Bitcoins interest rates possible?

[bitcoininnj]

We will find out... check it out, the first bitcoin bank: www.flexcoin.com

[dennis_sweden]

The proprietor of www.flexcoin.com posted this in a differetn thread (http://forum.bitcoin.org/index.php?topic=21615.0;all)

It's not a scam guys...  I own that site.. we threw up wordpress just to put in a place holder.  It should be up in Beta July first (that's when the SSL / Firewall / Security) should be tested...  all passwords / usernames will be encrypted.. ect ect..

"interest"  is nothing more however than a cluster of servers that are mining... and people that use that as their online wallet IE: online bitcoin bank do get the dividends from it.   It's my way of saying thanks for using the free service.

I want to STRESS ... though we are focusing on security.. it will still be in Alpha / Beta for a bit..  I'm trying to build a real company on bitcoins,  so reputation does matter... and it has company backing by Yooter Interactive.. ..   so if you want to test it..  use a small amount of coins...  I'll put a notice on the site when it's out of Beta.

Honestly I think it's the first time a tax paying company is putting up real money to build something for bitcoins.

Enjoy....    (crossing fingers it's secure by July 1st.)

It is, at least to me, unclear how flexcoin will use deposited Btc.

[relative]

I am not quite sure that I understand how a Bitcoin bank would operate. I am under the assumption that banks would lend Bitcoins and not USD;

yes

Let us say that: a bank accepts deposits and receive 1000 Btc from various depositors. They give loans, but owing to the fact that they do not have Btc or rather the codes that Btc are made up from, they can never lend more than 1000 Btc. If the bank lends 1000 Btc no depositor can withdraw any Btc; which means that 1000 Btc equals 1000 Btc and not 2000 Btc.

there is no need to make it even more complicated and introduce interest rates in your scenario.
if my post wasnt intelligible read this: http://en.wikipedia.org/wiki/Fractional-reserve_banking#Example_of_deposit_multiplication

replace "central bank money" with "21 million coins" there and you'll have what a bitcoin bank can do.

[dennis_sweden]

I am not quite sure that I understand how a Bitcoin bank would operate. I am under the assumption that banks would lend Bitcoins and not USD;

yes

Let us say that: a bank accepts deposits and receive 1000 Btc from various depositors. They give loans, but owing to the fact that they do not have Btc or rather the codes that Btc are made up from, they can never lend more than 1000 Btc. If the bank lends 1000 Btc no depositor can withdraw any Btc; which means that 1000 Btc equals 1000 Btc and not 2000 Btc.

there is no need to make it even more complicated and introduce interest rates in your scenario.
if my post wasnt intelligible read this: http://en.wikipedia.org/wiki/Fractional-reserve_banking#Example_of_deposit_multiplication

replace "central bank money" with "21 million coins" there and you'll have what a bitcoin bank can do.

Wiki is actually not entirely correct in its explanation:

"When a deposit of central bank money is made at a commercial bank, the central bank money is removed from circulation and added to the commercial banks' reserves (it is no longer counted as part of m1 money supply). Simultaneously, an equal amount of new commercial bank money is created in the form of bank deposits. When a loan is made by the commercial bank (which keeps only a fraction of the central bank money as reserves), using the central bank money from the commercial bank's reserves, the m1 money supply expands by the size of the loan.[2] This process is called deposit multiplication."

"An equal amount of new commercial bank money is created" and "a loan made by the commercial bank...which keeps only a fraction of the central bank money as reserves" does not equate. If a fraction of central bank money is kept as a reserve, loans of commercial money of a sum higher than the central bank money equals "deposit multiplication". I.e. central bank money of a value of 1000 USD back commercial bank money of a value of 9000 USD (or any arbitrary sum).

The traditional role of fractioal reserve banking is thus as follows:

A central bank deposits of 1000 FED USD at a commercial bank; 9000 USD is created at the commercial bank.

A Btc bank cannot operate on the same basis due to my previous example:

"Let us say that: a bank accepts deposits and receive 1000 Btc from various depositors. They give loans, but owing to the fact that they do not have Btc or rather the codes that Btc are made up from, they can never lend more than 1000 Btc. If the bank lends 1000 Btc no depositor can withdraw any Btc; which means that 1000 Btc equals 1000 Btc and not 2000 Btc.

Let us say that the depositors did recieve checks amounting to 900 Btc (100 Btc kept as a reserve). Business A receives a check of the sum 200 Btc. Naturally, Business A wants to withdraw the amount from the bank with immediate effect; business A has many liabilties in USD. If the bank has already lent 1000 Btc 900 Btc it cannot pay out the sum of 200 Btc which the check holder is claiming."

[Jazkal]

So, since a bitcoin bank can't do fractional reserve banking.

And since they can't do anything I can't already do as far as bitcoin transfers are concerned.

What exactly is a Bitcoin Bank going to 'do' for me?

