Is credit possible with Bitcoin? Explain.

[Hunterbunter]

Credit, as in literally sending someone coins and keeping track of the debt yourself is no different to lending someone your ipad and expecting it back in the future (with or without something extra).

Fiat is the way modern economies keep track of this debt. It is the placeholder of what has been given but not received, and this is what bitcoins are not.

[1714558220]

1714558220

[1714558220]

1714558220

[xxjs]

Credit, as in literally sending someone coins and keeping track of the debt yourself is no different to lending someone your ipad and expecting it back in the future (with or without something extra).

Fiat is the way modern economies keep track of this debt. It is the placeholder of what has been given but not received, and this is what bitcoins are not.

To be excact, fiat base money as in notes and token coins, is money just like bitcoin. But a bank deposit is credit. When you pay someone, the banks debt to you is transferred to the other person. The bank now has debt to that person.

[Hunterbunter]

Credit, as in literally sending someone coins and keeping track of the debt yourself is no different to lending someone your ipad and expecting it back in the future (with or without something extra).

Fiat is the way modern economies keep track of this debt. It is the placeholder of what has been given but not received, and this is what bitcoins are not.

To be excact, fiat base money as in notes and token coins, is money just like bitcoin. But a bank deposit is credit. When you pay someone, the banks debt to you is transferred to the other person. The bank now has debt to that person.

Yes, but not what I was talking about. You're looking at fiat as a commodity.

Where does the money you put into a bank come from?

The OP isn't very clear what kind of credit they're asking about. Bitcoins being lent and considered debt until returned, or Bitcoins being the valueless token of debt.

[xxjs]

Credit, as in literally sending someone coins and keeping track of the debt yourself is no different to lending someone your ipad and expecting it back in the future (with or without something extra).

Fiat is the way modern economies keep track of this debt. It is the placeholder of what has been given but not received, and this is what bitcoins are not.

To be excact, fiat base money as in notes and token coins, is money just like bitcoin. But a bank deposit is credit. When you pay someone, the banks debt to you is transferred to the other person. The bank now has debt to that person.

Yes, but not what I was talking about. You're looking at fiat as a commodity.

Where does the money you put into a bank come from?

The OP isn't very clear what kind of credit they're asking about. Bitcoins being lent and considered debt until returned, or Bitcoins being the valueless token of debt.

I think the OP is correct in this:

My personal opinion is that Bitcoin is the same as cash or gold (but closer to gold) in this regard. Am I correct? No? Explain, discuss and debate!

[RationalSpeculator]

Anything can be abused.
Fractional reserve doesn't seem possible with BTC, no way you could lend btc you didn't have. But it would be possible to create a system that lent $ (or some other fiat) based on holdings of BTC. I don't see why anyone would, but thats a different question.

Fractional reserve banking doesn't allow lending money that doesn't exist, it just permits lending money that you don't personally have even though someone else does.

It is possible to do fractional reserve banking with bitcoin.  Fractional reserve banking does allow to you to lend money that doesn't exist-- indeed that is exactly what banking is all about.  The banks lending more money than they have on deposit is how money is created!

The fact that the bitcoin supply is limited to 21,000,000 doesn't stop the banks for lending out more than that-- if all these bitcoin were deposited in bitcoin banks then using the current reserve of about 10% of traditional fiat banking the banks would lend out 210,000,000.  What the banks are really dealing with is not bitcoins but rather promises made about the bitcoins: that's why they can create more--  a promise is a very easy thing to create while a bitcoin is not so easy.

To clear things up semantically, Fractional reserve banking is the process of assigning multiple owners to the same coin on deposit, then hoping that a threshold number of depositors do not attempt to withdraw simultaneously. The law of large numbers makes this process very reliable (and profitable). However with bitcoin, it would be difficult initially to get to the safety of that large number (of deposits).  You can do FRL with anything, the inability to print bitcoins is tangential and will only affect (raise) the cost of deposit insurance for the bank.

I think fractional reserve banking is widely misunderstood. I agree that many people think this means lending out currency banks don't have, thus creating currency out of thin air. However, I have never seen any proof! that this is the case. The definition of fractional reserve banking as defined by wikipedia is correct in my opinion. It means keeping a fraction of the deposits in reserve and not lend it out. Meaning all money lend out is indeed covered by a deposit. In fact the bank always has more on deposit than it has lend out. The lie is simply that all depositors think they can withdraw their money at anytime but in reality only say 5% can as all other money is locked in short and long term loans. This lie can simply be removed by only offering time deposits that are locked for some time, the same time as the corresponding loan is locked.

Theoretically this means bitcoins can perfectly be used to lend out just like gold is being lend out today (housing market Thailand). The problem with bitcoin is that it will go up in purchasing power over time, in contrast to gold that only preserves it over time, making borrowing bitcoin a very bad deal. Borrowers will default much quicker on a bitcoin loan than a fiat loan. Hence why I think that bitcoin lending will remain small at best and will only take traction after bitcoin has become a mainstream currency and the value only goes up by 2% per year on average. Long way off...

