DannyHamilton
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December 10, 2012, 06:56:23 PM |
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No one, not even the miners, can generate new bitcoins beyond the limits of the protocol. FRB is not possible using actual bitcoins.
If FRB = Fractional Reserve Banking then you're wrong, it's perfectly possible to do it with bitcoins, as it was possible to do it with gold. Just as with gold, it would be done with deposit slips, not actual Bitcoins. You can't loan out more coins than you have, the protocol won't let you. FRB with BTC would require issuing a BTC-backed currency. FRB (Fractional Reserve Banking) doesn't require the lending out of more coins than you have. It requires the lending out of someone else's coins. You don't need a BTC-backed currency. It can be done with BTC. Example: You and 100 other people all deposit 10 BTC each at my bank, I loan out 10 BTC of what you all have deposited to someone who needs it, and they will be paying me back 1 BTC per month for the next 11 months. Any one (or more) of you can withdraw any or all of your BTC as long as at least some of you leave enough on deposit for the total deposits to be equal to unpaid principal of the loan at any time.
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DannyHamilton
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December 10, 2012, 07:03:13 PM |
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. . . If a bitcoin bank were to sell CD based upon the idea that those bitcoins would be lent back out, yes FRB would work, but that would be more like the free banking era after the Civil War, not the modern version of FRB. Yet, such a bank would have to be open and honest about such a thing, and keep whatever on-demand accounts that it maintained completely seperate from those lending funds, or a run would eventually destroy them . . .
It isn't honesty and/or keeping on-demand accounts separate that prevents the runs on the bank. It is the introduction of a deposit insurance that the depositors have faith in. If a trusted insurance company were to offer to insure the banks deposits, then the on-demand accounts balances would not need to be separate, and the bank would not need to tell the public what percentage of the deposits were being held in reserve. It would be the insurance company's responsibility to regularly audit the bank and make sure that there were sufficient fund in reserve to maintain an acceptable risk level for the insurance company.
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myrkul
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December 11, 2012, 12:25:13 AM |
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No one, not even the miners, can generate new bitcoins beyond the limits of the protocol. FRB is not possible using actual bitcoins.
If FRB = Fractional Reserve Banking then you're wrong, it's perfectly possible to do it with bitcoins, as it was possible to do it with gold. Just as with gold, it would be done with deposit slips, not actual Bitcoins. You can't loan out more coins than you have, the protocol won't let you. FRB with BTC would require issuing a BTC-backed currency. FRB (Fractional Reserve Banking) doesn't require the lending out of more coins than you have. It requires the lending out of someone else's coins. You don't need a BTC-backed currency. It can be done with BTC. I stand corrected. I doubt you could get away with a low reserve percentage for long, however.
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molecular
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December 11, 2012, 03:30:02 PM |
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No one, not even the miners, can generate new bitcoins beyond the limits of the protocol. FRB is not possible using actual bitcoins.
If FRB = Fractional Reserve Banking then you're wrong, it's perfectly possible to do it with bitcoins, as it was possible to do it with gold. Just as with gold, it would be done with deposit slips, not actual Bitcoins. You can't loan out more coins than you have, the protocol won't let you. FRB with BTC would require issuing a BTC-backed currency. You don't really need deposit slips or bank notes (promissory notes, IOUs) as long as you can convince people to keep their bitcoins in their "bank account". You will most likely also want to convince them to use your "bank wire transaction" feature to transfer bitcoins to other peoples bank accounts within your banking system.
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PGP key molecular F9B70769 fingerprint 9CDD C0D3 20F8 279F 6BE0 3F39 FC49 2362 F9B7 0769
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Rassah
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December 11, 2012, 05:22:12 PM |
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^^ Which may be difficult when Bitcoin already allows you to transfer address to address yourself, and services like blockchain.info have shown that it's possible to provide the convenience of online banking without the bank having any access to your coins. Exchanges are still a problem in their current "pool all btc together" form, and MtGox could easily be reporting a higher BTC balance than they actually have, and no one would be able to verify that.
