Banks are fundamentally unnecessary and actually dangerous for bitcoin

[Astrohacker]

Banks originated as goldsmiths who stored people's gold and gave out paper certificates representing the quantity of gold that was stored. This was a valuable service, because storing gold was hard, and paying people with gold was hard. Bitcoins are very different. Storing them is in principle easy, especially if you have a bitcoin-only device as I advocated here, and paying people with them is easy. All of the reasons for putting your gold in the bank are thus irrelevant for bitcoins.

* People can steal your gold out of your house, and thus it is wise to put your gold in a secure bank. Not so with bitcoins, so long as you encrypt them with a password. Criminals could steal your computers and not be able to access them because they wouldn't know the password. Further, if they did steal your encrypted bitcoins, you could have them backed up elsewhere and thus you would not lose them. You have absolutely nothing to gain from storing your bitcoins in a bank in terms of security. You are actually making things less secure by giving 100% access to your money to a third party who can never care about your money as much as you do.

* It is hard to lug gold around to pay people with it. This is completely irrelevant for bitcoins since you can instantly pay anyone anywhere in the world. Nothing is easier to carry around than bitcoins. Especially with smartphone clients. Banks do not in principle make bitcoin transactions easier. If places like MyBitcoin make anything easier, that simply represents the difficulty of using the standard client. But that is not a fundamental problem - it is a problem that can be fixed by making a more user-friendly client. So again, what made sense for gold makes no sense for bitcoins.

Banks are unnecessary for bitcoin. You do not gain anything by giving someone else responsibility for your money. In fact, given the recent MyBitcoin and Bitomat catastrophes, it appears that not only are bitcoin banks unnecessary, they are harmful. Outsourcing your finances will always be a poor financial decision in the same way outsourcing your intelligence will always be stupid. If you opt-out of your responsibility, you are unlikely to come out ahead. Keep your bitcoins as close to you as possible.

(Note that I am not arguing you should never store any of your money in online services. Just that you should only store small quantities that are as small as your level of trust for those services. If they ever have most of your bitcoins, then you are probably making a mistake.)

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[JoelKatz]

Banks originated as goldsmiths who stored people's gold and gave out paper certificates representing the quantity of gold that was stored. This was a valuable service, because storing gold was hard, and paying people with gold was hard. Bitcoins are very different. Storing them is in principle easy, especially if you have a bitcoin-only device as I advocated here, and paying people with them is easy. All of the reasons for putting your gold in the bank are thus irrelevant for bitcoins.

Some of them are, some of them aren't. If you don't store your currency in a bank, the opportunity value of the held currency is forever lost.

Will you give me 100 bitcoins today if I promise to give you 100 bitcoins next year? Of course not -- even if you 100% trust me, you're still giving up the opportunity value of being able to spend those bitcoins within the next year should you choose to do so. There's no reason you should give that up in exchange for nothing. If you hold your bitcoins, that's exactly what you're doing.

[Tasty Champa]

Banks originated as goldsmiths who stored people's gold and gave out paper certificates representing the quantity of gold that was stored. This was a valuable service, because storing gold was hard, and paying people with gold was hard. Bitcoins are very different. Storing them is in principle easy, especially if you have a bitcoin-only device as I advocated here, and paying people with them is easy. All of the reasons for putting your gold in the bank are thus irrelevant for bitcoins.

Some of them are, some of them aren't. If you don't store your currency in a bank, the opportunity value of the held currency is forever lost.

Will you give me 100 bitcoins today if I promise to give you 100 bitcoins next year? Of course not -- even if you 100% trust me, you're still giving up the opportunity value of being able to spend those bitcoins within the next year should you choose to do so. There's no reason you should give that up in exchange for nothing. If you hold your bitcoins, that's exactly what you're doing.

Did you just pull some lateral thinking on us?
Valuable insight too, I enjoyed reading your post.

[indicasteve]

bitcoin banks can't work.

A 'normal' bank makes money by pulling it out of its ass.

It will give you a loan from a pool of money that don't really exist nor much less own.

