Bitcoins Can Inflate Too - Stop worrying about deflation.

[mrvision]

. . .
2) Easy to audit bitcoins

Especially number 2 would be very important when a bank tries to sell you their "bitcoin certificates". 

To audit bitcoins, you would need to know all the addresses that the bank is using to store the bitcoin reserves, and you'd have to have proof from the bank that they have access to all the private keys associated with those addresses.  I'm not sure that this makes it any easier to audit the bank.

A bank can say "here is our major offline storage address, and a signature to show we control the funds".

Anybody can check and see just how much is there and that it's all real.   

Compare that to all the difficulties in auditing gold reserves.. 

You know how much bitcoins they have, but you don't know how many 'credits' they've given. So you don't know if those credits are all backed.

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[hashman]

. . .
2) Easy to audit bitcoins

Especially number 2 would be very important when a bank tries to sell you their "bitcoin certificates". 

To audit bitcoins, you would need to know all the addresses that the bank is using to store the bitcoin reserves, and you'd have to have proof from the bank that they have access to all the private keys associated with those addresses.  I'm not sure that this makes it any easier to audit the bank.

A bank can say "here is our major offline storage address, and a signature to show we control the funds".

Anybody can check and see just how much is there and that it's all real.   

Compare that to all the difficulties in auditing gold reserves.. 

You know how much bitcoins they have, but you don't know how many 'credits' they've given. So you don't know if those credits are all backed.

Good point, I think DannyHamilton had the same one. 

The difference is that there is no need to issue "credits".  If we are talking about gold, then there is an obvious need for some kind of paper or electronic transfer mechanism so we don't have to carry around scales, metal, or forges with us just to make some purchases.  That is how this FRB got started..  bankers realized that they could issue more paper gold "credits" than they had real gold in their vault.  Merchants are forced to accept paper money because that's what people are able to carry around and thus they get more business accepting an easier payment method. 

In theory, one could of course do the same thing with bitcoins, issuing credit notes based on a certain reserve of coins.  However, who is going to take a bitcoin "credit" in payment?   With gold, we are forced to accept such payments.  With bitcoins, there is nothing to gain and a lot to use.  I don't see how people would be forced into using fraction reserve bitcoin notes.  Why not use the real thing? 

If we do want to use bitcoin "credits" for some reason (network speed, security, other reasons?)  then we will likely choose a version that is transparent so we aren't getting robbed.  With gold, that is impossible.  With bitcoin, a bank can make public the proof of reserve, the list of customer BTC addresses or credit accounts..  so that people can check if they are being robbed.  With FRB gold, there's no way to know for sure, thus people are bound to abuse the system at some level. 

 

[mrvision]

. . .
2) Easy to audit bitcoins

Especially number 2 would be very important when a bank tries to sell you their "bitcoin certificates". 

To audit bitcoins, you would need to know all the addresses that the bank is using to store the bitcoin reserves, and you'd have to have proof from the bank that they have access to all the private keys associated with those addresses.  I'm not sure that this makes it any easier to audit the bank.

A bank can say "here is our major offline storage address, and a signature to show we control the funds".

Anybody can check and see just how much is there and that it's all real.   

Compare that to all the difficulties in auditing gold reserves.. 

You know how much bitcoins they have, but you don't know how many 'credits' they've given. So you don't know if those credits are all backed.

Good point, I think DannyHamilton had the same one. 

The difference is that there is no need to issue "credits".  If we are talking about gold, then there is an obvious need for some kind of paper or electronic transfer mechanism so we don't have to carry around scales, metal, or forges with us just to make some purchases.  That is how this FRB got started..  bankers realized that they could issue more paper gold "credits" than they had real gold in their vault.  Merchants are forced to accept paper money because that's what people are able to carry around and thus they get more business accepting an easier payment method. 

In theory, one could of course do the same thing with bitcoins, issuing credit notes based on a certain reserve of coins.  However, who is going to take a bitcoin "credit" in payment?   With gold, we are forced to accept such payments.  With bitcoins, there is nothing to gain and a lot to use.  I don't see how people would be forced into using fraction reserve bitcoin notes.  Why not use the real thing? 

