold, on the same market, to new buyers, indistinguishable from freshly-issued securities. This allows much greater liquidity in general since buyers can opt for early withdrawl of their money by re-selling their security.

The second step would be to make borrowed funds indistinguishable from other funds (except obviously for the purpose of restricting withdraws form the account). This means that those that borrow USD, to leveraged-buy Bitcoin, can then re-lend those Bitcoin for a lesser period, earning some interest, and improving the credit market as a whole by providing more demand & supply on both sides.

With the resulting improvements to liquidity, many of the inefficiencies associated with the actual Bitcoin exchange market would be resolved as well. Suddenly, arbitrage is no longer as big an issue with the time delay associated with moving money from exchange to exchange because, in the interim, leverage can be employed to maintain a net-0 exposure to fiat (or BTC) value. This makes exchange rate less dependent on any given exchange, improving stability. Not to mention the fact that people would actually be able to generate a stable return by lending BTC at minimal risk, which would increase demand for Bitcoin.

I would agree with the idea of a bitcoin bank.

Yes banks are evil, but for wider adoption, people don't want the responsibilities that banks take care of. Security being a big one for many.

Hopefully bitcoin will create a good about of competition in the banking sector and not be responsible for creating monsters like we have with the current banks.

Bitcoin is not a currency. It is money on your wallet. Bitcoin bank is not suits its nature. There is no gold bank or no diamond bank.

I wonder if input.io can be considered a Bitcoin Bank when it does offchain Transactions

There were & are plenty of gold banks. There is no diamond bank because diamonds aren't used as money.

No no no. Banks go against the very nature of bitcoin.

Bitcoin is inherently a bank.

+1

If people with large amounts of BTC want to lend, then they will be in a very powerful position to set borrowing rates and influence the economy (much like the central banks do now).  Will we be making global regulations to control the rates and policies that the large holders of BTC (essentially a new central bank) can apply to the economy?

Yes, we need a bitcoin bank... is mcxNow consider a bank since its giving interest? :)

Even if bank do accept Bitcoin, they will treat it like Gold and they just act as a middle man like BTC-e.com

Sounds iffy, especially when it comes to fractional reserve methods.

No.

The free market will do that for you.

No bank for me, thank you!

MMM well if a bank is an eventuality, we may as well try and restructure them to be more decentralized but still be banks :D

Yeah we can call it, I don't know, maybe use a computer term in the beginning and add coin to it. ByteCoin?

I was thinking more like a cold wallet server room, with a hot wallet for daily usage and the rest locked in cold storage inside a mainframe
I would call the place Reboot
(With Bob as the Guardian)

Banks steals your labour. Bank system is a peace of shit that world does not need them.

Consider to watch below video.
http://www.youtube.com/attribution_link?u=%2Fwatch%3Fv%3DiFDe5kUUyT0%26feature%3Dshare&a=XdyjzhYwIKpxS3URZ54yzg

I think a sort of bitcoinbank isn't usefull. Why you need someone who "holds" your money (something you can yourself via a wallet) and steals money for their clients and others?

What bitcoin needs is some brick and mortar locations. A place where I can go and drop off $100,000 in cash and get my bitcoins before I leave. Require multiple forms of ID maybe even a handprint. Require more informoration than banks and follow all the rules. Give them zero reason to shut it down.  I have been thinking about this for a bit now and reading up on the financial rules and regulations. This would be the moment bitcoin hits mainstream. Right now it is too hard to get bitcoins for USD. I have been trying for about 8 days now just to get a few coins. If people could fly into a major city and deposit cash and walk out with their coins, bitcoins would take off in price.

The problem is you can't do that with Bitcoins, same with gold :)

A fractional reserve bitcoin bank is quite impossible, because no one would be able to insure deposits given the tremendous upward potential. 

An uninsured fractional reserve bank is just another risky investment vehicle, and doesn't provide the benefits you are aiming for.

A full reserve bank is possible, but has no way to make a profit or pay interest from this banking business.

That leaves various forms of accidental bitcoin account/wallet providers, who make a profit by being exchanges, advertising or gambling. Exactly what we already have.

"Do we need bitcoin banking" is a difficult question, but "do we have fractional reserve banking?" is ridiculously simple:
Uninsured fractional reserve banking did, does & will continue to exist in bitcoin.

