the effects of fractional reserve on bitcoins value

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They could use signatures to prove that they own the coins at certain address(es). Only one bank can prove ownership of the same coins. We can require that the coins have remained there, at that address, for some amount of time (like 1 year). This can be proven just by looking at the blockchain. And when the coins are spent, we'll know that too.

Lol, that's not how money works.  Even IRS doesn't ask you to "not use your money for a year so we can make sure it's really yours."  If that wallet is actually the sum total of coin "deposited" in the bank, how will the bank honor withdrawals?

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[justusranvier]

The only role for deposit banks in a Bitcoin world is to steal money from old people who don't know how to use computers.

So far the success rate for Bitcoin businesses that hold third party deposits in terms of not losing/stealing their customers' funds tends toward zero the longer such businesses operate.

[balanghai]

So it becomes the game of power brokers again. Where the rich have their feet over the people.

[lonelyminer (Peter Šurda)]

Could you please provide a link to your work?

You can just google for it. Sorry I'm lazy :-)

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The only role for deposit banks in a Bitcoin world is to steal money from old people who don't know how to use computers.

So far the success rate for Bitcoin businesses that hold third party deposits in terms of not losing/stealing their customers' funds tends toward zero the longer such businesses operate.

Nah.  Free market doesn't discriminate -- plenty of opportunities for enterprising young "investors" to be had.  
*Mentioning that success rate is close to zero is frowned upon.  Defeatism & FUD.

[lonelyminer (Peter Šurda)]

I'm not sure what the difference is if you invest in bonds (that pay out dividends).  What would constitute accepting a "...fractionally-reserved promises to deliver bitcoins in lieu of actual bitcoins" according to your definition?

I don't really have a definition, I have been trying to figure it out for over two years and I'm not fully sure. The best approximation I was able to come up with is that people must subjectively perceive said financial asset as equivalent to money in order for it to affect the money supply. I also argue that this probably requires that said financial asset has lower transaction costs than the base money. For example, people use their bank accounts as a medium of exchange (e.g. wire transfers, debit cards, cheques, ...), because this is more comfortable than using (and carrying) cash. With Bitcoin, functionality which historically required deposit banking can be done without banks, with base money. Even I keep some money in the bank and use it for payments, even though I don't trust banks, because I simply can't settle most of my expenses using cash or only with great hassle.

So the "fractionally-reserved promises to deliver bitcoins in leiu of actual bitcoins" probably would not be accepted as equivalent to Bitcoin. But we'll only really know once they become common. Then we'll see if people view them as equivalent to Bitcoin, or just as a liquid (and probably risky) financial asset.

[johnyj]

Banks won't be interested in bitcoin, since they can't loan them out and charge interest (No one will be fool enough to borrow bitcoin to do business, he will sure broke). By the way people will continuously borrow the inflative fiat money to do business, they are born to be borrowed since they lose value every year

The only service banks can do is provide some secure storage service for example twin's usb drive  

[minorman]

Why would you ever accept any form of "promise to pay" bitcoin instead of the real thing (i.e. a no nonsense blockchain-recorded tansfer)?
With gold, it made perfect sense (lack of divisibility of gold, risk of theft, poor portability), but with bitcoin I see *no reason whatsoever* why anyone would risk being defrauded by a "bank" and its IOUs. The upside is vanishingly small, while the downside is total loss...

[Jumpy]

A lot of you seem to be worried about the bank losing/stealing deposited funds. This is why regulation of such institutions is essential. I know this is an unpopular idea, but I believe it would do the bitcoin economy a world of good.

[User705]

There's already regulation in bitcoin.  It's called the protocol that regulates the rules that govern bitcoin.  No amount of outside legal regulation will be able to alter that. 

[Zangelbert Bingledack]

Keep in mind that what allows fractional reserve is lack of competition (a company could profitably differentiate itself from competitors by maintaining transparency), and what causes lack of competition is government regulation. In a completely unregulated market, fractional reserve is a non-issue because there is no possibility of monopolistic privilege for any one company or cartel.

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Why would you ever accept any form of "promise to pay" bitcoin instead of the real thing (i.e. a no nonsense blockchain-recorded tansfer)?
With gold, it made perfect sense (lack of divisibility of gold, risk of theft, poor portability), but with bitcoin I see *no reason whatsoever* why anyone would risk being defrauded by a "bank" and its IOUs. The upside is vanishingly small, while the downside is total loss...

Why would anyone ever "invest" his coin with strangers over the internet instead of keeping it in his wallet?  Profit.
If someone is paying daily for holding your money, it's a tempting proposition.  How tempting?  Ask Pirateat40 "investors."
Thus far, bitcoin has proven much easier to scam with than fiat.  Not due to failings of bitcoin itself, but those of the people who use it.

*Finally, claiming that we do not need banks because: easy electronic transactions ignores the reason that banks exist (The other reason, not the obvious "helping themselves to mah monyz"): Capitalizing large-scale economic ventures.  You can argue that this is no longer necessary, but treating banks as simply places that let you pay bills misses the big picture.

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Keep in mind that what allows fractional reserve is lack of competition (a company could profitably differentiate itself from competitors by maintaining transparency), and what causes lack of competition is government regulation. In a completely unregulated market, fractional reserve is a non-issue because there is no possibility of monopolistic privilege for any one company or cartel.

You're wrong.  What allows fractional reserve banking is the same thing that allows almost everything else in this world -- wealth.  Regulation only tries to make sure that the stealing is kept to a reasonable & sustainable level.  Without regulation, scammers and parasites multiply 'til there's nothing left to steal -- see bitcoin "investment" for edifying examples.
On a sidenote:  Getting rid of corrupt cops doesn't get rid of crime, it only changes the ones who get to commit it.