If we do want to use bitcoin "credits" for some reason (network speed, security, other reasons?)  then we will likely choose a version that is transparent so we aren't getting robbed.  With gold, that is impossible.  With bitcoin, a bank can make public the proof of reserve, the list of customer BTC addresses or credit accounts..  so that people can check if they are being robbed.  With FRB gold, there's no way to know for sure, thus people are bound to abuse the system at some level. 

Yes and that's why i think it wouldn't work.

[Richy_T]

With bitcoin, all FRB requires is that the lender deposit X bitcoins and be given a note promising the return of the bitcoins (or rather an equivalent amount of different bitcoins). The actual bitcoins can then be lent to someone else. Thus there is no reason that there couldn't be reserve banking in bitcoins.

The issue becomes if the depositer wants their bitcoins back. If there is a reserve, they may be able to be paid in full. If many people want their bitcoins back, there is a problem. Insurance is one possible answer but the best answer is for people to be told that if they deposit their money in such an account, they may not be able to access them immediately (and quite possibly, ever). If you want to be able to access your bitcoins immediately at all times, that is a different type of account (and will likely require fees for the service)

[mrvision]

With bitcoin, all FRB requires is that the lender deposit X bitcoins and be given a note promising the return of the bitcoins (or rather an equivalent amount of different bitcoins). The actual bitcoins can then be lent to someone else. Thus there is no reason that there couldn't be reserve banking in bitcoins.

The issue becomes if the depositer wants their bitcoins back. If there is a reserve, they may be able to be paid in full. If many people want their bitcoins back, there is a problem. Insurance is one possible answer but the best answer is for people to be told that if they deposit their money in such an account, they may not be able to access them immediately (and quite possibly, ever). If you want to be able to access your bitcoins immediately at all times, that is a different type of account (and will likely require fees for the service)

I think there was a guy named pirateat40 that promised that he would return the bitcoins. Bitcoiners of course never saw those bitcoins.
Note:some of them phisicaly met the guy in las vegas.

secondly: even if the 'bank' is trust worthy, you are not seeing the real issue. If for example, you give me your bitcoins and i give you a note, and then i lend them to alice. And Alice buys stuff from bob, then bob puts his bitcoins in the bank and i give him a note. Ok. Now You and bob have both notes for the same bitcoins (fractional reserve started), but your notes worth half your actual bitcoins (At this point).  So why would you keep using these notes instead of real bitcoins?

Why do you think bitcoin has a hard limit of 20.999.999 bitcoins?

[Richy_T]

OK, the trust thing is a bit of a non-sequitur and a different discussion. I think we should leave that to one side (though it does play into things a little).

So let's take your situation with me and Bob. Firstly, it's not bitcoins that have been inflated, it's bank-of-mrvision promisory notes. Now, there's a question of how much those notes are worth. Pragmatically, that's what the market will bear. But more philosophically, it wouldn't be half of the number of bitcoins, it would be some factor depending on the trustworthiness of your bank and the actual value of the note.

Where the confusion arises is that currently, a deposit in the bank is treated as if it is an actual store of value, of the actual items on the note. That the items have been lent out to someone else and are thus at-risk is hidden from the depositor and hence a form of government-backed fraud. If everyone acknowledges that deposits in a fractional reserve account involves a degree of risk and retrieval of funds is dependent on the liquidity of the bank, everyone will be better off and the issues with FRB (in and of itself) become mostly insignificant.

[bitcoinbear]

. . .
2) Easy to audit bitcoins

Especially number 2 would be very important when a bank tries to sell you their "bitcoin certificates". 

To audit bitcoins, you would need to know all the addresses that the bank is using to store the bitcoin reserves, and you'd have to have proof from the bank that they have access to all the private keys associated with those addresses.  I'm not sure that this makes it any easier to audit the bank.

A bank can say "here is our major offline storage address, and a signature to show we control the funds".

Anybody can check and see just how much is there and that it's all real.   

Compare that to all the difficulties in auditing gold reserves.. 

You know how much bitcoins they have, but you don't know how many 'credits' they've given. So you don't know if those credits are all backed.

