If we reach $40K, I'm out And I do think $10K is possible this year.

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OK fine, here are the details and my passport (already verified with driver's license and had swift code already entered).

They required that I prove where the coins came from that I sold. I provided the receipt from the exchange. Here is what they came back with.

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Money is finally hitting the exchanges. This could get nuts..

Woo hoo we understand each other now.

The good news is any such devaulation should be minimal (at least compared to fiat currencies).  Here is why

PurchasingPower = 1/ EffectiveMoneySupply

EffectiveMoneySupply = MonetaryBase * MoneyMultiplier

MoneyMultiplier = (%FundsOnDeposit / %ReserveRequirement) + %FundsOffDeposit

So looking first at the monetary base.  With Bitcoin it is growing fast but eventually will slow down and it is capped at 21M BTC.  So with 12M BTC outstanding we know it can't even double.   That puts a limit on the upper bound of the effective money supply.
Lets compare this to the federal reserve. http://research.stlouisfed.org/fred2/series/BASE/

1985:  $182B
2014:  $3,984B

So the federal reserve alone has expanded just the monetary base by >2000% in just 30 years.

The second component is harder to quantity.  A lot will depend on how popular bitcoin "banks" are.  What is the demand for bitcoin debt?  How much of a reserve will these banks hold.   In the fiat world the reserve is 10% and roughly 100% of funds are on deposit.  Cash not on deposit is a small portion.  So the max money multiplier is 10x.  In reality bank tend to be more conservative the money multiplier currently is ~3x.  You can see this in the M2 (relative to the monetary base)
http://research.stlouisfed.org/fred2/series/M2

The fed no longer tracks the M3 some estimates put it at 50% higher than the M2 making the money multiplier more like 5x.

I believe that Bitcoin banks will never be able to sustain a money multiplier of 5x.  First not everyone will have their funds on deposit "personal wallet = fiat cash" and a greater portion of the supply will be held outside fractional reserves.  Things like demanding provable reserves for exchanges (who shouldn't be banking) will verify there is no multiplier on those funds.   How much of the money supply will eventually be fractional deposits?  I have no idea but if I had to guess I would say probably less than 20%.  Bitcoin "banks" aren't going to be able to support a 10% reserve.  With no FDIC and central bank, bank runs will be a real threat.  Remember a bank run can kill an otherwise healthy bank.  Even rumor could be enough to start a bank run.  The only protection banks have in the absence of FDIC and a lender of last resort is to be both conservative and transparent (provable reserves can be used to verify the reserve %).  How low of a reserve is possible?  No idea but lets say no less than 50%.  So the multiplier would be something like (0.2/0.5) + 0.8 = 1.2X.  That would mean the sustainable monetary expansion would be no more than 20% more than the monetary base (13M or 21M BTC).  Honestly I would hope even that won't happen but it is possible.  Remember without a central bank to print infinite money to back up failed banks it is possible the money multiplier could spike but if not sustainable then as the banks implode it would crash back towards zero.   Those holding "real BTC" would see their purchashing power rise as the banks failed and the money multiplier collapsed.

If you have a coinbase account and you pay a merchant who has a coinbase account guess what?  The tx is off blockchain.  Now imagine Coinbase and Circle setup a mutual line of credit for 10,000 BTC.  You could pay a Circle merchant from your coinbase account and it still wouldn't be on the blockchain.   Now imagine one of those companies lent out 1 BTC.  Tada that is fractional reserve banking.    

Lythos, currently, I think you have no problem into believing that there exist more numerical money in bank account than printed bills.
And also you accept both, bills and wire transfer to get paid.
You know that if everyone ask for bills in the bank, then there will not be enough cash. But you don't care because you can pay goods and services in both, cash and wire, or credit card.

Now, even if the cash supply is not expanded, if someone move the reserve legal, it will provoke more "numerical money" to be spendable, thus making the money supply bigger.

All of this is possible just because you are accepting both debt (your bank statement is debt from the bank), and cash as payment.

Sure, moving the legal reserve does not impact cash supply, but it impact money supply.



True, not possible on the blockchain... As you can't lend more cash than you own...  
BUT the banking system can lend more money than it own. Why is that ? (As I explained with the iterations)
It can because now, you accept both cash, and the bank's debt as payment.
If tomorrow people start accepting bank's promise to pay them back instead of real BTC, we will get in the same trap.