Think back to Pirateat40 Savings & Loan.  Think of the various "insured" passthroughs (Patrick/Starfish).  Fast-forward to all of the Ukyo stuff.
Fractional reserve lending is profitable, that's how it came into being & that's why it exists.
Enlightened self-interest, free market & the invisible hand worked in consort to establish it as the central pillar of the modern financial system.
Enjoy :)

My point is that the insurance schemes of the past did not work. People should have learned it never will with bitcoin, at least not while still growing exponentially. Some of your examples are ludicrous, no one has ever checked or just seen the collateral pirateat40 or Patrick was supposed to have. That's not insurance, that's just plain lies to get people on a ponzi.

In the so called modern financial world central banks have the ability to insure arbitrary losses by just printing new money. This is the reason people still trust banks with their (small) deposits despite the constant news.

This is not possible with bitcoin. Hence a deposit in a fractional reserve bitcoin bank must be seen as high risk investment, in particular more risky than just holding bitcoin. That's not what most people wish for when asking for banking services. And that's why I dispute calling them banks at all, and claim traditional banks are not viable with bitcoins yet. This may change when the market saturation is much higher.

The passthroughs were billed as being secure, and people invested in them as such.  To be honest, i haven't bothered to check the financials of my bank before depositing money either, though most folks on this forum insist that fiat is a ponzi also.


I agree that it's riskier to invest money than to hold it, and technically the coin deposited in uninsured bitcoin banks is more accurately described as an investment rather than a deposit, but the distinction is pretty vague.  Insured banks are a relatively new development, and a central authority/entity/lender of last resort is not necessary for fractional reserve banking.  Bitcoin bankers could follow in the footsteps of conventional bankers, forming conglomerates/peer contracts/guild regulations to create a p2p insurance scheme.

The creepy thing is the very same schemes invented by mainstream bankers, the very ones which necessitated regulation, are being rediscovered/reanimated by bitcoin's new banker elite.  Both curious & disheartening to watch.

Its like nobody in this entire thread even bothered to read my OP.

Clearly "normal" banking (everybody trusts a central authority to hold their money, and then this central authority tries to effectively siphon off as much wealth as possible without anybody noticing) isn't necessary for Bitcoin because a wallet is a way of storing your coins without any counterparty risk.

That's now what banking has to be, and that's not what I was talking about. There are other purposes of banks, other than the above. Banks help markets run by providing liquidity and credit. In other words, there's banking as an investment, too, not just banking as a store of value. Bitcoin does need banking as an investment, because those investments do useful things for an economy, and help Bitcoin run smoothly. Bitcoin doesn't need banking as a store of value, because Bitcoin already is a store of value. Bitcoin might need banking as a easy way of transferring money in small quantities (offchain transactions).

You guys seem to entirely ignore all facets of Banking other than store of value, which clearly Bitcoin obsoletes, even though I didn't even mention that outdated form of banking in the OP and was specifically talking about banking as an investment to allow a real credit market to exist.

Have you read the four posts directly above yours?

Indeed I have. They all focus on banking as a store of value - you say that uninsured bitcoin banks are risky and may lose value - rather than the fact that they could help set up a much needed credit market.

Quite the contrary.  We're discussing banks as lending institutions, which have been with bitcoin for quite a while.  Pirateat40 presented his scheme as a bank, which, like all other banks, didn't simply "put coin in the vault for safekeeping," but *invested* the money or *loaned* it at a higher rate of interest.  Simple. Edit: Unless the bank does *something* with deposit money, it can't afford to pay interest now, can it?

So yeah, banks as sources of credit are addressed, and shown to be (thus far) sources of much moaning and gnashing of teeth in the world of bitcoin.  I even offered a plausible p2p fractional reserve lending insurance scheme  :)

Edit:  The Lending sub-forum, where usury and theft are pitted against each other in an eternal battle of greedz, is a fine example of banking every enterprising young fellow could do in his spare time.

Personally I think we need a bitcoin bank for the majority of people with little or no system security knowledge.

Bank as in safely secures my deposits and perhaps something like FDIC for deposits.

I disagree.

Bitcoin "bank" implies centralization in my view. Centralization implies single-point of failure which implies regulation etc etc etc.

Bitcoin enables you to be your own central bank and to protect your own net worth without it being someone else's counter-party risk.

Not good enough for 99% of the rest of world, you and I are IT people most are not and don't have the first clue about system security and wouldn't feel comfortable doing so anyway.