It gives you this loan of money it doesn't have with the expectations that somehow you will be able to pull it out of your own ass yourself.

It charges interest on this money it loaned you, which it never had in the first place, and creates money out of its ass that it never had before for which you now owe.

It's much harder to make a bitcoin bank to give loans because it it much more difficult to pull a bitcoin out of their ass than it it for a bank to pull a dollar out of yours.

[Astrohacker]

Banks originated as goldsmiths who stored people's gold and gave out paper certificates representing the quantity of gold that was stored. This was a valuable service, because storing gold was hard, and paying people with gold was hard. Bitcoins are very different. Storing them is in principle easy, especially if you have a bitcoin-only device as I advocated here, and paying people with them is easy. All of the reasons for putting your gold in the bank are thus irrelevant for bitcoins.

Some of them are, some of them aren't. If you don't store your currency in a bank, the opportunity value of the held currency is forever lost.

Will you give me 100 bitcoins today if I promise to give you 100 bitcoins next year? Of course not -- even if you 100% trust me, you're still giving up the opportunity value of being able to spend those bitcoins within the next year should you choose to do so. There's no reason you should give that up in exchange for nothing. If you hold your bitcoins, that's exactly what you're doing.

I don't understand what you're saying. Your argument seems to imply the exact opposite of your conclusion. You seem to be saying that if you want to be able to use your money at any time, you should let someone else take care of it. But actually, when you do that, you are risking losing access to your money, because they may run off with it, or do something else irresponsible with it and lose it. And you also seem to argue that this is why you shouldn't hold on to your money... because then you can't use it when you want. But exactly the opposite of this is true. It is only when you have it that you can use it when you want.

The opportunity value is decreased, not increased, by storing money in a bank.

[kwukduck]

I can see these online wallet services go the way of the banks, afterall you are just assuming the btc showing in the account are really backed by what they actually have, if they start handing out loans they can just edit their database to show +100 btc, no matter if they have it or not, unless all people start withdrawing at the same time they should be fine, specially if everybody uses this service anyway instead of bitcoin itself.

[jayfitt]

Correct me if I'm wrong, but don't some bank services, like the infamous mybitcoin.com, offer an instant payment service for it's members? This actually increases the oppurtunity value of your BTC since there's no need to wait for block confirmations.

Having said that, I think what Joel was trying to say (despite the strange wording of the last sentence), is that if a bank gives no benefits (ie. interest, instant transfers/payments to other bank members, etc.), there is no reason to use the service.

[Littleshop]

Correct me if I'm wrong, but don't some bank services, like the infamous mybitcoin.com, offer an instant payment service for it's members? This actually increases the oppurtunity value of your BTC since there's no need to wait for block confirmations.

Having said that, I think what Joel was trying to say (despite the strange wording of the last sentence), is that if a bank gives no benefits (ie. interest, instant transfers/payments to other bank members, etc.), there is no reason to use the service.

They offered a few things. 

Portability. 
Merchant services. 
Instant transfers between members.

To store money in someone elses wallet if you did not need those services is/was a mistake. 

Portability can be solved with smartphone clients for most users.

[Astrohacker]

Correct me if I'm wrong, but don't some bank services, like the infamous mybitcoin.com, offer an instant payment service for it's members? This actually increases the oppurtunity value of your BTC since there's no need to wait for block confirmations.

I'm not sure what all the services were that mybitcoin offered, but they definitely can't change the fundamental characteristics of bitcoin. There is no way they can guarantee instant transfers from external accounts without simultaneously losing the guarantee that your funds are actually 100% available at any moment. They can "guarantee" instant transfers internally from mybitcoin->mybitcoin, but these transactions are reversible, unlike real bitcoin transactions.

[Trader Steve]

Yes! My main reason for using bitcoin is to avoid banks - I want control of my money. Forget the banks.

[cypherdoc]

yeah, banks never made sense to me.

[jayfitt]

To store money in someone elses wallet if you did not need those services is/was a mistake. 