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DannyHamilton
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December 11, 2012, 05:41:49 PM |
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^^ Which may be difficult when Bitcoin already allows you to transfer address to address yourself, and services like blockchain.info have shown that it's possible to provide the convenience of online banking without the bank having any access to your coins. Exchanges are still a problem in their current "pool all btc together" form, and MtGox could easily be reporting a higher BTC balance than they actually have, and no one would be able to verify that.
There are a variety of reasons people may choose to use banks instead of just keeping their own secure wallets. Perhaps they trust the bank to do a better job of securing the bitcoins than they believe they can do themselves? Perhaps the banks offer to pay a small interest rate on deposits? Perhaps the banks provide a convenience for engaging in bitcoin based transactions in the physical world (debit cards, checks, etc)? Perhaps the banks offer reduced transaction fees?
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Rassah
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December 11, 2012, 06:00:45 PM |
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There are a variety of reasons people may choose to use banks instead of just keeping their own secure wallets. Perhaps they trust the bank to do a better job of securing the bitcoins than they believe they can do themselves?
Blockchaininfo.com provides the security, but leaves one last component that decrypts your private key to you. It's like they store your money in a highly secure bank vault, but still need your key to open your suitcase of money inside. Perhaps the banks offer to pay a small interest rate on deposits?
Maybe with Bitcoin slowly growing in value anyway, there won't be a demand for it. And if their is, hopefully the banks will separate banking (storing your money safely) from investing (letting you put some of your money into accounts used for loans and other investments). But you're probably right, we'll likely have interest bearing accounts, with subsequent bank failures from managers who got too greedy, and people learning lessons over and over about not investing everything they have in one place. Perhaps the banks provide a convenience for engaging in bitcoin based transactions in the physical world (debit cards, checks, etc)?
Bitcoincard, and phone wallets will hopefully solve that problem. Or any new technology we haven't seen yet. It's already possible to store all your coins directly on your device, or sign and send transactions for coins that exist on blockchain, without the online bank having access to them. Perhaps the banks offer reduced transaction fees?
That is only possible within the bank, by bypassing the Bitcoin network (the way MtGox gives you a BTC address, but actually stores everyone's coins in a single pool). I guess that could be a bonus if you're only doing business with others who also bank at the same place
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DannyHamilton
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December 11, 2012, 06:20:17 PM |
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There are a variety of reasons people may choose to use banks instead of just keeping their own secure wallets. Perhaps they trust the bank to do a better job of securing the bitcoins than they believe they can do themselves?
Blockchaininfo.com provides the security, but leaves one last component that decrypts your private key to you. It's like they store your money in a highly secure bank vault, but still need your key to open your suitcase of money inside. And what happens if you lose your keys? A bank can drill open the bank vault, but I don't think anyone will be drilling open your private keys. Perhaps the banks provide a convenience for engaging in bitcoin based transactions in the physical world (debit cards, checks, etc)?
. . . It's already possible to store all your coins directly on your device, or sign and send transactions for coins that exist on blockchain, without the online bank having access to them. Right up until you drop your phone in the toilet, or it gets stolen, and then you lose all access to any addresses that had the private key on that device. Perhaps the banks offer reduced transaction fees?
That is only possible within the bank, by bypassing the Bitcoin network (the way MtGox gives you a BTC address, but actually stores everyone's coins in a single pool). I guess that could be a bonus if you're only doing business with others who also bank at the same place It is also possible if multiple banks (in the interest of reducing their own transaction fees) agree to settle up interbank transactions at the end of the day (or week, or month, etc) with a single transaction. Example: Customers of bank A send 1,000,000 worth of bitcoins spread out through thousands of transactions to various customers of bank B. Customers of bank B send 1,000,010 worth of bitcoins spread out through thousands of transactions to various customers of bank A. Bank A and bank B have a system in place for validation and balance updates between them. At the end of the chosen timeframe when it is time for the banks to "settle up", bank B sends a single 10 BTC transaction across the blockchain to bank A. They pass on the transaction fee savings to their customers (keeping a bit for themselves of course).
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myrkul
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December 11, 2012, 07:06:01 PM |
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There are a variety of reasons people may choose to use banks instead of just keeping their own secure wallets. Perhaps they trust the bank to do a better job of securing the bitcoins than they believe they can do themselves?
