Bitcoin Bank

[Sultan]

I don't understand how that would be useful. Once a coin is spent, it cannot be re-spent, right?

[1714820273]

1714820273

[Stephen Gornick]

They could let you upload a wallet file and spend from that. Then you could lock away your own copy as your own backup so you don't have to trust them solely.

I don't understand how that would be useful. Once a coin is spent, it cannot be re-spent, right?

While the bank would have access to the funds, they couldn't move them without you being able to know that they did.  With eWallet providers today there's no way to audit that they really do have your bitcoins ("all of their deposits") held in reserve:
  https://en.bitcoin.it/wiki/EWallet

Having a local copy of that same wallet gives you only a little more control because if at any time you want to spend that wallet, you aren't dependent on that service and they cannot stop you from sending your bitcoins from your wallet under their control to somewhere else.

But you are correct -- having a local copy of your wallet won't help you whatsover if they disappear overnight after transferring the funds from all the customer wallets all at once

[wobber]

This is what I'd like BitcoinBank to do:

Services:
People deposit their bitcoins into accounts (login by username and maybe software token, if possible - even hardware).
Tax should be something 1% per year but i have no idea how to prevent people to add just 100 BTC when they open the account (tax 1BTC) and then add the next day another 10.000 BTC. One option could be to tax 1% per added bulk.
The wallet.dat holds all clients' bitcoins and the database hold sthe amount each is entitled to.
24-7 online banking for adding and withdrawing funds and payment intermediary.
Selling gold, silver, USD, EUR, GBP and other currencies on demand.
Selling virtual credit cards from multiple banks, in multiple currencies.
Escrow services.
Wallet-lock options. Allows transfer of less than the amount set up by the user per day/week etc. Also one idea i have is a amount-protected lock, you can't move funds from your account to another bitcoin address unless you remember the passsum, ie: 255.78 BTC (might be useful for paranoids that need more layers of security)
Credits, based on trust. Dunno how to implement this yet.
Investment fund. Dunno if to implement this and how.
Also I dream of having the bank physically, with safe deposit boxes, maybe even microcip cards and all


At least two servers on different, secure, locations. Encryption in case of theft.
IDS and IPS with good sysadmins
Tor and I2P anonimity.
Gold, silver, bitcoin, USD, EUR and GBP reserve (might add chinese Yuan too)
at least these bitcoinbank domains: .eu, .com. org, .net, .biz to avoid scams
SSL certificate and GnuPGP keys

[Sultan]

This is what I'd like BitcoinBank to do:

Services:
People deposit their bitcoins into accounts (login by username and maybe software token, if possible - even hardware).
Tax should be something 1% per year but i have no idea how to prevent people to add just 100 BTC when they open the account (tax 1BTC) and then add the next day another 10.000 BTC. One option could be to tax 1% per added bulk.
The wallet.dat holds all clients' bitcoins and the database hold sthe amount each is entitled to.
24-7 online banking for adding and withdrawing funds and payment intermediary.
Selling gold, silver, USD, EUR, GBP and other currencies on demand.
Selling virtual credit cards from multiple banks, in multiple currencies.
Escrow services.
Wallet-lock options. Allows transfer of less than the amount set up by the user per day/week etc. Also one idea i have is a amount-protected lock, you can't move funds from your account to another bitcoin address unless you remember the passsum, ie: 255.78 BTC (might be useful for paranoids that need more layers of security)
Credits, based on trust. Dunno how to implement this yet.
Investment fund. Dunno if to implement this and how.
Also I dream of having the bank physically, with safe deposit boxes, maybe even microcip cards and all


At least two servers on different, secure, locations. Encryption in case of theft.
IDS and IPS with good sysadmins
Tor and I2P anonimity.
Gold, silver, bitcoin, USD, EUR and GBP reserve (might add chinese Yuan too)
at least these bitcoinbank domains: .eu, .com. org, .net, .biz to avoid scams
SSL certificate and GnuPGP keys

This sounds like an interesting idea. I still don't believe a charge should be incurred on the depositor as I believe the cost of securing BitCoins is almost negligible, or at least something that can be recompensed with AdSense or something.

[FreeMoney]

I don't understand how that would be useful. Once a coin is spent, it cannot be re-spent, right?

My suggestion was not to act as a backup but to have old address that you have set up (a static donation address, permanently associated with accounts etc) go automatically to the bitcoinbank. Plus if you lost contact with the site you could use your copy of the wallet to spend.

[wb3]

I don't understand how that would be useful. Once a coin is spent, it cannot be re-spent, right?

A BitCoin Bank would be a very simple concept. It would be a Safety Deposit Box system for the .dat file accounts. The bank won't know who the customers are or how much are in the deposit boxes. They just charge a fee for keeping the .dat files safe. A good bank would have mirrored backed up boxes across the world and even possible physical .dat files in the form of printed binary for emergency recovery. (ie. EMP pulse takes out all the electronics world wide or something of that nature). You could recover your physical printed binary file and start typing the data in anew to recover. It would be a pain but hey if there is a million buck in there I will type for you.

