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Author Topic: There could be much more than 21'000'000 bitcoins...  (Read 3402 times)
markm
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September 11, 2012, 10:06:44 AM
 #21

I think this is part of why I always thought having lots of alternate blockchain currencies should increase the value of bitcoins.

Basically the actual original genuine bitcoins would be the heavy duty most-valuable specie, with the greatest tendency to be hoarded, and the various alternate-chain coins would be used in preference wherever possible but with the number of bitcoins they can buy being used by most people as their method of guessing how much the altcoins are "worth" they would in effect be backed by bitcoins, thus the more value the proliferating altcoins manage to represent or channel or aquire the more value the fundamentally limited number of bitcoins that are in effect basically "backing" them all should aquire.

I guess this is also a large part of why I continue to think bitcoins are massively undervalued right now... There is more money tied up in various alternates than all the bitcoins in existence could buy unless bitcoins go up in value a lot.

Maybe other people are seeing it the other way around though? Like, maybe some of you are thinking the grand total value of all altcoins of all altchains all adds up to less than the value of all the bitcoins that so far exist?

Driving many of the alternate chains underground by attacking them might help you maintain such a view, however when I look at the valuation tables at http://galaxies.mygamesonline.org/digitalisassets.html I have to wonder...

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September 11, 2012, 02:18:57 PM
 #22

I don't see any need for fractional reserve banking at all.  It just doesn't work well and is an obsolete concept.  I say this in the context of both fiat currencies and Bitcoin.  Bitcoin just makes it more readily apparent that fractional reserve banking is on its way to obsolescence.  

With fractional reserve banking, when you deposit money (and let's define that as either physical gold, physical USD, digital USD in the form of a balance in a FED account, or genuine Bitcoins), you are trading in a ledger entry (whose value is not guaranteed and is determined by a market) for a debt instrument (and yes, physical gold, when used as money, represents a ledger entry).  The bank owes you what you deposited on demand.  If the bank is not paying any interest, and we're not talking about something inconvenient to store (like gold or physical dollars), there is very little reason for you to make that deposit.  If the average person had direct access to a FED account, that would be the safest form of electronic USD to hold and I'd say many people would much prefer to keep any USD savings in that form over say an account at Citibank.  Bitcoin is kind of like giving everyone direct access to an account at the FED.

So, what about interest payments?  That's a good reason to put money into a fractional reserve bank right?  I'd say not really.  The reason is that without something like the FDIC that spreads default risk to basically everyone holding any dollars, you bear the risk of default directly.  So, is that risk of default worth the 1 or 2% you might earn in interest?

I think the better alternative is to view the lending business (that supports the interest payouts on deposits) like we view any other businesses…one that has revenues and expenses, a balance sheet, income statements, quarterly reports….and stock.  Instead of putting your money into an account that creates this fantasy that it's actually there, buy stock in a lending business.  And there could be all sorts of options when it comes to the nature of the lending that the business engages in (from very conservative, asset backed lending to more high risk unsecured debt, etc).  ETFs would allow you to spread risk as much as desired.  The value of your shares will rise and fall with the performance of the business and market conditions, but you wouldn't be at risk of run on the bank scenarios (all you can do is sell your shares, you can't demand to be made 100% whole on your principal).  Holding bitcoins (once the market for bitcoins is saturated) are savings invested in the overall economy (where you gain from the overall increase in productivity), whereas holding shares of some company or loan portfolio are more directed investments in some subset of the economy.

There really is no point in creating the fantasy that fractional reserve banking creates and the chaos and cost associated with insolvency makes it less efficient than a share based model for lending.  So, my view is that fractional reserve banking is about to become a relic of the past…and deservedly so.

(gasteve on IRC) Does your website accept cash? https://bitpay.com
markm
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September 11, 2012, 02:29:31 PM
 #23

Heh that is basically what General Financial Corp has been doing. They borrowed a huge lump sum at half the interest rate they charge to debtors then obtained debtors by refinancing them at half the interest rate they had hitherto been paying. A win for everyone except the creditors who lost their debtors to GFC.

It was a major moneymaker for the folk who bought GFC at its IPO price of 20 DeVCoins per share too because basically they are making money off of other people's money far far more than they are making anything directly on that tiny token amount they paid at the IPO to form/launch the Corp.

In essence what they really invested in was the diplomacy skills and diplomatic clout they obtained by getting a bunch of heavy hitters to all join forces to form such a Corp.

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lonelyminer (Peter Šurda)
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September 11, 2012, 06:45:27 PM
 #24

I don't see any need for fractional reserve banking at all.  It just doesn't work well and is an obsolete concept.
Fractional reserve banking allows maturity transformation, i.e. makes it easier to invest and easier for a market interest rate to emerge. With a bit of exaggeration I would say that it makes investment more liquid. If the fractional reserve instruments decrease transaction costs, you can expect that on a free market, FRB results in credit expansion (i.e. it affects the money supply), because the demand for saving and for lowering transaction costs manifest themselves in one product.