In theory, one could of course do the same thing with bitcoins, issuing credit notes based on a certain reserve of coins.  However, who is going to take a bitcoin "credit" in payment?   With gold, we are forced to accept such payments.  With bitcoins, there is nothing to gain and a lot to use.  I don't see how people would be forced into using fraction reserve bitcoin notes.  Why not use the real thing? 

People already trade MtGox codes. How do you know Mt.Gox isn't issuing extra codes?

[DannyHamilton]

. . . the best answer is for people to be told that if they deposit their money in such an account, they may not be able to access them immediately (and quite possibly, ever). If you want to be able to access your bitcoins immediately at all times, that is a different type of account (and will likely require fees for the service)

This sort of FRB is already openly occurring right now at an exchange.  Read up about bitFloor and the theft issue they ran into.  Rather than shutting down the exchange permanently, the chose to record the deposited "bitcoins" (that have been stolen and therefore no longer exist at the exchange) as being "on hold" so that people can't access them immediately (and quite possible, ever).  These bitcoins come out of "hold" as the exchange replenishes their "reserves" from what would otherwise be their profits.

EDIT: As of 2013-04-17 BitFloor has ceased all operations.

[Richy_T]

. . . the best answer is for people to be told that if they deposit their money in such an account, they may not be able to access them immediately (and quite possibly, ever). If you want to be able to access your bitcoins immediately at all times, that is a different type of account (and will likely require fees for the service)

This sort of FRB is already openly occurring right now at an exchange.  Read up about bitFloor and the theft issue they ran into.  Rather than shutting down the exchange permanently, the chose to record the deposited "bitcoins" (that have been stolen and therefore no longer exist at the exchange) as being "on hold" so that people can't access them immediately (and quite possible, ever).  These bitcoins come out of "hold" as the exchange replenishes their "reserves" from what would otherwise be their profits.

I believe there is some trading going on in these "holds". People are buying and selling them at a discounted value based on speculation of the likelihood of return. This is similar to how I said promisory notes might be valued above and is not dissimilar to how debt is traded (if you get a call about a really old debt, it is likely the caller only paid pennies on the dollar to buy the debt and is probably far from the first person to have bought the debt)

[mrvision]

. . .
2) Easy to audit bitcoins

Especially number 2 would be very important when a bank tries to sell you their "bitcoin certificates". 

To audit bitcoins, you would need to know all the addresses that the bank is using to store the bitcoin reserves, and you'd have to have proof from the bank that they have access to all the private keys associated with those addresses.  I'm not sure that this makes it any easier to audit the bank.

A bank can say "here is our major offline storage address, and a signature to show we control the funds".

Anybody can check and see just how much is there and that it's all real.   

Compare that to all the difficulties in auditing gold reserves.. 

You know how much bitcoins they have, but you don't know how many 'credits' they've given. So you don't know if those credits are all backed.

In theory, one could of course do the same thing with bitcoins, issuing credit notes based on a certain reserve of coins.  However, who is going to take a bitcoin "credit" in payment?   With gold, we are forced to accept such payments.  With bitcoins, there is nothing to gain and a lot to use.  I don't see how people would be forced into using fraction reserve bitcoin notes.  Why not use the real thing? 

People already trade MtGox codes. How do you know Mt.Gox isn't issuing extra codes?

True, but they do such a thing because they cannot open a MtGox account in their countries, so it's much more difficult to access to bitcoin for them.

I mean, yes, they are buying them, to GET bitcoins (the real thing). And the seeller is doing it to get profit.

[kibblesnbits]

It is the year 2030.  The good news, 1BTC is worth $100.  The bad news, a gallon of milk is $20.

[DannyHamilton]

It is the year 2030.  The good news, 1BTC is worth $100.  The bad news, a gallon of milk is $20.

So a gallon of milk that would run me about 0.18 BTC today will cost me 0.20 BTC in 2030?

That doesn't seem right.  There doesn't seem to be enough inflation in the currency supply between now and 2030 to justify an inflation in milk prices.

The total bitcoin supply will be less than double what it is right now, and yet the price of milk (as expressed in USD) is nearly 10x as much.  Meanwhile if bitcoin hasn't failed and completely collapsed by then it would likely be in rather common mainstream use.  This should spread the available supply rather thin creating a deflation effect on pricing of goods.