Blockchaininfo.com provides the security, but leaves one last component that decrypts your private key to you. It's like they store your money in a highly secure bank vault, but still need your key to open your suitcase of money inside. And what happens if you lose your keys? The value of my (and everyone else who did not lose them) Bitcoins goes up. The world thanks you. Same as if you forget to back up your wallet.
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Rassah
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December 11, 2012, 07:45:59 PM |
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There are a variety of reasons people may choose to use banks instead of just keeping their own secure wallets. Perhaps they trust the bank to do a better job of securing the bitcoins than they believe they can do themselves?
Blockchaininfo.com provides the security, but leaves one last component that decrypts your private key to you. It's like they store your money in a highly secure bank vault, but still need your key to open your suitcase of money inside. And what happens if you lose your keys? A bank can drill open the bank vault, but I don't think anyone will be drilling open your private keys. The bank will store your keys. That's where their part of the security comes in. You just have to make sure you remember your password to decrypt that key, which you can also write on a piece of paper to store at home. Frankly, same for your keys: blockchain.info let's you print your private keys to store at home, or back them up to a number of online storages. So, you get the convenience of banking anywhere online, they provide the security, and you provide backups if you want. Perhaps the banks provide a convenience for engaging in bitcoin based transactions in the physical world (debit cards, checks, etc)?
. . . It's already possible to store all your coins directly on your device, or sign and send transactions for coins that exist on blockchain, without the online bank having access to them. Right up until you drop your phone in the toilet, or it gets stolen, and then you lose all access to any addresses that had the private key on that device. Same as above. My phone wallet's private key is safely backed up at home. If I lose the phone or it gets stolen, the phone is locked, and I just move the money elsewhere. Perhaps the banks offer reduced transaction fees?
That is only possible within the bank, by bypassing the Bitcoin network (the way MtGox gives you a BTC address, but actually stores everyone's coins in a single pool). I guess that could be a bonus if you're only doing business with others who also bank at the same place It is also possible if multiple banks (in the interest of reducing their own transaction fees) agree to settle up interbank transactions at the end of the day (or week, or month, etc) with a single transaction. That may happen, and depending on the size of future transaction fees may be inevitable, but then people would have to chose, pay a transaction fee, or give someone else full control of your money. We're used to giving others full control of our money because normal money can't work any other way. With the possibilities that Bitcoin allows, and a few more scams and bank failures, not giving the bank control may become the norm.
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johnyj
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December 11, 2012, 10:20:19 PM |
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BTC bank's income will mostly come from tranaction fee, loan (the bank's main business today) is basically not working with BTC.
No credit creation is happening since the money supply increase is always slower than the expanding of the economy
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myrkul
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December 11, 2012, 10:25:04 PM |
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BTC bank's income will mostly come from tranaction fee, loan (the bank's main business today) is basically not working with BTC.
Seems to be working OK with IBB. Granted, I'm not making 7000% on my investment, but it's a slow and steady profit.
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johnyj
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December 11, 2012, 10:51:37 PM |
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No one, not even the miners, can generate new bitcoins beyond the limits of the protocol. FRB is not possible using actual bitcoins.