Central banks aren't intrinsic to banking.  There were once many independent banks, issuing their own currencies, loosely regulated by the states in US.  They existed in parallel with the Banks of the United States & printed their own paper.  Then the regulations were loosened up, and banks started failing.

OP has a valid point -- banks are needed to fund large projects like building ... really big things.  It's pretty inconvenient to have to crowd-source everything.  Having to solicit funds from the great unwashed stymies industry (which may or may not be a bad thing).
To raise capital without banks, one needs to be a great salesman on top of being a great builder/entrepreneur/warmonger etc., etc.

If you want, a bank is just a local loan shark -- who pays you interest when you lend him money, and lends out your money at a higher interest.
He's pretty much a bare-bones full-reserve bank. :)

There's a site called "co!nb@se.c0m" that does this already.

The problem is that some people can't be bothered to protect their own wallet and want someone else to do it, for those people the idea of a bank may be a better idea, the solution is not that their should be a bank but how can we design one that isn't evil :)

There is already a bank for Bitcoin, MCXNOW is one...

Many of us are not used to digging ditches -- that's why we have ditch-diggers.
Many of us are not used to building cars -- that's why we have auto manufacturers.
Many of us are not used to doing surgery -- that's why we have surgeons.

Centralization starts kicking in as soon as life gets past single-cell organisms.  Man, for instance, has brain cells that do braining, lung cells that do the lunging, and ass cells that do assing.  All specialized, all centralized.  Every thing more complex than mold works that way.

You don't want bank to freeze your account if you are doing something illegal like gambling and stuff...

Oh my god. I'm talking about a bank for use as a market maker in Bitcoin credit markets. How will the ability to exchange credit give them the ability to freeze your account. Its not like just because a Bitcoin bank exists suddenly wallets don't work.

Sorry about disagreeing with you before -- you were right.
I guess most people here do think that a bank is just a place that stores your money, lets you write checks, and pays you interest for the privilege of providing that service.
No wonder most here think that banks are a scam.  Banks like that *would* have to print money to be able to pay interest on deposits, pay rent & salaries -- where else would the money come from, amiright?

Bitcoin presents ways for users to be WAY more clever and market responsive than archaic and scoleric traditional banks will ever adapt in to. Just look at mcxnow, etc ... Just one more reason why btc will replace banking anyways; just look how banks fail more than half of humanity as being completely useless !!!!! :

http://finance.yahoo.com/blogs/daily-ticker/cell-phones-transforming-world-microfinance-132554814.html

.

What a shame huh? People can't be fucked doing the minimum required to take responsibility for their own interests. Naturally there will be greedy operators willing to exploit their laziness. Bitcoin makes banks redundant and that is good. You can never underestimate the value of decentralization. Going back to a new central service every time a little invonvinience crops up is foolish and lazy. Let them try to create bitcoin banks though; let them try to invoke primitive technology as innovative solutions. People will get burned for no good reason, other than their own laziness.
 
Nobody said a fool and their bitcoin could never be parted. Any kind of central authority/service is the wrong kind of solution because it tries solving the  wrong problem. Better that we have education facilities and tools that make security more intuitive while helping people to understand the need to take responsiblity in free-speech, democracy, safe sex, recycling/environment and yes, personal security (including by trying mitigate the risks borne of using centralised services to defer our responsibility.)
 
In summary, the market you have identified, is not in banking, but rather in security tools and education.

Judging from the history of bitcoin investing, from Pirateat40 to Labcoin & friends, free speech isn't very effective -- it gets labeled as FUD & shouted down, and the enlightened money-rebels continue to ... "invest."  Without lube or condoms. :D

Edit:  For further edification, please visit https://inputs.io/  :)

I think you are confusing dissent with censorship. I may disagree with what you say, but I will fight to my death, for your right to say it.

You're missing the point, that being: free speech has proven itself ineffective in stopping enterprising youngsters from parting bitcoiners from the coins they love.  Fact.
Censorship is not the issue here, so please don't fight to the death for my right to say shit that falls on deaf ears.

Oh! Right then. LOL Anything else I can fight to the death for then? Just feeling a wee tad gladiatorial tonight. ;D

There have been several Bitcoin banks. They've either been scams or they've been hacked.

I'd like to see a Bitcoin broker/dealer that was registered as a broker/dealer in a major country, with audits and customer insurance.