What about a bank that says "You can buy some nice stuff from us against your deposits anytime, or give them to someone else, or we can pay you if we have money available"?

Well sure, with bitcoins an audit is cheap and easy. With assorted physical commodities, you need a detailed appraisal. If you want to go through that every day, be my guest.

If I were running a private bank, I would probably agree to undergo up to one audit per year, conducted by any well-known audit agency at the expense of the party requesting the audit.

bitdragon: good point... I could buy call options on around 2000-3000 BTC at the current exchange rate or a bit higher, and consider the premium as an insurance premium. It also sounds less crazy to others if I can say "I invested $300, I might lose it all but the upside is huge," instead of "I invested $5000, I might lose it all but I'm insured so it's totally okay." Come to think of it, I already tried this but didn't get a big response.

Well, let's try it again! I'll put an offer up on Nefario's exchange; in the meantime, is anyone here interested in offering me a competitive rate on one-year call options at, say, 1.9 USD? American or European, your choice.

I'm not totally sure whether clearing houses are considered 'fractional reserve'. They are an example of the real bills doctrine in action; this is a rather misunderstood doctrine and needs some explanation.

Under the real-bill system, a bank pays for assets delivered with a bill of credit: a bearer note that it promises to accept as a tender for one silver dollar. In fact, the bank may even have some silver dollars on hand and exchange them with notes as a convenience (but doesn't promise this). Because the bank is so widely known and trusted, others are also willing to accept this note. Since all notes are issued in exchange for assets, they can all be honored: in the limiting case, if the bank shuts down and sells all its assets, you will be able to buy them with the notes you are holding. The only risk is that the bank's assets will depreciate so far against silver that they can't cover all their circulating notes, and this is fixable: the bank can divert some of its income to buy more silver or other stable commodities, or simply hold insurance against depreciation.

This has a lot of liquidity benefits for the public, compared to keeping an actual silver dollar on deposit for every note issued. Silver is quite valuable, but not as valuable as the rest of the ownable universe put together; if I wanted to sell a few ounces of, say, antihydrogen, it's doubtful anyone could amass enough silver to pay for it. I'd have to barter it away and then find either a use or a buyer for all the assorted goods I received. I'd much rather receive notes I can trade as if they're silver, because one or more well-known creditors have made a binding promise to accept them as if they were silver.

The real-bills doctrine says that this system will not lead to inflation as long as bills of credit are only issued against true assets (not expenses). This is the case even if the bank holds no silver at all, as long as it is bound to accept its own notes at parity with silver. The Keynesian school agreed with this analysis: the reason the system was dropped was precisely because it was non-inflationary.

It's arguable whether this is really fractional reserve banking, since the bank has enough assets to outweigh all its silver-denominated debts, just not enough silver. But if the assets issued against are accounts receivable (i.e. loans), it looks pretty similar to me.

I'm getting wildly different estimates from one day to the next, with regard to how long mining will be profitable. I'm not planning to build a high-powered rig---just to keep running my one 5970 until I start losing money---but I don't think the revenue/cost ratio is much higher on two cards than one, so that shouldn't affect the answer.

If it's long enough, maybe I can spend some of my profits on another card!

This is not a put option. A put option will be useless if I don't have any bitcoins to put, or if I'm unable to deliver them for whatever reason. I need to be able to collect even if my assets are confiscated or frozen.

Agreed that the upside would cancel out even a 50% chance of collapse, as long as I could afford the loss. But I'm a married man with a child on the way (and a wife who's a bit skeptical about this whole thing), so losing a few thousand dollars would not only represent a serious financial hardship but a serious domestic hardship. (We can handle the Fed, but we don't want to piss off any moms.  )

Doesn't matter which government, only whether I lose my money. I'm in the US, but that won't get me my money back if the network is sabotaged by the Mossad or whatever.

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I'd like to convert several thousand US dollars to bitcoins. As a poor grad student I'm not comfortable losing that much, so I want to buy insurance against total or near-total loss due to catastrophic events, such as:

• Market collapse (say, bitcoins valued below $0.10 for over 30 days)
• Bitcoin P2P network compromised or destroyed
• Bitcoins or capital gains seized, frozen, or otherwise made unavailable due to government action
• Mt Gox funds stolen, seized, frozen, or otherwise made unavailable for an indefinite period
• Other events harmful to the bitcoin community as a whole... we'd have to hash out the details.