Agreed, 110%. I'm still a "noob" in the BTC world, but the idea of handing over my meager wallet to a 3rd party immediately seemed stupid to me. It's a shame the wiki and some respectable people in the community recommended such a service. I would feel horrible....

I'm not sure what all the services were that mybitcoin offered, but they definitely can't change the fundamental characteristics of bitcoin. There is no way they can guarantee instant transfers from external accounts without simultaneously losing the guarantee that your funds are actually 100% available at any moment. They can "guarantee" instant transfers internally from mybitcoin->mybitcoin, but these transactions are reversible, unlike real bitcoin transactions.

I totally agree with your OP. I was just pointing out the potential benefits of a REPUTABLE bitcoin banking service.

[cypherdoc]

even if btc banks are honest, they represent a centralized source for gov't repossession

[Tasty Champa]

Banks originated as goldsmiths who stored people's gold and gave out paper certificates representing the quantity of gold that was stored. This was a valuable service, because storing gold was hard, and paying people with gold was hard. Bitcoins are very different. Storing them is in principle easy, especially if you have a bitcoin-only device as I advocated here, and paying people with them is easy. All of the reasons for putting your gold in the bank are thus irrelevant for bitcoins.

Some of them are, some of them aren't. If you don't store your currency in a bank, the opportunity value of the held currency is forever lost.

Will you give me 100 bitcoins today if I promise to give you 100 bitcoins next year? Of course not -- even if you 100% trust me, you're still giving up the opportunity value of being able to spend those bitcoins within the next year should you choose to do so. There's no reason you should give that up in exchange for nothing. If you hold your bitcoins, that's exactly what you're doing.

I don't understand what you're saying. Your argument seems to imply the exact opposite of your conclusion. You seem to be saying that if you want to be able to use your money at any time, you should let someone else take care of it. But actually, when you do that, you are risking losing access to your money, because they may run off with it, or do something else irresponsible with it and lose it. And you also seem to argue that this is why you shouldn't hold on to your money... because then you can't use it when you want. But exactly the opposite of this is true. It is only when you have it that you can use it when you want.

The opportunity value is decreased, not increased, by storing money in a bank.

no no, what he said is that having your money in the bank gives you so much more opportunity.
the part when he said opportunity value, he means you get the full extent of what it can do by being able to use it at many more places.

for instance, you can't buy a videocard from newegg if the cash is in a safe in your house or even sitting in your pocket.

It's the same idea if your bitcoins only exist on a computer that is turned off, there is zero opportunity to actually use them. It really was a very insightful thought he shared.

[Astrohacker]

Banks originated as goldsmiths who stored people's gold and gave out paper certificates representing the quantity of gold that was stored. This was a valuable service, because storing gold was hard, and paying people with gold was hard. Bitcoins are very different. Storing them is in principle easy, especially if you have a bitcoin-only device as I advocated here, and paying people with them is easy. All of the reasons for putting your gold in the bank are thus irrelevant for bitcoins.

Some of them are, some of them aren't. If you don't store your currency in a bank, the opportunity value of the held currency is forever lost.

Will you give me 100 bitcoins today if I promise to give you 100 bitcoins next year? Of course not -- even if you 100% trust me, you're still giving up the opportunity value of being able to spend those bitcoins within the next year should you choose to do so. There's no reason you should give that up in exchange for nothing. If you hold your bitcoins, that's exactly what you're doing.

I don't understand what you're saying. Your argument seems to imply the exact opposite of your conclusion. You seem to be saying that if you want to be able to use your money at any time, you should let someone else take care of it. But actually, when you do that, you are risking losing access to your money, because they may run off with it, or do something else irresponsible with it and lose it. And you also seem to argue that this is why you shouldn't hold on to your money... because then you can't use it when you want. But exactly the opposite of this is true. It is only when you have it that you can use it when you want.

The opportunity value is decreased, not increased, by storing money in a bank.

no no, what he said is that having your money in the bank gives you so much more opportunity.
the part when he said opportunity value, he means you get the full extent of what it can do by being able to use it at many more places.

for instance, you can't buy a videocard from newegg if the cash is in a safe in your house or even sitting in your pocket.