If FRB = Fractional Reserve Banking then you're wrong, it's perfectly possible to do it with bitcoins, as it was possible to do it with gold. We are talking about two different things, I think. FRB with gold was different than modern FRB. With gold, the bank would usually be lending by offering a promisary note or a warehouse receipt based upon gold that was kept in the bank. It was really just faith in that bank that they could actually perform should the deal go sour, not really that there was that much gold available. While it's possible for a bitcoin bank to do something similar, the network (which the bitcoin economy is dependent upon) will not accept promises or warehouse receipts, only actual bitcoins. If a bitcoin bank were to sell CD based upon the idea that those bitcoins would be lent back out, yes FRB would work, but that would be more like the free banking era after the Civil War, not the modern version of FRB. Yet, such a bank would have to be open and honest about such a thing, and keep whatever on-demand accounts that it maintained completely seperate from those lending funds, or a run would eventually destroy them. Such things happened on a regular basis during the free banking era, as bank owners got to greedy and too confident that customers wouldn't ever lose faith. If a bank were to offer bitcoin bonds, and then lend those funds out in loans, the honesty of the pattern might just permit things to work. Practically, however, modern banks don't work this way. A modern verison of a bank actually gets it's 10% reserve requirement from savings accounts of all kinds, and then lends out funds that have never existed to 9 times that original deposit amount. It's the implicit backing of the central banking (and thus taxpayers) that permit such an activity. True! I almost forgot that I can always check the blockchain for my account balance, so that banks won't be able to move that fund The blockchain based banking do not allow FRB
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DannyHamilton
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December 11, 2012, 11:34:18 PM |
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True! I almost forgot that I can always check the blockchain for my account balance, so that banks won't be able to move that fund
The blockchain based banking do not allow FRB
Certainly bitcoin banking would allow FRB. You can check the balance of bitcoin that the bank is holding in reserves only if the bank chooses to provide you with the list of bitcoin addresses where all their bitcoin is stored and provide you with proof that they have the private keys associated with those addresses. But even then, you only have half the story. You know how much they have in reserve in total, but you have no knowledge about what the total is of all deposits they have. A bank won't keep your funds segregated in its own address anymore than they keep your fiat segregated in its own envelope. All deposits get mixed together. The bitcoins you withdraw aren't likely to be the same ones you depoisted.
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DannyHamilton
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December 11, 2012, 11:47:22 PM |
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There are a variety of reasons people may choose to use banks instead of just keeping their own secure wallets. Perhaps they trust the bank to do a better job of securing the bitcoins than they believe they can do themselves?
Blockchaininfo.com provides the security, but leaves one last component that decrypts your private key to you. It's like they store your money in a highly secure bank vault, but still need your key to open your suitcase of money inside. And what happens if you lose your keys? A bank can drill open the bank vault, but I don't think anyone will be drilling open your private keys. The bank will store your keys. That's where their part of the security comes in. You just have to make sure you remember your password to decrypt that key, which you can also write on a piece of paper to store at home. Frankly, same for your keys: blockchain.info let's you print your private keys to store at home, or back them up to a number of online storages. So, you get the convenience of banking anywhere online, they provide the security, and you provide backups if you want. I think you lost track of your analogy here. The "password" is the "key" that allows you to access your money in the "vault". With a bank, you have a banking password. If you forget/lose it you can contact the bank and once you prove your identity they can re-issue you a new password that allows you to access all the money that they have been keeping safe for you. With a service like blockchain.info wallet, if you forget/lose your password you can pretty much forget about ever getting any access to that money ever again. Perhaps the banks provide a convenience for engaging in bitcoin based transactions in the physical world (debit cards, checks, etc)?
. . . It's already possible to store all your coins directly on your device, or sign and send transactions for coins that exist on blockchain, without the online bank having access to them. Right up until you drop your phone in the toilet, or it gets stolen, and then you lose all access to any addresses that had the private key on that device. Same as above. My phone wallet's private key is safely backed up at home . . . Yours is. But many people are not as good about maintaining a regular schedule of creating recoverable backups. These are the people who will be interested in using a bitcoin bank for the "safety and security" provided. Furthermore, if their private key is backed up on a computer that is accessible from the internet, then they have to worry about hackers, viruses, trojans, etc. Again the people who aren't capable or willing to protect themselves from such attacks are the very people who will be interested in the safety/security that a bank will provide. . . . Perhaps the banks offer reduced transaction fees?
That is only possible within the bank, by bypassing the Bitcoin network (the way MtGox gives you a BTC address, but actually stores everyone's coins in a single pool). I guess that could be a bonus if you're only doing business with others who also bank at the same place It is also possible if multiple banks (in the interest of reducing their own transaction fees) agree to settle up interbank transactions at the end of the day (or week, or month, etc) with a single transaction. . . .That may happen, and depending on the size of future transaction fees may be inevitable, but then people would have to chose, pay a transaction fee, or give someone else full control of your money. We're used to giving others full control of our money because normal money can't work any other way. With the possibilities that Bitcoin allows, and a few more scams and bank failures, not giving the bank control may become the norm. Reliable banking won't be available until someone finds an insurance company willing to insure the deposits. Once that happens, bank failures will be far less of a concern. As for scams, that is just another service that banks might offer. They could alert the bank customer if an attempted transaction triggers some sort of "scam filter" that they create. If we get to the point where bank to bank transactions skip the blockchain, then the banks will even be able to begin to offer "chargeback" services to their customers to protect them from scams.
