DannyHamilton
Legendary
Offline
Activity: 3472
Merit: 4790
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 05:17:59 PM |
|
Bottom line: how much money lives in Coinbase, Instawallet, MtGox, etc. versus private wallets, today? Until that number gets to 51%, I won't believe that there is a preference for people to hold BTC in 3rd party wallets versus private wallets.
Bitcoin is still in its infancy. You are looking at a group of early-adopters and making assumptions that the general public has the same interests, knowledge, and skills. If bitcoin successfully makes the jump to widespread mainstream use, there is a good chance that it will be because businesses like the reduced fraud and chargeback risk. If businesses start accepting bitcoin instead of other electronic payments (paypal, mastercard, visa, etc) or start offering reduced costs to those paying with bitcoin, then the general public will begin to adopt it without caring about financial privacy and becoming your own bank. As people lose their bitcoins to hackers, crashed hard drives, corrupted wallets, and forgotten passwords they will seek out a "safe" place to store their bitcoins. The banks will offer safe, secure, insured storage. Depending on the deposits, they may also offer interest earned on deposits which will draw those customers who know how to secure their own wallets, but don't want to put the time and effort into it. As bitcoin becomes more popular, transactions will take longer and longer to get into a block without substantial fees. The banks will be able to set up their own payment network and offer reduced fees on transactions. The reduced fees will draw even more people in to using the bank instead of the blockchain for their transactions. Will it reach 20%? 51%? 80%? And if so, how long will it take? 5 more years? 20 more years? 100 years? That is all difficult to predict, but it will be interesting to watch.
|
|
|
|
DeathAndTaxes
Donator
Legendary
Offline
Activity: 1218
Merit: 1079
Gerald Davis
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 05:45:10 PM |
|
In theory fractional reserve banking is possible however there are some unique constraints. 1) There is no central bank. Central banks also engage in FRB except they create the monetary base out of thin air. With Bitcoin the monetary base is fixed at ~21M BTC. 2) There is unlikely to be anything like FDIC. FDIC distorts the market in that the cost of insuring funds is paid for by taxpayers not depositors. While it is possible that in the future Bitcoin banks will exist and will even be insured it almost certainly will be private insurance. This makes using a Bitcoin bank more expensive than simply holding the coins yourself. Some people will still use banks but a smaller % than in most fiat economies. 3) The reserve ratio will likely be higher. Private insurance companies will be profit driven (not public policy driven) and smaller reserves means more risk. 4) As long as BTC is appreciating in value relative to other currencies demand for loans will be modest. Say you need to buy a car. You could get a $10,000 loan in USD (which are dropping in value making repayment easier) or you could get a 100 BTC (assume $100:1 exchange rate) loan (which are rising in value making repayment harder). Some people will choose to borrow in BTC but it will limit demand. 5) Less need for a bank. Without a bank (or bank like entity) it is very difficulty and costly to engage in commerce in USD. Imagine no PayPal, no credit cards, no prepaid payroll cards, no checking account, no direct deposit. Even routine things like cashing your paycheck to buy a game on steam becomes next to impossible. The utility banks bring drives deposits into the bank. The effective money supply is Monetary Base * Money Mulitiplier. In most FRB systems the central bank can influence both the monetary base AND the Money Multiplier. In Bitcoin the monetary base is fixed (once all coins are minted) and the Money Multiplier is unlikely to be very large. Imagine a hypothetical scenario where 30% of all Bitcoins are in Fractional Reserve Banks. The insurance company requires a 50% reserve. That means the money multiplier is 1 + 0.3*0.5 = 1.15. The money multiplier with no Fractional Reserve Banking at all would be 1. Traditionally the money multiplier in the US has been roughly 2.5 to 3. This has crashed recently due to the recession (well due to Fed's policies) however a money multiplier to 2, 2.5 or 3 seems highly improbable in Bitcoin economy given the increased utility of the currency and the reduced utility of a bank. ![](https://ip.bitcointalk.org/?u=http%3A%2F%2Fresearch.stlouisfed.org%2Ffred2%2Fdata%2FMULT_Max_630_378.png&t=665&c=njM6WPKawBczpQ)
|
|
|
|
Gatorhex
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 06:44:58 PM |
|
BTC is a deflationary currency.
