Bitbank proposal

[QuantumQrack]

OP, No.

[bg002h]

This would take some of the pressure off of the max block size limit issue and make it easier for regular people to run validating nodes. This has the disadvantage of merely evolving our banking system rather than revolutionizing it. It also seems hard to me for the bitbanks to have much motivation to provide these services without being able to makeover by lending (hard to lend when price is unstable).

[LaggedOnUser]

This would take some of the pressure off of the max block size limit issue and make it easier for regular people to run validating nodes. This has the disadvantage of merely evolving our banking system rather than revolutionizing it. It also seems hard to me for the bitbanks to have much motivation to provide these services without being able to makeover by lending (hard to lend when price is unstable).

These are reasonable points.  In particular, what would their motivation be?  Either charging some kind of fee for transactions, which would make them less attractive (although still faster than doing it yourself), or else perhaps using their Bitcoin support as a form of advertising and hope it leads to other kinds of business.  On the other hand, providing the actual software would cost them very little.

The Ripple network is asking these same questions -- why run a validating node?  (https://ripple.com/wiki/FAQ#Who_will_run_validating_nodes.3F)  Their answers are to have a say in how the network is run, do business on the network, support currency choice, support the underbanked, or provide a public service.  The only financial reason is for those who do business on the network, meaning that they may lose a little money by running a Ripple server but it is part of the cost of doing business and selling goods or services for Ripple coins.

[gollum]

Whats the next step - local banks can do fractional reserve lending of BTC?

FRB on BitCoin will happen whether we want it or not. BitCoinica was probably the first to use FRB.

[zeroday]

Centralized bank-like entity for bitcoin is really absurd idea and I hope it will never happen. It's just against the idea of bitcoin.
OP, why not just using dollars?

We already have trusted entities (silkroad,bitmit,bitpay,etc) who manage aggregated wallets and perform instant micro transactions without using blockchain. It's really convenient to buy/sell goods, but it would be stupid to keep all your bitcoins there.

[wingding]

Whats the next step - local banks can do fractional reserve lending of BTC?

FRB on BitCoin will happen whether we want it or not. BitCoinica was probably the first to use FRB.

Would FRB be possible on bitcoins? (maybe that should be a topic itself)

[Terk]

Would FRB be possible on bitcoins? (maybe that should be a topic itself)

Why not possible?

1. Bank receives deposits from its customers for a total of 100,000 BTC.
2. It invests 80,000 BTC from that amount (buying other companies shares, lending to people and companies, etc).
3. It actually keeps only 20,000 BTC of customers deposits and if customers would suddenly like to withdraw their 100,000 BTC, it wouldn't be possible.

[nebulus]

Good idea, if you are seeking to make it available as a plugin or a web library.
Exchanges already do something similar by having internal accounting systems and doing block chain transactions when withdrawals are made.

[LaggedOnUser]

Centralized bank-like entity for bitcoin is really absurd idea and I hope it will never happen. It's just against the idea of bitcoin.
OP, why not just using dollars?

We already have trusted entities (silkroad,bitmit,bitpay,etc) who manage aggregated wallets and perform instant micro transactions without using blockchain. It's really convenient to buy/sell goods, but it would be stupid to keep all your bitcoins there.

I wasn't suggesting a centralized entity, but a localized one: any number of local banks using bitcoin in a manner similar to you describe for those other trusted entities (silkroad, bitmit, bitpay, etc.), but using standardized open source bitbank software.  Also, I wouldn't suggest keeping all your coins there, just enough to make transactions.  Finally, you can use dollars if you like, but they are of course denominated in a fiat currency that not everyone trusts.  In fact, the dollar could be headed for a crash.  So my proposal is merely a theory for "new digital dollars" that it seems useful to discuss.

[LaggedOnUser]

Good idea, if you are seeking to make it available as a plugin or a web library.
Exchanges already do something similar by having internal accounting systems and doing block chain transactions when withdrawals are made.

I wasn't aware of that and will check it out, thanks!

[solracx]

This would greatly reduce the amount of actual bitcoin transactions needed, thus taking pressure off the network.  The bitcoin network would resemble more an "interbank clearing network" than an "all to all transaction network".  Since small transactions, such as buying a cup of coffee, only result in an internal ledger entry in the bank, they can be done instantly.  Furthermore, having less transactions on the network makes it run faster overall (solves "confirmation delay" problem).

I will have to strongly agree with this.

People are focusing too much on the need for BitCoin handle the 'last mile' of the financial transaction.

I however think that its actually strength in not in this area.  Right now it is a store of wealth (due to its deflationary structure) and a means to transfer a huge amount of currency across borders.

To add any other capabilities really may require an alternative currency.

[wingsuit]

Whats the next step - local banks can do fractional reserve lending of BTC?

For as long as bitcoins cannot be forged, no.

[Zeke_Vermillion]

A lot of people assume that bitcoin banking means fractional reserve model, and paying interest. But I think the real use case is convenience (including off-chain clearing, as you suggest) and security (backed by financial guarantees). So far no one has come up with an insurance system that makes me feel safe to keep my crypto hoard on anyone else's machine for very long. A trustworthy bitcoin cold storage vault would probably involve financial guarantees, insurance and reinsurance, as well as technical oversight and security testing. For that I might be willing to pay a fee.

[townf]

I made a post asking for ideas on a p2p network of atm machines. The atm machines don't convert from existing fiat to crypto, but simply tokens just for the purpose of exchanging to and from crypto. This is like your idea, but physical, as opposed to accounting entries (of tokens really). Essentially they're the same thing. Maybe a better word would be notes instead of tokens.

Maybe ripple handles the accounting entry side of note issuing?

Im not a big fan of FRB either. I'm convinced note issuing on crypto reserves is unavoidable though. It solves at least a couple of big problems perfectly which can't be solved in any other way. With that service comes FRB as note issuing is the necessary tool for it.

So therefore, I think a p2p network to issue us our inert, networkless cash whether physically or as accounting entries is very important to implement soon, otherwise note issuing will be co-opted by the existing institution that has done it for centuries. One day they're going to say about crypto: if you can't beat them, join them.

I don't think FRB of crypto reserves will be anything like the total bullshit "monetized government debt" reserves like we got now. Crypto reserves would keep a bank (or p2p network) even more honest than physical gold as long as they want to actually stay in business.

The demand for the crypto reserve specie will constantly be much higher than gold, because it is actually needed anytime you buy something online. Banksters will not be able to multiply the money supply anywhere close what they do on gold reserves.

That being said, it does not prevent them from printing too much money anyway and making us hostage to bail them out by either devaluing our notes or having a bunch of us stuck with unredeemable notes. Therefore i think it is hugely important that some kind of decentralized, free software, p2p network be implemented to issue us our notes or accounting entries, one to one, no money multiplication, no FRB.

Anyway here is the post, thanks for reading:
https://bitcointalk.org/index.php?topic=191175.0