It's the same idea if your bitcoins only exist on a computer that is turned off, there is zero opportunity to actually use them. It really was a very insightful thought he shared.

If your computer is off, you can't use bitcoin banks either. Sounds to me like his thought would have been insightful for dollars, but not for bitcoins.

[CydeWeys]

no no, what he said is that having your money in the bank gives you so much more opportunity.
the part when he said opportunity value, he means you get the full extent of what it can do by being able to use it at many more places.

for instance, you can't buy a videocard from newegg if the cash is in a safe in your house or even sitting in your pocket.

It's the same idea if your bitcoins only exist on a computer that is turned off, there is zero opportunity to actually use them. It really was a very insightful thought he shared.

No, that's not what he's talking about.  It only takes a few minutes to turn your computer on if you had to spend Bitcoins.  Heck, you'd wait on average longer than that just for the transaction to confirm, and I guarantee you'd wait much, much longer for something like a check to clear.  Heck, even a credit card transaction takes up to a few days.  It's not an issue of your PC not being on at that very moment at all.

What it is an issue of is the economic use of that money.  Let's say you get some Bitcoins, you hold onto them for a year, and then you spend them.  In that interim period they had precisely zero economic activity.  They didn't contribute to any economy, they didn't help anyone make money, etc.  Now, let's say you get some dollars in your bank account, you hold onto them for a year, and then you spend them.

Well, see, those dollars actually did have an economic impact, because your bank turned around and lent them out to people buying homes, new businesses starting up, and other economic activities.  Those dollars may have been exchanged many times from person to person, business to business, all while you just "thought" you had a static balance in your bank account.  So that amount of money "sitting" in your bank account actually had many times its value in effect on GDP.  Your Bitcoins, however, had precisely zero impact.

That is the fundamental difference between using a bank and stuffing money under your mattress that we are talking about here, and in the absence of trustworthy Bitcoin banks, the only thing you can do with your Bitcoins is the equivalent of stuffing them under your mattress.

[Astrohacker]

no no, what he said is that having your money in the bank gives you so much more opportunity.
the part when he said opportunity value, he means you get the full extent of what it can do by being able to use it at many more places.

for instance, you can't buy a videocard from newegg if the cash is in a safe in your house or even sitting in your pocket.

It's the same idea if your bitcoins only exist on a computer that is turned off, there is zero opportunity to actually use them. It really was a very insightful thought he shared.

No, that's not what he's talking about.  It only takes a few minutes to turn your computer on if you had to spend Bitcoins.  Heck, you'd wait on average longer than that just for the transaction to confirm, and I guarantee you'd wait much, much longer for something like a check to clear.  Heck, even a credit card transaction takes up to a few days.  It's not an issue of your PC not being on at that very moment at all.

What it is an issue of is the economic use of that money.  Let's say you get some Bitcoins, you hold onto them for a year, and then you spend them.  In that interim period they had precisely zero economic activity.  They didn't contribute to any economy, they didn't help anyone make money, etc.  Now, let's say you get some dollars in your bank account, you hold onto them for a year, and then you spend them.

Well, see, those dollars actually did have an economic impact, because your bank turned around and lent them out to people buying homes, new businesses starting up, and other economic activities.  Those dollars may have been exchanged many times from person to person, business to business, all while you just "thought" you had a static balance in your bank account.  So that amount of money "sitting" in your bank account actually had many times its value in effect on GDP.  Your Bitcoins, however, had precisely zero impact.

That is the fundamental difference between using a bank and stuffing money under your mattress that we are talking about here, and in the absence of trustworthy Bitcoin banks, the only thing you can do with your Bitcoins is the equivalent of stuffing them under your mattress.