With sufficiently low transaction cost of specie, these two functions (medium of exchange vs. credit) remain separated. Bitcoin demonstrates that this is practically possible, as until now this has only been hypothesised or formulated indirectly.
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September 11, 2012, 06:54:29 PM
 #25

If you go fractional with dollars and aren't stealing or sucking really bad at investing you'll be able to get all or most of the dollars back, possibly after some delay.

But since almost nothing is as awesome as bitcoins you (or people who deposit with you) are taking a huge that what you invest your bitcoins in won't be as awesome as bitcoin and even if you are fantastically successful in real terms you won't be able to cover your liabilities.

If you think bitcoin is awesome don't give them away unless you know what the person is doing with them and you think it is even awesomer than bitcoin.

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September 11, 2012, 06:55:12 PM
 #26

And regarding the title, NO. If you think a promise of a coin = a coin you are going to get burned. The promises aren't bitcoins and aren't worth nearly as much.

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September 11, 2012, 07:08:39 PM
 #27

I agree, but the thing is that these things are ignored only because we live in an economy where they *can* be ignored. If we lived in an economy where M1 was bound by fixed limits, we would likely also follow different rules for what can and can't be ignored.
I agree that the reason why they are ignored is primarily empirical. In our current world, there is a relatively strong contrast between money and non-money. I also think that a stark contrast would continue to exist in a Bitcoin world, only that the line would be drawn more closer to the specie and further away from financial instruments.
I think that a tightly limited M1 would push the line further away. So we disagree over a hard to predict empirical fact about how the world will adjust to Bitcoin. I can't be sure your view is wrong, and I don't think you can be sure my view is wrong either. Which I think means that there could be much more than 21 million Bitcoins, but it's hard to say.

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Steve
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September 11, 2012, 07:20:39 PM
 #28

I don't see any need for fractional reserve banking at all.  It just doesn't work well and is an obsolete concept.
Fractional reserve banking allows maturity transformation, i.e. makes it easier to invest and easier for a market interest rate to emerge. With a bit of exaggeration I would say that it makes investment more liquid. If the fractional reserve instruments decrease transaction costs, you can expect that on a free market, FRB results in credit expansion (i.e. it affects the money supply), because the demand for saving and for lowering transaction costs manifest themselves in one product.

With sufficiently low transaction cost of specie, these two functions (medium of exchange vs. credit) remain separated. Bitcoin demonstrates that this is practically possible, as until now this has only been hypothesised or formulated indirectly.
There is no doubt that lending is important, I'm not arguing against it.  What I'm saying is that fractional reserve banking is a less efficient model for making capital available than a typical share based model.  Regarding a "market interest rate", I'm not sure what you mean by that since all debt or investment carries some risk.  So, talking about about a market interest rate in the absence of the risk associated with that interest rate doesn't make sense.  If you're talking about the "risk free rate of return" often discussed in the context of government bonds, I'd argue that this too is an antiquated concept when examined next to Bitcoin.  When Bitcoin fully saturates the market (everyone is holding has much as they want to hold and using as much as they want to use in transactions) and is past its growth phase, the value of a bitcoin will rise and fall as people's preference for savings vs consumption (or riskier investment) changes.  The higher the preference for consumption or riskier investment, the lower the value of a bitcoin…the higher the desire for savings, the higher the value of a bitcoin.  This essentially serves the same function as treasury markets (where the interest rate paid is measured against inflation to determine a real rate of return, or some objective measure of value).

One other thing…people have debated with me in the past that the fantasy created by the fractional reserve model induces (aka dupes) more people into lending and that without it, there wouldn't be as much capital available.  While it might be true that more people would be lenders under a fractional reserve scheme, consider what that means for the rate of return for those that do lend.  Due to constricted supply, the yield available to lenders should be much higher…given high yields, I don't think it would be long before most people figured out that lending was a much better way to park their savings than bitcoin itself (again, we're talking about a time when bitcoin is beyond its growth phase, where the investment in bitcoin itself may be the best place to park savings).

Exciting times for certain.

(gasteve on IRC) Does your website accept cash? https://bitpay.com
2112
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September 11, 2012, 08:50:25 PM
 #29

When Bitcoin fully saturates the market (everyone is holding has much as they want to hold and using as much as they want to use in transactions) and is past its growth phase, the value of a bitcoin will rise and fall as people's preference for savings vs consumption (or riskier investment) changes.
Wow, talk about crackpot economy. As somebody had said a while back: Bitcoin is backed by gold, comedy gold. Don't you ever put anyone on ignore because you may miss the best comedy moments.