Despite the propaganda THIS IS NOT ALL A BAD THING!
-Your savings increase in value over time, this means you can retire, and let someone else take your job!
-It will mean the earth resources are not wasted to the never ending pump up of growth figures to fuel inflation.
-It will mean a more stable economy with less bubbles and cheaper housing/asset prices.
-Governments find it harder to fund their wars.
There are no banks in a bitcoin economy, it's peer-2-peer, fraction reserves are for fiat debt notes.
|
|
|
|
🏰 TradeFortress 🏰 (OP)
Bitcoin Veteran
VIP
Legendary
Offline
Activity: 1316
Merit: 1043
👻
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 10:00:49 PM |
|
BTC is a deflationary currency.
Despite the propaganda THIS IS NOT ALL A BAD THING!
-Your savings increase in value over time, this means you can retire, and let someone else take your job!
-It will mean the earth resources are not wasted to the never ending pump up of growth figures to fuel inflation.
-It will mean a more stable economy with less bubbles and cheaper housing/asset prices.
-Governments find it harder to fund their wars.
There are no banks in a bitcoin economy, it's peer-2-peer, fraction reserves are for fiat debt notes.
Yes there are, and there will always be banks.
|
|
|
|
johnyj
Legendary
Offline
Activity: 1988
Merit: 1012
Beyond Imagination
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 10:09:46 PM |
|
Lets pretend for a moment that banks (and their insurance companies) settle on 10% reserve. So The banks can loan out some of their deposits, but have to keep at least 10% of all deposits in actual bitcoins.
Given your example the bank has 11 actual bitcoins and 16 bitcoins worth of deposits.
So the bank loans out another 9 bitcoins to Dave. Now we have 11 coins in bank and 25 bitcoins worth of deposits.
Then the bank loans out 6 coins to Edward. Now 11 coins in bank and 31 worth of deposits.
This process can continue until there are a total of 110 bitcoins worth of deposits. So magically, 11 "real" bitcoins becomes 110 bitcoins worth of spending power in the economy.
This is an accounting fraud, it is only 110 BTC on the bank's deposit record, at any time the spending power in the whole economy will never exceed 11 BTC, since that is all the BTC existed Transactions between people or businesses that use the same bank don't even go through the blockchain. The bank just adjusts the necessary deposit account info accordingly. ... Why will people use banks instead of just keeping their own secure wallets? A variety of reasons. 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 (bank only has to pay blockchain transaction fees on a 10BT transaction instead of thousands of transactions valued at over 2 million BTC)?
Very true, these are some of the benefits of having a bank. But in BTC's case, things are different: Not so many people will take loan from a BTC bank, since the loan interest is just too high when no real world projects can have higher ROI than BTC itself. And without loan, banks can not make a living, or they simply become an asset management business
|
|
|
|
FreeMoney
Legendary
Offline
Activity: 1246
Merit: 1016
Strength in numbers
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 10:30:20 PM |
|
Essentially frac reserve is just tricking people into temporarily thinking there are more coins than there are. That 'trick' is much less robust with Bitcoin than bank money because you can hold your own Bitcoin but not your own bank money. Whenever people notice that bitcoin is getting oddly easy to acquire they will hold the actual coins themselves, the frac banks will run out of actual funds and collapse, bitcoin will become harder and the people who kept the actual coins will prosper.
|
Play Bitcoin Poker at sealswithclubs.eu. We're active and open to everyone.
|
|
|
nobbynobbynoob
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 10:31:43 PM |
|
I worked for an asset management company and one of their strongest mantras was "we are not a bank!" ![Smiley](https://bitcointalk.org/Smileys/default/smiley.gif)
|
|
|
|
farlack
Legendary
Offline
Activity: 1311
Merit: 1000
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 10:51:18 PM |
|
21 million bitcoins is way too low for a whole world economy to use That would be true if there were only 21 million bitcoins, but that's not the actual limit. There will be 21000000.00000000 bitcoins. That's plenty for a world economy. Most of those decimal numbers can't be used, they worth almost nothing, if they worth something more than a penny, then it's a problem: we will pay more than pennys for every transaction. Conclusion: stills small for a whole world economy. Transactions could be free too, do you know how much the USA government alone spends keeping the USD in cycle? I think they can afford to turn on some computers to push transactions and still save money. Solar panels + super computers = save ton$ And why cant all the decimal numbers be used? If .00000000090000 was worth 9 cents, and I was selling something for 9 cents, id gladly accept it. BTC is a deflationary currency.