Perhaps that's what he meant. However, I believe this economic analysis is incorrect. You're saying that by keeping the money in the bank, and having the bank loan it out, that this was good for the economy. There was some positive contribution of wealth that would not have happened without loaning that money out. I believe this is wrong because the total quantity of money is irrelevant. You're not going to improve things by adding money into the system (and I'm well aware that Ben Bernanke disagrees, but he's wrong). So long as the money is sufficiently divisible, the sum total of it is an irrelevant quantity.

Your analysis assumes that money behaves like, say, oil. Suppose there is an economy that is energy starved. If you double the amount of oil they have, then they will be able to do more stuff. Adding oil adds wealth. But money is not like this. If you double the amount of money they have, it will change nothing. Adding money does not add wealth.

In practice, inflating a money supply does not increase the wealth. It merely redistributes the purchasing power of the money to the people who get the new money. It is a way of taking wealth from everyone who uses the money and giving it to the people who get the new money. It's equivalent to counterfeiting. For some reason, everyone understands that when a non-banker counterfeits a dollar, it is wrong. But when bankers do it, they think it is right and good, when in fact it is equally as bad.

[D.H.]

Banks originated as goldsmiths who stored people's gold and gave out paper certificates representing the quantity of gold that was stored. This was a valuable service, because storing gold was hard, and paying people with gold was hard. Bitcoins are very different. Storing them is in principle easy, especially if you have a bitcoin-only device as I advocated here, and paying people with them is easy. All of the reasons for putting your gold in the bank are thus irrelevant for bitcoins.

First of all, to store bitcoins safely you need to educate yourself on how to do it. This takes a lot of effort for people who aren't tech-savvy so there is obviously a need for companies providing this service (safe storage).

Second, banks today aren't primarily about safe storage. You lend your money to the bank. They pay you some interest because they can use the money to earn more money (e.g. by lending it to someone else at a higher interest). This service makes just as much sense with Bitcoin as with central bank money and will naturally also exist in a Bitcoin economy.

Mods: Move this to Economics?

[JoelKatz]

Will you give me 100 bitcoins today if I promise to give you 100 bitcoins next year? Of course not -- even if you 100% trust me, you're still giving up the opportunity value of being able to spend those bitcoins within the next year should you choose to do so. There's no reason you should give that up in exchange for nothing. If you hold your bitcoins, that's exactly what you're doing.

I don't understand what you're saying. Your argument seems to imply the exact opposite of your conclusion. You seem to be saying that if you want to be able to use your money at any time, you should let someone else take care of it.

No, I am saying that if you simply hold onto your money, the opportunity value is lost. Whereas, if you deposit the money in a bank, you can extract the opportunity value.

But actually, when you do that, you are risking losing access to your money, because they may run off with it, or do something else irresponsible with it and lose it.

True. That is the downside of a bank. However, the upside is that you don't waste the opportunity value of the money.

And you also seem to argue that this is why you shouldn't hold on to your money... because then you can't use it when you want.

No, that's not what I'm saying. If you hold onto the money, you cannot use it unless you find some way to extract the opportunity value. If you cannot do that, and in general you cannot, that value is wasted. A banker is an expert at extracting the opportunity value of money.

But exactly the opposite of this is true. It is only when you have it that you can use it when you want.

I would say that if you have it, you can only use it when you want. But if you don't want to use it, the opportunity value is wasted. This is value to which you are entitled that you are simply giving up for nothing if you hold the money.

The opportunity value is decreased, not increased, by storing money in a bank.

No, it is increased. That's how the bank pays you interest.

Look, say you have 100 bitcoins and you don't need them until next week. Say someone else needs 100 bitcoins right now, badly enough that he's willing to pay back 110 bitcoins next week. If you hold your 100 bitcoins, you lose the 10 bitcoins of opportunity value you could have made by loaning those bitcoins out. Even if you say "well, then you risk losing the whole 100", you can easily imagine a situation where you could also obtain insurance against loss of your principle for, say, 2 bitcoins. So you still waste 8 bitcoins of opportunity value by holding your bitcoins, and the guy who could have done something with the bitcoins today doesn't get to do that either. Lose/lose. (But then the fewer bitcoins in circulation do benefit some people, so they win.)