I think assigning multiple owners to the same coin on deposit is not fractional reserve banking in my opinion but fraud even by today's banking regulations. A fraud that indeed can be executed by banks since their origin. A fraud that indeed creates currency out of thin air (currency being credit here), however even this fraud does NOT create money out of thin air as the bank did not create any extra dollars in existence by lying to some customers, it just created extra credit (promise of payment) that will never actually be executed as it is physically impossible for the bank to do so since commercial banks do not have printing machines.


What we see here is again the trick to blame the free market for government corruption. There is only one bank that can and does create money out of thin air and that is the central bank. An institution that is not a bank at all but owns printing machines and is 'a lender of last resort' that has the exclusive rights to create money out of thin air, an exclusive right granted by the government. At the start they did it just like corrupt bankers did, creating more credit (paper promises of payment = fiat) than they are good for (gold in the bank). Being the government they took it one step further then corrupt bankers could do, and simply cancelled all promises of payment in gold (1972) which would normally make the promises (fiat paper) become worthless immediately but that didn't happen because indeed, as bitcoin proves again, money does not need to be backed by a commodity in order to preserve it's value. Ofcourse fiat paper not being sound money governments continued to print more of it, destroying the value slowly but steadily. And who to blame with false accusations? Bankers...


I think bitcoin banks will not be in the business of lending out bitcoins but will be focused on safekeeping of bitcoins, as well as insuring of them against theft and natural disasters. A very important service. But it will cost money. And many will choose free solutions for bitcoin storage offering no insurance, like blockchain wallet. Yes, the world will look very different. I think the banking world will mostly disappear together with the currency system it became big on. Borrow first, pay back later with devalued money, will be replaced with earn first or have nothing. Sound money brings sound habits and sound institutions. Bitcoin to the sky!  

[xxjs]

I think you are not up to date on fractional reserve banking. The multiplication of money comes about when the money is redeposited in another account, either by the lender or the person he buys stuff from. The money supply thus extended, is somewhat subjective, as it depends on the psyche of the persons involved, do they really have these money fully, or is it only partial money.

Moving from demand deposits to time deposits, where the time from request to withdrawal is paired with the actual maturity of the loans, will take the risk out of the bank, but the money multiplication is still there.

In fact, the central bank can regulate the money supply by tuning the reserve requirements.


I'll have to add that if every depositor claims his money back at the same time, and all loans are repaid, the bank can fullfill it's duties. But with demand deposits, the loans will not be repaid immediately, and the savers will not get their money back. Also the reserves are quite small, and it is easy for the bank to lose them all, in which case depositors will not get their money back. Reckless investing is done on a daily basis on part of the banks. They have to, else they lose in the area of profit.

[RationalSpeculator]

I think you are not up to date on fractional reserve banking. The multiplication of money comes about when the money is redeposited in another account, either by the lender or the person he buys stuff from. The money supply thus extended, is somewhat subjective, as it depends on the psyche of the persons involved, do they really have these money fully, or is it only partial money.

Moving from demand deposits to time deposits, where the time from request to withdrawal is paired with the actual maturity of the loans, will take the risk out of the bank, but the money multiplication is still there.

In fact, the central bank can regulate the money supply by tuning the reserve requirements.

There is no multiplication of money. Redepositing money into another account is not the multiplication of money, but is the multiplication of deposits, multiplication of a promise, I promise you, he promise another, another promise also someone else. Debt it is called. True we use this debt to pay others as we use our saving accounts to pay others, so indeed debt is used as currency. And indeed as promises/debt goes up, the amount of 'currency' in circulation goes up. However debt, even used as a currency, is NOT money. Currency is anything that is used to pay others while money is only fiat, gold and bitcoins.

I'm being semantic here but I think it is very important as multiplication of debt/saving accounts/promises/currency does not create inflation! Is not fraudulent! Multiplication of money (fiat, gold, bitcoins) out of thin air however creates inflation and is fraud!



 

[xxjs]

I think you are not up to date on fractional reserve banking. The multiplication of money comes about when the money is redeposited in another account, either by the lender or the person he buys stuff from. The money supply thus extended, is somewhat subjective, as it depends on the psyche of the persons involved, do they really have these money fully, or is it only partial money.

Moving from demand deposits to time deposits, where the time from request to withdrawal is paired with the actual maturity of the loans, will take the risk out of the bank, but the money multiplication is still there.

In fact, the central bank can regulate the money supply by tuning the reserve requirements.

There is no multiplication of money. Redepositing money into another account is not the multiplication of money, but is the multiplication of deposits, multiplication of a promise, I promise you, he promise another, another promise also someone else. Debt it is called. True we use this debt to pay others as we use our saving accounts to pay others, so indeed debt is used as currency. And indeed as promises/debt goes up, the amount of 'currency' in circulation goes up. However debt, even used as a currency, is NOT money. Currency is anything that is used to pay others while money is only fiat, gold and bitcoins.