Despite the propaganda THIS IS NOT ALL A BAD THING!
-Your savings increase in value over time, this means you can retire, and let someone else take your job!
-It will mean the earth resources are not wasted to the never ending pump up of growth figures to fuel inflation.
-It will mean a more stable economy with less bubbles and cheaper housing/asset prices.
-Governments find it harder to fund their wars.
There are no banks in a bitcoin economy, it's peer-2-peer, fraction reserves are for fiat debt notes.
Yes there are, and there will always be banks. Banks for what? I'm not sure many people would trust that even the lowest ranking employee would have access to your untraceable money, and they don't even have to rob the bank in person.
|
|
|
|
johnyj
Legendary
Offline
Activity: 1988
Merit: 1012
Beyond Imagination
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 10:56:06 PM |
|
I think those zeros will become a headache for daily use, by that time people will start to use satoshi instead
|
|
|
|
DannyHamilton
Legendary
Offline
Activity: 3472
Merit: 4790
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:15:52 PM |
|
There are no banks in a bitcoin economy, it's peer-2-peer, fraction reserves are for fiat debt notes.
You can say it, but that doesn't make it true. Fractional Reserve is possible with Bitcoin. Banks are possible with Bitcoins (I'd even argue likely).
|
|
|
|
DannyHamilton
Legendary
Offline
Activity: 3472
Merit: 4790
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:24:11 PM |
|
This process can continue until there are a total of 110 bitcoins worth of deposits. So magically, 11 "real" bitcoins becomes 110 bitcoins worth of spending power in the economy.
This is an accounting fraud, it is only 110 BTC on the bank's deposit record, at any time the spending power in the whole economy will never exceed 11 BTC, since that is all the BTC existed You can call it "accounting fraud" if you like, but it doesn't change the fact that there is then 110 bitcoins worth of spending power in the whole economy. . . . Why will people use banks instead of just keeping their own secure wallets? A variety of reasons. Perhaps . . .
Very true, these are some of the benefits of having a bank. But in BTC's case, things are different: Not so many people will take loan from a BTC bank, since the loan interest is just too high when no real world projects can have higher ROI than BTC itself. And without loan, banks can not make a living, or they simply become an asset management business You are operating under the assumption that holding Bitcoin will continue to provide a higher "ROI" than other projects indefinitely. I assume that the exchange rate will eventually even out and increase through deflation of the spendable supply at a slower rate providing an opportunity for other projects to provide higher (and safer) ROI.
|
|
|
|
farlack
Legendary
Offline
Activity: 1311
Merit: 1000
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:26:50 PM |
|
I think those zeros will become a headache for daily use, by that time people will start to use satoshi instead
Since it will all be digital, a debit/credit card type deal will do it on its own, you wouldn't even need to do anything except swipe your card.
|
|
|
|
DannyHamilton
Legendary
Offline
Activity: 3472
Merit: 4790
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:27:19 PM |
|
. . . There are no banks in a bitcoin economy . . .
Yes there are, and there will always be banks. Banks for what? . . . This: . . . Why will people use banks instead of just keeping their own secure wallets? A variety of reasons. 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 . . .?
|
|
|
|
DannyHamilton
Legendary
Offline
Activity: 3472
Merit: 4790
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:29:04 PM |
|
Since it will all be digital, a debit/credit card type deal will do it on its own, you wouldn't even need to do anything except swipe your card.