If milk is $20 in 2030, and bitcoin is in rather mainstream use, I'd think that 1 BTC would be worth more than $111, and probably more than $200.

[marcus_of_augustus]

It is the year 2030.  The good news, 1BTC is worth $100.  The bad news, a gallon of milk is $20.

How is that bad news?

(Disclaimer: invested in dairy farms and btc.)

[DannyHamilton]

It is the year 2030.  The good news, 1BTC is worth $100.  The bad news, a gallon of milk is $20.

How is that bad news?

Because it means that those holding bitcoin will have lost buying power.

[Snipes777]

Inflation and Deflation in themselves are not a problem. I want voluntary, competing currencies that are trying to convince me to use them with their features, privacy, and ease of use. If one is inflating and one deflating, then it is fine. People will have a choice as to what money they want to use. The problem with FRNs is that we must use them, court judgments are monetized in them, and taxes must be paid in them. There isn't another option. This monopoly of money is the problem. Inflation and deflation are only a problem when you are forced to use that inflating or deflating currency.

[marcus_of_augustus]

Inflation and Deflation in themselves are not a problem. I want voluntary, competing currencies that are trying to convince me to use them with their features, privacy, and ease of use. If one is inflating and one deflating, then it is fine. People will have a choice as to what money they want to use. The problem with FRNs is that we must use them, court judgments are monetized in them, and taxes must be paid in them. There isn't another option. This monopoly of money is the problem. Inflation and deflation are only a problem when you are forced to use that inflating or deflating currency.

Yes, we need more free monies.

[Anon136]

We all know that BTC can't bee the only one crypto-currency.
21 million bitcoins is way too low for a whole world economy to use, and a few other reasons make BTC unable to work as the only one.

The real base unit of bitcoin is the satoshi and there will be 2.1e+15 satoshis in circulation by the time all btc has been mined. Surely 2.1e+15 is enough units of currency.

[Hyena]

Let's say I made a transaction and I didn't give any transaction fees. Also, people make so many transactions that miners simply don't have time to deal with the ones that have no fees attached.

I still made my transaction but it is not getting any confirmations for days.. for weeks.. for months.. What can I do to get that transaction confirmed?

Maybe it would be wise to make a bitcoin service that could confirm any pending transaction for a small payment?

[JoelKatz]

But then people realize that just by holding bitcoins and not buying, they are actually becoming richer! Plus, someone loses their wallet again, and the world population grows. Now the average hourly wage is 0.8 bitcoins from the natural deflation, and people start putting 1/4 of their wage into a coin store wallet to become richer. The apple farmer realizes less and less people are buying apples, and have to lower the price. And then people knows that if they don't buy something, they will have more buying power tomorrow.

So nearly nobody buys things. The world economy collapses.

This is nonsense. A trade occurs because a product or service is worth more to one person than another. If an apple is worth .9 bitcoins to you and 1 bitcoin to me, then it makes sense for us to exchange apples at some price between .9 and 1 bitcoin. It makes no difference what the expected future values of bitcoins are because that affects how I value the apple, how you value the apple, how I value the bitcoins, and how you value the bitcoins equally. If I valued the apple more in gold, I'd also value it more in bitcoins, and so I'd still want to buy it from you, whether for gold or bitcoins.

As a simpler way to explain it: Anything that makes people want to hold onto bitcoins more also makes others want to encourage them to part with bitcoins more. So it perfectly cancels out.

[kjj]

Anything that makes people want to hold onto bitcoins more also makes others want to encourage them to part with bitcoins more.

This.  I'll repeat it for emphasis.

Anything that makes people want to hold onto bitcoins more also makes others want to encourage them to part with bitcoins more.

If I were granted one wish, and one wish only, it would be that 100% of the kids in the world learn and understand the concept of a dynamic equilibrium by the time they leave school.  If you don't understand this concept, you make all sorts of silly posts on the internet about how some system or another will run off to infinity.

However, if you do understand this concept, like JoelKatz clearly does, you can see how nearly everything in the world around you is a balance between opposing forces, and instantly spot the correcting feedback that others can't see.

If you are still fuzzy on the concept, ask yourself how many people are going to starve to death while waiting for their bitcoins to buy 10% more food tomorrow.