Is anyone interested in selling such insurance? I'm interested in a one-year policy with a $5000 payout. As for the premium, I think the probability of a catastrophe within this particular year is low---less than 5%---so I'll throw out $250 as a starting point for negotiation.

One thing I do need is some assurance that I can collect if necessary. I will insist on a signed, notarized, legally enforceable contract. I'm also not really familiar with the legal requirements to act as an insurer, and will tip well for any information that proves useful in completing a contract.

This sounds like it would combine all the speculative uncertainty of bitcoins with all the inflationary uncertainty of dollars. Why would anyone use it?

Hmmm... if we're trying to lower the entry barrier, one interesting publicity stunt would be to offer a nominally USD-denominated transaction/investment account that quoted some obscenely high interest rate, like 40% APY, while actually holding most of the value in bitcoins and trading on some exchange as needed. This would of course be transparent: information about bitcoins and what they were would be readily available to people wondering how this was possible. Once it was clear that 30% was actually a ripoff, people would start looking to buy bitcoins directly.

It would have to be made VERY VERY CLEAR to every account holder that this is a speculative venture, 30% is an estimate, and funds on deposit are potentially subject to 100% loss with no hope of recovery.

To the bears.

Keep it coming! I can't wait to buy back in at 1.3 or so.

But surely the reason inflating the dollar is unfair is because people are forced to hold dollars as it happens? It's not unfair to, like, Estonians. Or moon men.

Since no one is forced to hold bitcoins, who is inflation unfair to?

I notice that there is a huge intersection between Bitcoin advocacy and total reserve advocacy, and I'm sort of curious how big that intersection is.

It sort of rubs me the wrong way that people who consider themselves free-market advocates are opposed to fractional reserve banking even when it's a publicly stated policy of a free, privately operated bank. If this opposition takes the form of simply saying "I don't want to put my money there," there's no argument in principle---you are free to take your business wherever you choose. But saying that fractional reserve is a fraud seems extreme to me. It's only a fraud if it's advertised otherwise.

I also ask because it seems to me there are some forms of fractional reserve that are perfectly safe and non-inflationary. For example, consider the clearing houses that used to operate at medieval city fairs, with merchants coming from afar to trade goods. Rather than bring all their precious silver along and open themselves up to the threat of highwaymen, merchants would register the sale price of their wares, and be issued paper scrip to trade with. At the end of the fair, traders would bring their remaining scrip back to the clearing house to settle up. If you had a surplus, it was payable in coin; if you had a deficit, presumably you had some unsold (or purchased) products you could use to pay off the debt. Everything was nominally done in metal coin, and debts were payable in coin, yet very little reserve was needed. If this was an act of fraud, who was defrauded?

We're so far removed from a commodity-based currency system now that people don't actually have a good idea of how one works in practice. Tools like the above were in use for centuries without any damage to the value of money. I'm not even going to say they're the right thing, but they're at least reasonable enough that I would like the option to be available.

This forum is a daily reminder to me of just how ingrained is the idea of central control in contemporary culture. An exchange rate is just assumed to be something centrally controlled by some agent like Mt. Gox, presumably working for Satoshi or something.

Reminds me of the Soviet officer who, when told there were no ID cards or residence permits in England, asked in confusion, "How do you know how much bread to bake?"

Mi ne uzis Esperanton dum jaroj! Verŝajne me perdis la plejparton de mia (jam nebona) lerteco je la lingvo...

Let me try again.


My question is whether this aspect of gold is unfair. Do people with gold deserve to see the supply remain fixed, and gold miners are cheating them out of their dues?


Again, my question is not about electrical energy itself (though I do think sealed battery packs would make good trade items in a collapse scenario). Is the ability to make more batteries unfair to people who have batteries now? Would only an anti-market zealot support battery inflation?

Yes, the fact that there's more gold / energy / carrots will reduce the trade value of other gold / energy / carrots. I agree that this is unfortunate for people holding large carrot reserves, but why is it anti-capitalist?

I can only hope the people who have been calling bitcoin holders irrational for months now will eventually start feeling a bit ridiculous as the exchange rate keeps rising.

Really, I would start worrying if I found that I was defining the "rational" agent as someone other than the guy currently sitting on top of a giant pile of money.

What kiba said. And don't underestimate the power of face-to-face meeting to build a sense of shared community.