And who will supply that "debit/credit card type deal"? Quite possibly a bank.
|
|
|
|
mrvision
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:46:08 PM |
|
The year is 2030. People revolted and threw the feds out. Everyone pays in bitcoins, woo! But all the 21 million bitcoins have being mined already.
An apple sells for 0.05 BTC. The average hourly wage is 1 bitcoin. Everyone's happy.
Someone loses their coins. The world population grows. Now the average hourly wage is only 0.9 bitcoins! People stop buying apples as much as they did before.
An apple now sells for 0.045 BTC. Everyone's happy again.
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. Then some corporation called the Federal Reserve comes, 'hey, here's our fiat!'.
Right?
WRONG.
This will not happen because of fractional reserve banking.
Alice deposits 1 bitcoin into the bank. Bob deposits 10 bitcoins into the bank. > Coins in bank: 11 bitcoins
Carpenter borrows 5 bitcoins to start up a new business. > Coins in bank: 6 bitcoins
Don't see the problem?
Alice sees her statement with 1 bitcoin. Bob sees his statement with 10 bitcoins. Carpenter sees his wallet with 5 bitcoins.
Kaboom. Inflation. Fractional reserve banking will *save* us from a deflationary spiral.
Dude, bitcoin is the bank. Your bitcoins arent in your computer. They are stored in the blockchain. In your computer, what you have is the key to access your bitcoins. There is no bank were you are going to send your funds.
|
|
|
|
DannyHamilton
Legendary
Offline
Activity: 3472
Merit: 4790
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:48:45 PM |
|
. . . Dude, bitcoin is the bank. Your bitcoins arent in your computer. They are stored in the blockchain. In your computer, what you have is the key to access your bitcoins. There is no bank were you are going to send your funds.
Not yet. But I haven't seen any valid reason to believe that bitcoin banks won't eventually exist.
|
|
|
|
mrvision
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:51:28 PM |
|
. . . Dude, bitcoin is the bank. Your bitcoins arent in your computer. They are stored in the blockchain. In your computer, what you have is the key to access your bitcoins. There is no bank were you are going to send your funds.
Not yet. But I haven't seen any valid reason to believe that bitcoin banks won't eventually exist. Because there isn't a reason for the opposite.
|
|
|
|
DannyHamilton
Legendary
Offline
Activity: 3472
Merit: 4790
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:55:31 PM |
|
. . . Dude, bitcoin is the bank. Your bitcoins arent in your computer. They are stored in the blockchain. In your computer, what you have is the key to access your bitcoins. There is no bank were you are going to send your funds.
Not yet. But I haven't seen any valid reason to believe that bitcoin banks won't eventually exist. Because there isn't a reason for the opposite. This: . . . Why will people use banks instead of just keeping their own secure wallets? A variety of reasons. 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 . . .?
|
|
|
|
farlack
Legendary
Offline
Activity: 1311
Merit: 1000
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 11, 2012, 11:57:14 PM |
|
Since it will all be digital, a debit/credit card type deal will do it on its own, you wouldn't even need to do anything except swipe your card.
And who will supply that "debit/credit card type deal"? Quite possibly a bank. There are already members on this forum in process of designing one.
|
|
|
|
mrvision
|
![](https://bitcointalk.org/Themes/custom1/images/post/xx.gif) |
December 12, 2012, 12:15:27 AM |
|
. . . Dude, bitcoin is the bank. Your bitcoins arent in your computer. They are stored in the blockchain. In your computer, what you have is the key to access your bitcoins. There is no bank were you are going to send your funds.
Not yet. But I haven't seen any valid reason to believe that bitcoin banks won't eventually exist. Because there isn't a reason for the opposite. This: . . . Why will people use banks instead of just keeping their own secure wallets? A variety of reasons. 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 . . .?
Interesting, mastercard wants you to pay with a mobile and you want to pay with a card. reduced transacton fees? EVEN MORE? small interest rate on deposits? Better to invest in companies using an stock exchange. So, this leads us to this: You want a bank because you think that you may lose your private key or because you think people may enter in your computer and stole your bitcoin? for the second answer you may want to google: usb hardware wallet (in development).
|
|
|
|
|