I'm being semantic here but I think it is very important as multiplication of debt/saving accounts/promises/currency does not create inflation! Is not fraudulent! Multiplication of money (fiat, gold, bitcoins) out of thin air however creates inflation and is fraud!
 

Ok kay then that is cleared up, but you don't use the normal definitions. Normally base money is the notes and token coins, and M1 a measure of money supply which includes demand deposits. It is still called money. Money is base money plus different kind of debts.

[RationalSpeculator]

Ok kay then that is cleared up, but you don't use the normal definitions. Normally base money is the notes and token coins, and M1 a measure of money supply which includes demand deposits. It is still called money. Money is base money plus different kind of debts.

Thank you for your validation. You are right I used money and currency inconsistently initially. I'm sorry for the confusion. I picked up the difference between money and currency on some forum. Not sure if it is an accepted definition. Thanks for reminding about the Fed's definition of money. I am reluctant to follow their definitions though as politicians are masters of manipulation and language is the first thing they rape.

[Cluster2k]

The problem: if bitcoin becomes popular in a growing economy there is no incentive to lend bitcoins to anyone else.  Why?  Because the would be lender can just sit on his or her bitcoin stash and wait for the bitcoins to progressively become worth more without any effort.  A growing economy means more goods chasing a dwindling supply of bitcoins (some are lost to HDD crashes, etc).  In this scenario why risk lending out and losing your bitcoins? 

Anyone borrowing bitcoins would have to put in an extraordinary amount of effort to repay the loan, as bitcoins in a growing economy are worth more as time goes by.  To borrow a bitcoin today for business purposes and repay it in a year's time means having to do a lot of work to repay that bitcoin even before any interest is considered.

Bitcoin cannot be the basis of a modern economy as we know it.  The incentive to sit on a pile of bitcoins and wait for their purchasing power to improve is too great.

[Lohoris]

I think you are not up to date on fractional reserve banking. The multiplication of money comes about when the money is redeposited in another account, either by the lender or the person he buys stuff from. The money supply thus extended, is somewhat subjective, as it depends on the psyche of the persons involved, do they really have these money fully, or is it only partial money.

Wrong.

They don't have real money, they still have credits.

It is not money until you cash it out of the bank and hold the banknotes, and they can't multiplicate that, as I already explained.

You can do the exact same thing with bitcoins, it's really no different: you can't print money, you can't print bitcoins.

The problem: if bitcoin becomes popular in a growing economy there is no incentive to lend bitcoins to anyone else.  Why?  Because the would be lender can just sit on his or her bitcoin stash and wait for the bitcoins to progressively become worth more without any effort.  A growing economy means more goods chasing a dwindling supply of bitcoins (some are lost to HDD crashes, etc).  In this scenario why risk lending out and losing your bitcoins? 

Anyone borrowing bitcoins would have to put in an extraordinary amount of effort to repay the loan, as bitcoins in a growing economy are worth more as time goes by.  To borrow a bitcoin today for business purposes and repay it in a year's time means having to do a lot of work to repay that bitcoin even before any interest is considered.

Bitcoin cannot be the basis of a modern economy as we know it.  The incentive to sit on a pile of bitcoins and wait for their purchasing power to improve is too great.

This is skewed, try to focus with more attention to every detail.

1. bitcoins will likely appreciate in value, but if you lend them, you'll have greater gains, hence lending makes sense
2. paying them back appears to be more difficult, but again this is not fully true: if you borrow bitcoins I can expect you to need bitcoins and gain bitcoins doinh your business (otherwise you are stupid and should have borrowed something else) --> you owe bitcoins, you earn bitcoins, you pay back; the exchange rate with other currencies is irrelevant (if it is, you botched your business plan and you didn't really need to borrow bitcoins)

[Lohoris]

So apparently some smart guy has decided that they are going to delete a post of mine from 2013 because they apparently violate a new rule.

Kids with buttons, I'd say.

Kids with buttons.

Click click.

Won't bother reposting, if you wish to destroy knowledge on your own site, be welcome.

[Cratoon]

The only project allowing a credit with crypto that comes to mind is Nexo, but they're using the credit model just to allow you pay from credit card with BTC, taking the BTC as a pledge.

[abuya55]

The only project allowing a credit with crypto that comes to mind is Nexo, but they're using the credit model just to allow you pay from credit card with BTC, taking the BTC as a pledge.

Nexo is more like a pawnshop operating with cryptocurrencies. But I'm not sure it's really trustworthy because your pledged coins will be kept on a hot wallet.

[wozzek23]

There is really no difference. Have you ever tried to take loan from some of these big lenders in the cryptocurrency space?
They will only give you fiat and not cryptocurrency and you will have to give a collateral for the money you’re about to borrow, and the collateral you’re giving is your cryptocurrencies; you give your cryptocurrency assets and you will be given loan in fiat.

There is really not much difference between the way it works here and the way it works with others like fiat, they are all the same thing. And moreover, there is really no way that these people can lend the way you said, it’s just not possible to do it.