BitBank?

[lucky]

First off, I'm sorry if this has been discussed before (or even already exists).  Also, I'm sorry if this topic better belongs in the Economics forum, if so, would a mod please move it there?

What about a BitBank?  I've been thinking and researching the technical and economic practicalities of it, and I don't see why it's not at least theoretically possible.

I plan on starting only with small amounts (account minimum and maximum amounts in the range of 1 - 100 bc) and a token, experimental interest rate of maybe 1% per month, which I could pay out of pocket for a loss, at least initially.

If anyone is interested in donating some small amount to set up the capital for initial interest payment, send it to 17ogo8c4w9ag726KkXQC5RLCTdgfNepX7Y

As for loans, that's a whole other world.  Any thoughts on the practicality of anonymously doing small loans?  Does anyone think there'd be any non-fraudulent market for loans given the, honestly, limited utility of bitcoins at this point?

[Xunie]

Why would you need a bank if you can backup your wallet.dat on regular basis?

I seem no need for it to be honest.

[laszlo]

I think loans would be useful, that way if I want to go on a pizza binge I can buy a bunch of it and pay it back later.  I don't think you would want to give someone a loan anonymously though, you'd want to know where they live so you can break their legs, etc.

I think interest would be cool too - like a certificate of deposit?

[lucky]

Why would you need a bank if you can backup your wallet.dat on regular basis?

Well, not to safeguard the money, but for investment.  To earn interest on the balance you have lying around.

[venom]

lucky, what's the latest on your BitBank?

[Ground Loop]

It would be a useful learning exercise, especially when you figure out that you can't mint money like the real banks do.
Without leverage (the ability to lend out BTC you don't actually have), your upside is limited to just the deposits you hold (lent out) and the gap between interest paid and owed.

(Ignoring all the issues with anonymous lenders, of course.)

[BitcoinFX]

I've considered the provision of a Bitcoin Bank before now, basically providing interest payments to those unable to run an 'always on' generating node.

Whilst this is a nice idea, there is basically no benefit to the operator aside from philanthropy.

Also, as Bitcoins become harder to generate the operator ( Bank ) would require an ever increasing percentage of nodes to maintain any viability.

This is somewhat unethical. You can't centralize a decentralized exchange / banking system. Every Bitcoin node is its own Bank ! That's the point.

The only real alternate; provision of Bitcoin 'banking' via deposits of 'other currencies', then paying interest in Bitcoins should be considered an exchange service... and arguably the operator would still need to generate 'interest' on any deposits. A 'Bitcoin ISA'...

Either way you will need a Super Computer or 2, loads of VPS or a botnet to operate with any success.

Again, you are forcing capitalism and monopoly on a system which is fundamentally designed against these factors !

[tunixman]

I'm not so sure that banks are required to generate currency to be viable. Banks actually predate the current fiat currency system by several thousand years. I think the underlying principle of banks offering loans is that they hold currency that would otherwise be idle and put it to use, and in exchange will pay interest on the currency deposited, and will present the currency on the demand of a depositor. It's nothing near as sexy and postmodern as creating currency from nothing the way a reserve or a fiat system does, but still probably does have some measure of value to an economy.

[Anonymous]

You could issue bitcoin bonds offering a set rate of return for a set time period.When the bonds mature the bitcoin principal is returned.

[Bitcoiner]

Again, you are forcing capitalism and monopoly on a system which is fundamentally designed against these factors !

If you are qualifying "capitalism" with "state capitalism", then I agree with you. Too bad that's the most common definition of the word these days.

[BitLex]

Whilst this is a nice idea, there is basically no benefit to the operator aside from philanthropy.

Also, as Bitcoins become harder to generate the operator ( Bank ) would require an ever increasing percentage of nodes to maintain any viability.

if this would be true, it would also apply to "real banks".
you could still invest your members bitcoins (or its value), you just need enough coins to pay the "maximum expected cash-outers" a day/month (and theres ways to limit those), not all of the coins ever invested and you'd still make your profit without even generating any block.
that's what banks do today and that's what a bitbank would/will do,
bitcoin, or dollar wont make a big difference.

[Bitcoiner]

Whilst this is a nice idea, there is basically no benefit to the operator aside from philanthropy.

Also, as Bitcoins become harder to generate the operator ( Bank ) would require an ever increasing percentage of nodes to maintain any viability.

if this would be true, it would also apply to "real banks".
you could still invest your members bitcoins (or its value), you just need enough coins to pay the "maximum expected cash-outers" a day/month (and theres ways to limit those), not all of the coins ever invested and you'd still make your profit without even generating any block.
that's what banks do today and that's what a bitbank would/will do,
bitcoin, or dollar wont make a big difference.