Actually, more likely someone else will lend the guy the 100 bitcoins. So he'll have 110 bitcoins less 2 for insurance and you'll have 100. You're playing the sucker.

[JoelKatz]

Perhaps that's what he meant. However, I believe this economic analysis is incorrect. You're saying that by keeping the money in the bank, and having the bank loan it out, that this was good for the economy. There was some positive contribution of wealth that would not have happened without loaning that money out. I believe this is wrong because the total quantity of money is irrelevant. You're not going to improve things by adding money into the system (and I'm well aware that Ben Bernanke disagrees, but he's wrong). So long as the money is sufficiently divisible, the sum total of it is an irrelevant quantity.

I agree with that. However, see my post above. If you don't loan your money out and someone else does, you will turn 100 bitcoins into 100 bitcoins while someone else turns 100 bitcoins into 108 bitcoins.

In practice, inflating a money supply does not increase the wealth. It merely redistributes the purchasing power of the money to the people who get the new money. It is a way of taking wealth from everyone who uses the money and giving it to the people who get the new money. It's equivalent to counterfeiting. For some reason, everyone understands that when a non-banker counterfeits a dollar, it is wrong. But when bankers do it, they think it is right and good, when in fact it is equally as bad.

You are entirely correct in the case of, say, a government printing money. However, this is not correct in the case of loans. The people who get the money pay it back with interest. They get purchasing power today (presumably when they need it more) in exchange for foregoing purchasing power in the future when they expect to need it less.

If people are willing to pay interest, it will typically be because they can make better use of the purchasing power today. Loans help people to efficiently time-shift consumption and production in cases where the most efficient pattern isn't produce-consume.

The obvious example is the guy who gets a job that pays 20% more than he's making, but he needs a car. He can't produce the value he needs to consume in the form of a car without the job. A loan allows how to consume the car now when he needs it, and produce the value of the car later when he will most likely be able to.

Certainly banks do some bad things and certainly people take bad loans. But the fundamental logic of banking and loans is completely sound.

[qwk]

Banks are unnecessary for bitcoin. You do not gain anything by giving someone else responsibility for your money.

Depending on your need, you might actually gain a lot. Online wallets or banks could offer a lot of services, the regular bitcoin client doesn't offer.

• instant transfers between users of the same service
  
  • zero fees or low fees for internal transfers
  • micropayments which are too expensive over the bitcoin network
  • possibility of chargebacks (yes, some people may actually want that)
• insurance against theft / technical failure
• portability across devices
• interest (which could require fractional reserve, but some people may be willing to accept that)
• merchant services
• currency exchange
• etc. etc.

I don't say you should use a bitcoin bank, but i see a lot of good reasons to do so. Whether or not these additional services are valuable enough for you to accept the downsides of banking, is totally up to you.

(Note that I am not arguing you should never store any of your money in online services. Just that you should only store small quantities that are as small as your level of trust for those services. If they ever have most of your bitcoins, then you are probably making a mistake.)

100% agreed on the "level of trust", but that doesn't necessarily mean small amounts. With a secure bank including insurance, i see no reason not to actually store almost all my bitcoins with them.

[harm]

I like your points JoelKatz and qwk,

now I just see a problem in the thematic of charging interest, which is quite a twist...:-/

Generally it is an economic and reasonable method for me to participate in growth (opportunity savings) when my bank offers credits for people or businesses willing to pay back interest.

But where does the money to pay the interst come from?
In the end it is all about the time someone spends in earning the same amount of money someone else earnes.
One could ask how fair is it to have one person working 10 h a day, while an other one needs 8 h only to earn the same amount of money? But that is another question... So far this is how it works and i think it is a good way, as probably one had to do some effort to achieve that balance.

I am getting to the sens and the right to charge interest. So to work out the interest someone has to pay he works more hours a day.