[Hawker]

Keep in mind that what allows fractional reserve is lack of competition (a company could profitably differentiate itself from competitors by maintaining transparency), and what causes lack of competition is government regulation. In a completely unregulated market, fractional reserve is a non-issue because there is no possibility of monopolistic privilege for any one company or cartel.

Fractional reserve banking exists in a competitive environment and has always done so.  So that premise is faulty.

If there is a market for fractional reserve banking and derivatives in Bitcoin, all is well.  If not, its still a useful way of doing business privately.  I suspect that FRB would push up the price of Bitcoin as it would create demand for proven reserves and banks can't fudge a Bitcoin reserve.

[mirelo]

Could you please provide a link to your work?

You can just google for it. Sorry I'm lazy :-)

Sorry, but I don't search for the work of lazy people.

[mirelo]

In general I am highly sceptical of the inherent value of most financial products.

Financial products are just like money, which can only have an inherent value as either:

1. The confusion between its exchange value independently of being money and its monetary value (example: gold money).

2. A merely possible representation of money (example: Bitcoin price).

[mirelo]

I buy a bond issued by a company which lends money for profit.  The company promises to redeem my bond at any time for the full face value, and pays me dividends while i hold the bonds.  I keep all of my coin there & collect "interest," because the bond issuer is 100% trustworthy.
Do i have money or debt & what's the difference?

As long as we denominate all credit in bitcoins and repay it plus interest with our Bitcoin savings, we preserve the distinction between money and credit.

[mirelo]

I'm not sure what the difference is if you invest in bonds (that pay out dividends).  What would constitute accepting a "...fractionally-reserved promises to deliver bitcoins in lieu of actual bitcoins" according to your definition?

I don't really have a definition, I have been trying to figure it out for over two years and I'm not fully sure. The best approximation I was able to come up with is that people must subjectively perceive said financial asset as equivalent to money in order for it to affect the money supply.

I have a definition, which took me much more than two years to find. It all begins with the confusion between money and its representation, which I call "representational monetary identity." With commodity money, that confusion is already there from the beginning (it is not merely subjective), and usually evolves into the confusion between money and credit with a monetary proxy (gold-deposit receipts). With Bitcoin, the confusion between money and its representation requires a monetary proxy, which fortunately Bitcoin does not need. However, the difference between Bitcoin and commodity money goes far beyond Bitcoin having no need for a proxy representation: Bitcoin inherently distinguishes money (a private key) from its representation (a public key), a distinction its proxy representation would reduce to a mere possibility.

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I'm not sure what the difference is if you invest in bonds (that pay out dividends).  What would constitute accepting a "...fractionally-reserved promises to deliver bitcoins in lieu of actual bitcoins" according to your definition?

I don't really have a definition, I have been trying to figure it out for over two years and I'm not fully sure. The best approximation I was able to come up with is that people must subjectively perceive said financial asset as equivalent to money in order for it to affect the money supply.

I have a definition, which took me much more than two years to find. It all begins with the confusion between money and its representation, which I call "representational monetary identity." With commodity money, that confusion is already there from the beginning (it is not merely subjective), and usually evolves into the confusion between money and credit with a monetary proxy (gold-deposit receipts). With Bitcoin, the confusion between money and its representation requires a monetary proxy, which fortunately Bitcoin does not need. However, the difference between Bitcoin and commodity money goes far beyond Bitcoin having no need for a proxy representation: Bitcoin inherently distinguishes money (a private key) from its representation (a public key), a distinction its proxy representation would reduce to a mere possibility.

There's no confusion for the average guy between commodity money (gold) & its representation (IOU for gold).  It's the difference between shiny yellow metal & a slip of paper that represents it (gold certificate, representative money).
Not confusing.
That's why commodity money was such a win for so long.  No new terminology needed.

[mirelo]

I'm not sure what the difference is if you invest in bonds (that pay out dividends).  What would constitute accepting a "...fractionally-reserved promises to deliver bitcoins in lieu of actual bitcoins" according to your definition?

I don't really have a definition, I have been trying to figure it out for over two years and I'm not fully sure. The best approximation I was able to come up with is that people must subjectively perceive said financial asset as equivalent to money in order for it to affect the money supply.

I have a definition, which took me much more than two years to find. It all begins with the confusion between money and its representation, which I call "representational monetary identity." With commodity money, that confusion is already there from the beginning (it is not merely subjective), and usually evolves into the confusion between money and credit with a monetary proxy (gold-deposit receipts). With Bitcoin, the confusion between money and its representation requires a monetary proxy, which fortunately Bitcoin does not need. However, the difference between Bitcoin and commodity money goes far beyond Bitcoin having no need for a proxy representation: Bitcoin inherently distinguishes money (a private key) from its representation (a public key), a distinction its proxy representation would reduce to a mere possibility.

There's no confusion for the average guy between commodity money (gold) & its representation (IOU for gold).  It's the difference between shiny yellow metal & a slip of paper that represents it (gold certificate, representative money).
Not confusing.
That's why commodity money was such a win for so long.  No new terminology needed.

The confusion between money and its representation is not the one between gold and its proxies. Monetary proxies are not the monetary representation itself: they are, precisely, proxies of it. The confusion between gold money and its representation is the confusion between the yellow shiny metal (monetary representation) and its monetary value (monetary identity). As I said before, it "is already there from the beginning" (even before monetary proxies).

Although the concept of representational monetary identity shares many aspects with Marxian commodity "Fetishism," it is also fundamentally different. As far as I know, it is a new concept - hence the need for new terminology.