Banking system today:

Runs out of cash? No problem, just get more at the Fed.

Bitcoin banking system:

Runs out of Bitcoins? Oh, fvck....

The dynamics of a hard-money banking system are different. There could be profit made off of keeping Bitcoins in trust, but I suspect this would look more like a backup service than anything. As for investing, well, the anonymous nature of Bitcoins makes that a bit hard. We need a good distributed trust mechanism to complement it for that

[BitLex]

so any bank that runs outof cash could just run to Feds and gets more cash?
i doubt that.

[Bitcoiner]

so any bank that runs outof cash could just run to Feds and gets more cash?
i doubt that.

Why?

[BitLex]

Why?

..do banks go bankrupt, if that's true?


the point is, that theres actually no big difference in the "banking system", no matter if we use $, €, or coins,
there IS a difference in how the currency is produced though.

banks lie today about what you have (cuz they dont have all of our money in cash, its just shown on your balance)
and bitbanks would just lie in the same way, telling you your bitcoin-balance (not the actual avialable coins).

[Bitcoiner]

Why?

..do banks go bankrupt, if that's true?

Some banks do, but the FDIC honours accounts. Today there's also a  mentality of "too big to fail".

[Anonymous]

Something like carbonite is probably just as good.

[RHorning]

There can be liquidity problems even with a bank that uses Bitcoins.... where more money has been loaned out than can be quickly used to cover deposits. 

A problem with fractional reserve banking is that the bank loans out even more money than they have deposits on record to make, and crazy stunts where larger banks "borrow" money from the central (fiat) bank and loan that money they never had in the first place with a certain percentage of mark-up.  For "loans" to purchase things like government securities, they finance the federal debt off of money created out of nowhere and keep the 3-5% interest differential as pure profit for doing essentially nothing other than existing.  Such stunts simply could never exist with bitcoins (then again, that could be a huge problem politically with people who like to do such crazy things).

I would imagine that a failed Bitcoin bank would be something more like seen in "It's a Wonderful Life", where the liquidity of the bank would be questioned and there would be a "bank run" by depositors demanding their deposits back, only to find the bank without funds to return the money.  In theory, this rarely happens today as banks can borrow from "The Fed" to meet those obligations and to calm down ordinary bank panics that happen on a local or small scale.  I think it would be a larger problem for a bitcoin bank.

[Bitcoiner]

There can be liquidity problems even with a bank that uses Bitcoins.... where more money has been loaned out than can be quickly used to cover deposits. 

A problem with fractional reserve banking is that the bank loans out even more money than they have deposits on record to make, and crazy stunts where larger banks "borrow" money from the central (fiat) bank and loan that money they never had in the first place with a certain percentage of mark-up.  For "loans" to purchase things like government securities, they finance the federal debt off of money created out of nowhere and keep the 3-5% interest differential as pure profit for doing essentially nothing other than existing.  Such stunts simply could never exist with bitcoins (then again, that could be a huge problem politically with people who like to do such crazy things).

I would imagine that a failed Bitcoin bank would be something more like seen in "It's a Wonderful Life", where the liquidity of the bank would be questioned and there would be a "bank run" by depositors demanding their deposits back, only to find the bank without funds to return the money.  In theory, this rarely happens today as banks can borrow from "The Fed" to meet those obligations and to calm down ordinary bank panics that happen on a local or small scale.  I think it would be a larger problem for a bitcoin bank.

Yep! I wrote about this in more detail on another thread here...

A Bitcoin bank will only be able to expand credit to the degree that it is demanded, and even then, I believe it will only be stable over the long run if "on-demand" deposits are full-reserved, and only "investment deposits" are fractionated.

[bytemaster]

The issue with bit banks and lending is clearly resolved if you view lending a coin as someone "renting the coin" as they would "rent a house".   There is money to be made by renting coins for a defined period of time; however, just like you cannot "kick someone out of a house" until the lease is up nor rent the same house out twice, you cannot not do that with bit coins.   

The current banking system "rents the same vacation home out ten times" and tells all ten customers they have full claim to the house at any time they want to vacation.  This is a FRAUD called "fractional reserve" lending.

So, there is a big opportunity for "hard money lenders" to lend out coins.  The lender would require full ID and validation of a customers income, assets, etc before they would extend a loan.  Loans are based upon TRUST and bitcoin is based on eliminated the NEED FOR TRUST.