And it start happening with BitPay.

all transactions are done in cash then fiat fractional reserve banking is equally impossible.


Then likewise banks can never lend out in cash more than they have in deposits.   You are simply using one context for fiat and another for bitcoin where no such distinction exists.

Ok very simple example which is exactly the same as your example.

Two bitcoin banks exist.  Bank A and Bank B.  Bank A & Bank B have a mutual line of credit for 10 BTC.

Bank A has 10 BTC in deposits with 1 depositor.
Bank A lends out 9 BTC.
It has 1 BTC is reserve.

The one depositor spends his 10 BTC with a merchant who uses Bank B as a processor.
Bank A has now 10 BTC (owed to Bank B) in debt with 1 BTC in reserves (and 9 BTC is assets = the loan).

They wouldn't and if there is only one fractional reserve bank then the effective money supply wouldn't expand.  However if there is one there will always be more.  You could say the same thing about fiat banks.  How can a fiat bank lend more cash than it actually has.  The answer is that it doesn't, it never does but it will acts a multiplier on the monetary base.   Fractional reserve banking predate fiat currencies by more than a century.  It was used in gold banks (and still could be today). 

Monetary Base * Money Multiplier = Effective Money Supply.

In a fiat currency the monetary base is created from nothing by the central bank.  The money multiplier is based on the compounding effect of fractional reserves.  In the Bitcoin world the monetary base is fixed (or can only grow based on the minting algorithm).  The effective money supply is then the monetary base times the money multiplier.  That being said I expect fractional reserve banks (lacking FDIC and a lender of last resort) to be both unpopular, prone to failure, and limited by large reserve requirements.  That means the money multiplier will probably be very low but it isn't guaranteed to be 1 as fractional reserve banking is still possible.

A fiat bank can never send you more cash than they have either*.  Your fiat bank example works just fine until everyone tries to withdraw at once and then you have a bank run.  The bank can't pay everyone, other banks aren't going to accept lines of credit from the sick bank and the bank implodes.  This is avoided in modern fiat systems by the combination of FDIC and a central bank (who can print as many quadrillions of dollars necessary to make sure the banks don't fail).  See my post above.   It is very possible to have a bitcoin bank but when it fails it will fail hard with no federal reserve printing the value of the coins into oblivion to prevent that failure.  The risks of using bitcoins banks will be extreme and hopefully that will mean people don't use them but if they do eventually the banks will fail and depositors will be wiped out.


* I used cash because it makes for an easy example, but wires and ach/sepa transfers require the receiving bank to trust the sending bank.  Banks have interbank lines of credit and when a bank gets sick the other banks tend to pull those lines of credit.  They won't credit wires received from the sick bank because they are unsure the sick bank can cover that debt.  This is normally where the central bank and national deposit insurance (i.e. FDIC) step in.  That won't happen in the Bitcoin banking world and when a Bitcoin bank falls on hard times it will fail.

lythos, you can't lend more real BTC than you own, but you can lend debt BTC.
It is the same process as now : You can't lend more bill than your own. But you can lend debt.

This is equivalent to say : I have 10000 $ in my bank account, I lend you 1000$, now I have 9000$. These 1000$ are not bills, but debt.


I completely agree, again, I am not forming an argument about that, if I thought debt Bitcoin were good, I would stay with our paper money, and don't care about bitcoin.

What I say is that today, you are accepting both : Bills and wire transfer to get paid for your work.
Bills and wire transfer is exactly the same as "real BTC" and "debt BTC".
If in one point of time, people accepted to be paid in both, Debt and Paper, then why this would not be the case again with BTC ?

They don't have monopoly in the money transfer program.There are plenty of services for money transfer and a lot of alternatives like Moneygram , the one my relative use.

The problem with WU is when you send small amount but on larger sums , bitcoin is not a solution either.
Indeed WU is taking 10- to even 20% of small amounts like 100$ but when it comes to 10 000 the percentage is much smaller.For example 100$ it costs me 10$ , for 1000 only 25$.


In case of bitcoin , if you want cash from those bitcoins you're going to deal with the rates dealers have and in my humble case (living in eastern europe) with only 4 or 5 active traders in the whole country I'm losing 10% on any amount.

Describe "large"


I personally rarely use cash anymore. From food to gas to buying something else, I use my debit/CC's. In the very near future I hope to use my Bit/Lite cards .

I can lend out way more BTC than I own...