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DannyHamilton
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December 11, 2012, 11:50:21 PM |
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There are a variety of reasons people may choose to use banks instead of just keeping their own secure wallets. Perhaps they trust the bank to do a better job of securing the bitcoins than they believe they can do themselves?
Blockchaininfo.com provides the security, but leaves one last component that decrypts your private key to you. It's like they store your money in a highly secure bank vault, but still need your key to open your suitcase of money inside. And what happens if you lose your keys? The value of my (and everyone else who did not lose them) Bitcoins goes up. The world thanks you. Same as if you forget to back up your wallet. Exactly. Which is why some people will opt for the security of a bank to protect their ability to access their funds.
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johnyj
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December 12, 2012, 01:31:34 AM |
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True! I almost forgot that I can always check the blockchain for my account balance, so that banks won't be able to move that fund
The blockchain based banking do not allow FRB
Certainly bitcoin banking would allow FRB. You can check the balance of bitcoin that the bank is holding in reserves only if the bank chooses to provide you with the list of bitcoin addresses where all their bitcoin is stored and provide you with proof that they have the private keys associated with those addresses. But even then, you only have half the story. You know how much they have in reserve in total, but you have no knowledge about what the total is of all deposits they have. A bank won't keep your funds segregated in its own address anymore than they keep your fiat segregated in its own envelope. All deposits get mixed together. The bitcoins you withdraw aren't likely to be the same ones you depoisted. Then it is not a blockchain based banking, they have created their own accounting system to track transactions Historically the reason for banks doing this is because the interest difference between loan and deposit could generate income for them, so the more they can loan out, the more income they will get But with BTC, loan is not very common (people would rather take loan in an inflating currency, USD for example), this scenario is less likely to realize
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bitcoinbear
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December 12, 2012, 02:02:45 AM |
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But with BTC, loan is not very common (people would rather take loan in an inflating currency, USD for example), this scenario is less likely to realize
You should look over in the "lending" part of the forum, there are people making loans in btc right now.
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DannyHamilton
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December 12, 2012, 02:26:55 AM |
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True! I almost forgot that I can always check the blockchain for my account balance, so that banks won't be able to move that fund
The blockchain based banking do not allow FRB
Certainly bitcoin banking would allow FRB. You can check the balance of bitcoin that the bank is holding in reserves only if the bank chooses to provide you with the list of bitcoin addresses where all their bitcoin is stored and provide you with proof that they have the private keys associated with those addresses. But even then, you only have half the story. You know how much they have in reserve in total, but you have no knowledge about what the total is of all deposits they have. A bank won't keep your funds segregated in its own address anymore than they keep your fiat segregated in its own envelope. All deposits get mixed together. The bitcoins you withdraw aren't likely to be the same ones you depoisted. Then it is not a blockchain based banking . . . This depends on the definition we use for the phrase "blockchain based banking". When users withdraw bitcoins to their personal wallet, it will still pass through the blockchain. When banks send to other banks that they don't have a processing agreement with it will still pass through the bockchain. But yes, to have Fractional Reserve Banking, the banks will handle many of the bitcoin valued transactions outside the blockchain.
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johnyj
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December 13, 2012, 05:47:36 AM Last edit: December 13, 2012, 06:09:44 AM by johnyj |
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But with BTC, loan is not very common (people would rather take loan in an inflating currency, USD for example), this scenario is less likely to realize
You should look over in the "lending" part of the forum, there are people making loans in btc right now. someone there claim that 90-95% of people there turned out to be a scammer And even without scam, loan in BTC will have problem yochdog's 10000 BTC loan at 10% annual rate is a good example At the end of his post, he claimed that he want to pre-pay the loan since the rising exchange rate already made his day much much harder Of course, he could get those BTC to buy new ASIC mining rigs, which in turn can generate some coin to pay back his loan, but anyway, when you want to borrow money, you always borrow the money with the lowest interest rate (inflated money), like those carry traders do
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