The second service provided would be a type of holding house. You pay for something, they take your money, tell seller to send product, when you receive it, they clear the transaction to the seller.  Trusted Man in the middle. A lawyer-less Escrow account in away. Of course a level of anonymity would be stripped for this to work. PGP keys could work for this. But the Keys Servers could be attacked to disrupt transactions. Unless a system of PGP P2P Keys for sending messages is accepted. The "Bank" would have to have the Public Keys for each transaction and be able to generate messages to each party involved. I guess the the "Bank" could set up its own on account opening and provide a unique private(sort of sense it would need to be given out) key to each account holder for communications.

[Sultan]

Your idea of actually physically printing the value is quite a good one, actually. But rather than have the binary string, wouldn't it be better to have it in hex? Less space?

[Anonymous]

Your idea of actually physically printing the value is quite a good one, actually. But rather than have the binary string, wouldn't it be better to have it in hex? Less space?

http://bitcointalk.org/index.php?topic=3941.0

The idea has been discussed since day one. You can put private keys in QR codes.

[friendsofkim]

sounds like a fractional reserve system, one of the fiat money pitfall bitcoin claims it can avoid.

...both which introduce the evils of Fractional Reserve Banking.

There is nothing inherently wrong with fractional reserve banking, provided the parties who enter into such an agreement understand the agreement, and assume the risk.

The problem is a state-sponsored fractional reserve system where bank notes are enforceable legal tender, deposits are insured by the Government, and banks are not allowed to fail. This creates all kinds of moral hazard, market distortions as well as inflation.

Fractional reserve banking as occurred during the decentralised "Free Banking" era in the US (1837 - 1864) - i.e. subject to proper competition and where the risks are assumed by those entering into contracts with each other, not third parties - is healthy and desirable. During the Free Banking era, bank notes were not enforceable tender, and often traded at a discount against Federal notes the further they traveled from the issuing bank.

One of the major benefits of FRB of this kind is the supply of credit not being limited by the available supply of money. If people are willing to accept a Bitcoin bank's "money" as payment it can also issue credit, which can fuel investment in the bitcoin economy. The important point is that banks which issue credit (e.g. money) improperly by lending to untrustworthy parties, businesses which aren't viable, or into property bubbles, go bust. This imposes discipline on the banks.

If bitcoin is successful this will almost certainly happen, and it will be beneficial for a number of reasons as stated by Hal and others.

[myrkul]

Fractional reserve banking would be MUCH harder to do with bitcoins than physical currency, unless banks were allowed to print paper money "backed" by bitcoins. A bitcoin note system would work much like the old gold-backed bills. You could turn in a note for bitcoins at the bank, but if everyone did that all at once... Someone's getting stiffed.

Transactions within the bank would also be possible with "fake" bitcoins, especially if all the bitcoins are held in the bank's wallet, and accounts simply have balances.

The problems start hitting hard when you try to send actual bitcoins. If the bank extends itself far enough, and has enough clients, it may be possible wipe out it's coffers with a transaction or two from each client.

Bottom line, you CAN do fractional reserve banking with bitcoin, but it requires that every other bank and customer agree that your paper or digital notes are as good as the bitcoins they represent, in order to pull it off without any hitches. That requires state backing, and I doubt bitcoin's going to get that.

[friendsofkim]

Fractional reserve banking would be MUCH harder to do with bitcoins than physical currency, unless banks were allowed to print paper money "backed" by bitcoins.

I don't understand the need for actual paper. If what you mean by "print paper money" is issue an electronic token representing a bitcoin, I don't think that's difficult to do. It's what mybitcoin.com does now - it is essentially a full-reserve bank with its own "money."

Transactions within the bank would also be possible with "fake" bitcoins, especially if all the bitcoins are held in the bank's wallet, and accounts simply have balances.

There are no "fake" bitcoins. There are just bank credits, redeemable for bitcoins by the bank on certain terms, or which can be used for payment or sold to third parties.

A bank could create as much credit as it wanted, or its depositors were prepared to tolerate, but it would quickly go bust if it abused this privilege.

The problems start hitting hard when you try to send actual bitcoins. If the bank extends itself far enough, and has enough clients, it may be possible wipe out it's coffers with a transaction or two from each client.

True, but that is precisely why successful banks will need to be prudent. The problem with the banking system today is that the risk of failure is mitigated by government support, which creates moral hazard and reckless lending.

Bottom line, you CAN do fractional reserve banking with bitcoin, but it requires that every other bank and customer agree that your paper or digital notes are as good as the bitcoins they represent, in order to pull it off without any hitches.

It doesn't require that everybody accept the banks' notes, just that there is enough demand for those notes.

They don't have to be "as good as bitcoins" - there's nothing to stop third parties buying up bank notes at a discount to their face value. The risk of the bank collapsing would be priced in.