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
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September 12, 2012, 12:32:37 AM
 #30

When Bitcoin fully saturates the market (everyone is holding has much as they want to hold and using as much as they want to use in transactions) and is past its growth phase, the value of a bitcoin will rise and fall as people's preference for savings vs consumption (or riskier investment) changes.
Wow, talk about crackpot economy. As somebody had said a while back: Bitcoin is backed by gold, comedy gold. Don't you ever put anyone on ignore because you may miss the best comedy moments.
I'm not sure exactly what you're referring to, but I didn't mean to imply that bitcoin would take over the entire market for monetary instruments.  I meant when bitcoin is simply being used for exchange and savings rather than as a speculative/growth investment as it largely is today.

(gasteve on IRC) Does your website accept cash? https://bitpay.com
2112
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September 12, 2012, 02:00:27 AM
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I'm not sure exactly what you're referring to, but I didn't mean to imply that bitcoin would take over the entire market for monetary instruments.  I meant when bitcoin is simply being used for exchange and savings rather than as a speculative/growth investment as it largely is today.
OK, I apologise. The humor in your posts requires a specific previous background to understand. It probably shouldn't be called humor at all on this forum.

The utopian world that you described in this thread resembles the syndicalist world-vision rooted in marxism/leninism. I'm talking here purely about economics, not about the other political/social aspects.

Whatever bad can be told about marxism/leninism at least most of the people agree that their analysis/critique of capitalism is internally consistent and has predictive power. In comparison with its m/l-roots the syndycalist economics is considerably weakened; primarily by disregarding internal inconsistences and replacing them with wishful thinking.

In particular the bolded part "everyone holding as much as they want to hold" is just one of the more hackneyed and ridiculed statements from a certain syndycalist manifesto.

My political-economics textbooks are in storage on a different continent, so I will not be able to give you a good citations and other scholarly backup for my posts here.

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
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September 12, 2012, 03:25:34 AM
 #32

The utopian world that you described in this thread resembles the syndicalist world-vision rooted in marxism/leninism.
You infer a lot...I was not describing a utopian world.  I was suggesting that fractional reserve banking may not be the most efficient means of making capital available to borrowers.  And, as a result, I think it will become less prevalent in the future (irrespective of bitcoin's success or lack thereof).

(gasteve on IRC) Does your website accept cash? https://bitpay.com
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September 12, 2012, 04:13:34 AM
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You infer a lot...I was not describing a utopian world.
It isn't much of an inference but more of a pattern matching. The writing style, the rhetoric, the hypothetical examples, etc.

It is probably unconscious to most of the American (US-ian) writers here: but the class struggle rhethoric is just hard to not notice. Of course the "workers" are replaced with "Internet knowledge elite", "dictatorship of the proletariat" with the "dictatorship of the blockchain", so on and so on...

This is partially what makes reading of this forum such a great, intellectually stimulating entertainment.

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
lonelyminer (Peter Šurda)
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September 12, 2012, 12:24:28 PM
 #34

There is no doubt that lending is important, I'm not arguing against it.  What I'm saying is that fractional reserve banking is a less efficient model for making capital available than a typical share based model.
FRB allows for a wider risk spread. Even if it had no aggregate effect on the amount of lending, it would make it more granular.

Regarding a "market interest rate", I'm not sure what you mean by that since all debt or investment carries some risk.
Market rate of interest is, in the Austrian terminology, a reflection of the time preference, i.e. the propensity of people to postpone consumption. Similarly as you have a bid-ask spread for "normal" trades (e.g. if you look at the Mt. Gox order book), you also have a bid-ask spread on the credit market. What's in between is the market rate of interest.

When Bitcoin fully saturates the market (everyone is holding has much as they want to hold and using as much as they want to use in transactions) and is past its growth phase, the value of a bitcoin will rise and fall as people's preference for savings vs consumption (or riskier investment) changes.  The higher the preference for consumption or riskier investment, the lower the value of a bitcoin…the higher the desire for savings, the higher the value of a bitcoin.  This essentially serves the same function as treasury markets (where the interest rate paid is measured against inflation to determine a real rate of return, or some objective measure of value).
While risk may affect where you invest, I don't think it affects whether you save. But apart from that we appear to agree.

One other thing…people have debated with me in the past that the fantasy created by the fractional reserve model induces (aka dupes) more people into lending and that without it, there wouldn't be as much capital available.  While it might be true that more people would be lenders under a fractional reserve scheme, consider what that means for the rate of return for those that do lend.  Due to constricted supply, the yield available to lenders should be much higher…given high yields, I don't think it would be long before most people figured out that lending was a much better way to park their savings than bitcoin itself (again, we're talking about a time when bitcoin is beyond its growth phase, where the investment in bitcoin itself may be the best place to park savings).
Creating new money does not increase the availability of resources in the economy, it merely changes people's evaluations of that. So at best, FRB can trick people into unprofitable businesses. Here we appear to agree too.

But as I said earlier, even if there is no credit expansion (so we eliminate the effect on money supply), FRB still makes investment options more granular, i.e. it increases the efficiency of allocation of capital.

Exciting times for certain.
Definitely.
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