[relative]

"Let us say that: a bank accepts deposits and receive 1000 Btc from various depositors. They give loans, but owing to the fact that they do not have Btc or rather the codes that Btc are made up from, they can never lend more than 1000 Btc. If the bank lends 1000 Btc no depositor can withdraw any Btc; which means that 1000 Btc equals 1000 Btc and not 2000 Btc.

I'm sorry, I don't know how else to explain it. you're getting it wrong. I think you're confusing "central bank money/21 million coins" with money. bank deposits are money (by any reasonable) definition, the bank doesn't need to have all the "bitcoin codes" in order to have deposits on its books. they simply owe someone 1000 BTC.

I can sign a contract today I owe you 1000 BTC without having ANY coins. if I was a bank and those deposits were in a checking account under your name, that would be considered part of the money supply.

[kjj]

Anyone seriously interested in this topic should familiarize themselves with a whole lot of Steve Keen's research.

[dennis_sweden]

"Let us say that: a bank accepts deposits and receive 1000 Btc from various depositors. They give loans, but owing to the fact that they do not have Btc or rather the codes that Btc are made up from, they can never lend more than 1000 Btc. If the bank lends 1000 Btc no depositor can withdraw any Btc; which means that 1000 Btc equals 1000 Btc and not 2000 Btc.

I'm sorry, I don't know how else to explain it. you're getting it wrong. I think you're confusing "central bank money/21 million coins" with money. bank deposits are money (by any reasonable) definition, the bank doesn't need to have all the "bitcoin codes" in order to have deposits on its books. they simply owe someone 1000 BTC.

I can sign a contract today I owe you 1000 BTC without having ANY coins. if I was a bank and those deposits were in a checking account under your name, that would be considered part of the money supply.

You introduced the "central bank money/21 million coins" theme, not me, and I am not confused by the concepts. Yes, of course a Btc bank could in theory operate on a fractional reserve basis, but they would be bankrupt within days of writing checks, unless they injected new capital and bought Btc to meet liabilites, making it a very unprofitable business.

Say you sign a contract with me today owing me 1000 Btc, and at the date of maturity, Btc have appreciated in value 25%, the monetary debt value is higher. Of course, if the value decreased the monetary debt value would be lower. No business proprietor would accept a check from a Btc bank which operates on a fractional reserve scheme, rendering it impossible to operate such a bank in practice.

[relative]

You introduced the "central bank money/21 million coins" theme, not me, and I am not confused by the concepts.

I don't know what you're confusing, I only guessed. you're confusing _something_ because you're drawing the wrong conclusion.

Say you sign a contract with me today owing me 1000 Btc, and at the date of maturity, Btc have appreciated in value

value relative to what? to USD? to goods?
doesn't matter at all for banking.

[dennis_sweden]

I posted a critique of your suggestion that 100 Btc deposited in one bank could be lent and result in 200 Btc deing deposited in banks.

there are still also 100 btc in the account of the depositor whose money was used for lending. -> 200 btc in bank deposits.
no BTC were created on the bitcoin network of course. but in the same case with USD no USD were created by the central bank either.

You have not addressed my critique, but instead injected concpets of "central bank money/21 million coins" and a 1000 USD contract. Are you going to address my critique of your sugguestion which is as follows:

"Let us say that: a bank accepts deposits and receive 1000 Btc from various depositors. They give loans, but owing to the fact that they do not have Btc or rather the codes that Btc are made up from, they can never lend more than 1000 Btc. If the bank lends 1000 Btc no depositor can withdraw any Btc; which means that 1000 Btc equals 1000 Btc and not 2000 Btc.

Let us say that the depositors did recieve checks amounting to 900 Btc (100 Btc kept as a reserve). Business A receives a check of the sum 200 Btc. Naturally, Business A wants to withdraw the amount from the bank with immediate effect; business A has many liabilties in USD. If the bank has already lent 1000 Btc 900 Btc it cannot pay out the sum of 200 Btc which the check holder is claiming."

I am saying that there is no possible way in any kind of viable banking operation that fractional reserve could be implemented; and that due to this circumstance, there is no possible way that 100 Btc deposited in a bank account could by any means equal 200 Btc in bank deposits.

[relative]

"bitcoin codes": addressed above, post #66
withdrawals/cheques: if there are more withdrawals than reserves and the bank can't lend money from other banks (it usually can), the bank is insolvent.

this is part of what happened in 2008. illiquid outstanding loans/assets, interbank lending dried up and bank runs started to happen, until govts stepped in.

[sergio]

Yes interest rates with bitcoins are possible, you could have a bitcoin bank.
Having a bitcoin bank would require some sort of guarantee that you get paid back, and as such there is a risk involved.

The difference with bitcoins assuming a risk of 0, with very little interest you could make a profit, unlike inflationary currencies were you have to cover for inflation, but in real life the risk is not 0, so some interest would be needed for a loan otherwise you would have loses.