I agree with you that it's risky - but the market will impose discipline on the banks, to stop them taking excessive risks, remove ones which do, and reward those that don't. Meanwhile depositors will be able to earn interest on their savings, and secure their wallets from theft.

[myrkul]

Not disputing anything above. That said:

Meanwhile depositors will be able to earn interest on their savings, and secure their wallets from theft.

You can run a bank that will provide interest on savings and secure wallets from theft with a full reserve. I detailed this elsewhere, and it turns out I was reinventing the wheel.

[hgmichna]

Actually there is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins. Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.

Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.

George Selgin has worked out the theory of competitive free banking in detail, and he argues that such a system would be stable, inflation resistant and self-regulating.

I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers. Bitcoin transactions by private individuals will be as rare as... well, as Bitcoin based purchases are today.

May I remark that this posting, made over 5 years ago, was incredibly far-sighted. He describes what we are hoping and working for today.

He did not foresee that second-layer payment systems could still be done in decentralized and anonymous fashion, as in Lightning Network or TumbleBit, but who knows, perhaps even that part of his message will come true if centralized systems that require trust turn out to be trustworthy and reliable enough and cheaper. Perhaps we already have those, like Coinbase or BitPay. I will be happy either way.

[dearbesz1219]

Did anyone think at this? How would a bank work? How could you loan bitcoins and get interest for them in an economy with just 21 milion BTC limit?

Did anyone think at this?
No I don't think of it

Did anyone think at this?
Once the bank operate they are already connected on a regulated industry.

How could you loan bitcoins and get interest for them in an economy with just 21 milion BTC limit?
I'm not using any loan program in bitcoin, besides no reason for me to do that things. Because bitcoin already a bank for me.

[deisik]

Fractional reserve banking as occurred during the decentralised "Free Banking" era in the US (1837 - 1864) - i.e. subject to proper competition and where the risks are assumed by those entering into contracts with each other, not third parties - is healthy and desirable. During the Free Banking era, bank notes were not enforceable tender, and often traded at a discount against Federal notes the further they traveled from the issuing bank

You forget to add a few ugly things

For example, that the average life span of a bank during this "Free Banking era " in the US was around 3 years (if my memory serves me correct). Surely not a good thing, by any means. Further, since gold was used as money back then, to deal directly with it was not very handy, so people used depositary receipts they received when they put their gold into such banks. Obviously, banks ended up issuing more receipts than they had gold in their vaults, which inevitably led to bank runs and chain bank bankruptcies (the word bankruptcy itself seems to stem from banks, which is not surprising). Just in case, today's monetary systems have nothing to do with FRB

[StarCitizen999]

If bitcoin bank will issue loans in bitcoins at a favorable interest, then I do not mind using such service.
Just need to very accurately choose the time when to take a loan, and when to give

[mharz]

If bitcoin bank will issue loans in bitcoins at a favorable interest, then I do not mind using such service.
Just need to very accurately choose the time when to take a loan, and when to give

Maybe it possible, but what was the possible collateral you offer, if the Bitcoin bank give a high amount of loans with fair interest how they can assure that you paid it in time? I don't think so if it is possible for now but we still hoping that it will be happen in the future.

[roadbits]

If bitcoin bank will issue loans in bitcoins at a favorable interest, then I do not mind using such service.
Just need to very accurately choose the time when to take a loan, and when to give

If they do like this then it is a good move, and people like to take bitcoin loan in the bank. But how they collect interest is matter, because the BTC price will increase and decrease so how they calculate the loan interest. And this business will work out in a real world? I think it is profitable for users and loss for Bank.

[Barbut]

If bitcoin bank will issue loans in bitcoins at a favorable interest, then I do not mind using such service.
Just need to very accurately choose the time when to take a loan, and when to give

Maybe it possible, but what was the possible collateral you offer, if the Bitcoin bank give a high amount of loans with fair interest how they can assure that you paid it in time? I don't think so if it is possible for now but we still hoping that it will be happen in the future.

Let's assume that we can take loan in bitcoins from bank, first question is how do you plan to return that and in what time. I don't have salary in bitcoins, so I would need to payback that loan in my currency. With rise of btc price, my monthly rate can be higher each month and that can be real problem. How many of us here can afford loan in bitcoins?

[ImHash]

Seems like none of you know what you are talking about not even back then in 2010 it doesn't make any sense to put your bitcoins in a bank while their value is increasing over time and it's wrong to assume anyone can start a bank unless they are using something very valuable as collateral like gold/ land which in turn requires a government involvement.

No body will trust you even a penny if you're not backed by government, after launching a bank then you need to deal with the fiat equivalent of bitcoins deposited and change the balance of clients accordingly when price goes up or drops and recalculate the interest rate base on fluctuations which would be a heavy duty but it's doable by using bots, and when people think more than they do by relying on others they'll see it's actually much more profitable if they just buy bitcoins off the market and hold as long as they would've waited to receive interests on their bank deposits.

And since bitcoin is not a physical currency and it's been secured by cryptography mechanism there is nowhere safer than your own wallet addresses if you are concerned about theft/ hack.