But the big problem is the money creation; fractional reserve banking!!
http://en.wikipedia.org/wiki/Fractional_reserve_banking
Which means credit users have to work more hours a day to pay the interest on money, that does not even exist!! Also the paid interest receive the banks, not the peoble putting money on their bank account! So here I see the potenial in a fair currency in bitcoins.

But, well, on the other side, without that created money we would not have been able to grow that fast in the past years...

And again a downside of interest: the poor pay the rich!! Only rich people can gain opportunity savings, as to receive at least 2% you need to have quite an amount of money these says;) And how needs that money? The poor people ask for credits and therefore pay the interest to the rich. Also companies goning in debt do their costcalculation inlcuding the interest they have to pay back. So in the end everyone buying that companies products also pays his interest debt.

[payb.tc]

And again a downside of interest: the poor pay the rich!!

i don't see how you can call that a downside unless you are at the same time claiming to be poor.

Poor man: That's a downside!
Rich man: That's an upside!

seems quite neutral to me.

[JoelKatz]

But where does the money to pay the interst come from?

From the opportunity value. Ten dollars today is worth more than ten dollars tomorrow because everything you can do with ten dollars tomorrow you can do with ten dollars today plus you can spend it before tomorrow. When you loan money, you transfer the money from someone who has no way to extract the opportunity value to someone who can and they split the surplus.

In the end it is all about the time someone spends in earning the same amount of money someone else earnes.
One could ask how fair is it to have one person working 10 h a day, while an other one needs 8 h only to earn the same amount of money? But that is another question.

You could also ask why it would be fair that one person produces more value than another and gets the same pay.

I am getting to the sens and the right to charge interest. So to work out the interest someone has to pay he works more hours a day.

No, not at all.

Say you work as a laborer. Your work sucks, it's hard work in the hot Sun. You get offered a job as a pizza delivery driver. You have air conditioning, you get paid more. But you don't have a car and you need one to work as a driver. You could spend the next few months living on even less to save up enough money to buy a car, but that makes no sense. Instead, you borrow the money to buy the car. You pay the interest out of the value of the car which enables you to get a better job.

But the big problem is the money creation; fractional reserve banking!!
http://en.wikipedia.org/wiki/Fractional_reserve_banking
Which means credit users have to work more hours a day to pay the interest on money, that does not even exist!! Also the paid interest receive the banks, not the peoble putting money on their bank account!

No, it doesn't mean they have to work more hours a day to pay the interest on money unless they take unwise loans. If, for example, you borrow money that allows you to get a better job, you may work fewer hours. Don't blame wasteful consumption on bankers.

[harm]

And again a downside of interest: the poor pay the rich!!

i don't see how you can call that a downside unless you are at the same time claiming to be poor.

Poor man: That's a downside!
Rich man: That's an upside!

seems quite neutral to me.

I don't exactly know what you mean?!
What I am saying: the rich get richer, the poor get poorer. The poor pay the interest the rich receive...

[payb.tc]

And again a downside of interest: the poor pay the rich!!

i don't see how you can call that a downside unless you are at the same time claiming to be poor.

Poor man: That's a downside!
Rich man: That's an upside!

seems quite neutral to me.

I don't exactly know what you mean?!
What I am saying: the rich get richer, the poor get poorer. The poor pay the interest the rich receive...

and how is that a downside? that's all i'm asking.

seems to me if you're rich that's an upside.

[harm]

But where does the money to pay the interst come from?

From the opportunity value. Ten dollars today is worth more than ten dollars tomorrow because everything you can do with ten dollars tomorrow you can do with ten dollars today plus you can spend it before tomorrow. When you loan money, you transfer the money from someone who has no way to extract the opportunity value to someone who can and they split the surplus.

In the end it is all about the time someone spends in earning the same amount of money someone else earnes.
One could ask how fair is it to have one person working 10 h a day, while an other one needs 8 h only to earn the same amount of money? But that is another question.

You could also ask why it would be fair that one person produces more value than another and gets the same pay.

I am getting to the sens and the right to charge interest. So to work out the interest someone has to pay he works more hours a day.

No, not at all.

Say you work as a laborer. Your work sucks, it's hard work in the hot Sun. You get offered a job as a pizza delivery driver. You have air conditioning, you get paid more. But you don't have a car and you need one to work as a driver. You could spend the next few months living on even less to save up enough money to buy a car, but that makes no sense. Instead, you borrow the money to buy the car. You pay the interest out of the value of the car which enables you to get a better job.

But the big problem is the money creation; fractional reserve banking!!
http://en.wikipedia.org/wiki/Fractional_reserve_banking
Which means credit users have to work more hours a day to pay the interest on money, that does not even exist!! Also the paid interest receive the banks, not the peoble putting money on their bank account!

No, it doesn't mean they have to work more hours a day to pay the interest on money unless they take unwise loans. If, for example, you borrow money that allows you to get a better job, you may work fewer hours. Don't blame wasteful consumption on bankers.

Nice points, I am totally with you!!
But I am not fine with the fractional reserve banking yet. Isn't it nonsence to pay interest on money that does not really exist? Or creating money in general? There would be not enough money in the world to pay back all debt plus interest!

[JoelKatz]

And again a downside of interest: the poor pay the rich!! Only rich people can gain opportunity savings, as to receive at least 2% you need to have quite an amount of money these says;) And how needs that money? The poor people ask for credits and therefore pay the interest to the rich. Also companies goning in debt do their costcalculation inlcuding the interest they have to pay back. So in the end everyone buying that companies products also pays his interest debt.

This is another one of those arguments where you focus on just one side of a transaction to come up with a skewed view of the transaction as a whole. For every such an argument, you can do the same thing for the other side of the transaction and come up with an equally bogus argument that makes the opposite point. For example: Loans are such a great deal for the poor, they get to spend rich people's money.

[JoelKatz]

But I am not fine with the fractional reserve banking yet. Isn't it nonsence to pay interest on money that does not really exist? Or creating money in general? There would be not enough money in the world to pay back all debt plus interest!

Every loan creates money. If you have a problem with money creation, you have a problem with lending.

If I borrow money to buy a house, the money I borrowed is still in circulation because I gave it to the person who sold me the house. However, now there is an IOU in circulation as well -- the future money I will earn to pay that mortgage is now already in circulation.

The idea that there's money that "does not really exist" makes me respond "as opposed to what?" Money is just a marker. Money, as money, never really exists any more than a number. Pieces of paper with big numbers on them aren't much more real or less real than numbers in a computer. People do things that way because it makes sense, not because there's some massive global conspiracy.

People work. People buy things. People sell things. Try, for a second, to imagine everyone doing exactly the same things just without moving all the money. The money is just a communications mechanism. It tells a person to work at Burger King, to open a saw mill, or to make me a plasma TV. That's all.

If I'm choosing between being an actor or a pilot, money tells me which my society needs more. If I'm choosing between buying a plasma TV and a burger, money tells me which takes more resources to produce. That's all it does.

[fornit]

But where does the money to pay the interst come from?

From the opportunity value. Ten dollars today is worth more than ten dollars tomorrow because everything you can do with ten dollars tomorrow you can do with ten dollars today plus you can spend it before tomorrow.

ten dollars tomorrow are worth more tomorrow because i know i will have them tomorrow while todays dollars have a likelyhood <1 to ever make to tomorrow plus i have to invest time to secure them so that likelyhood stays close to 1 

When you loan money, you transfer the money from someone who has no way to extract the opportunity value to someone who can and they split the surplus.

in an inflationary currency you mostly just give your money to someone who can invest it into something that doesnt lose value. so a big part of the profit you share is just avoiding inflation. in a deflationary or stable currency the interest rate has to be significantly lower and might not justify the risk of not getting your money back.

[payb.tc]

Every loan creates money. If you have a problem with money creation, you have a problem with lending.

If I borrow money to buy a house, the money I borrowed is still in circulation because I gave it to the person who sold me the house. However, now there is an IOU in circulation as well -- the future money I will earn to pay that mortgage is now already in circulation.

I agree that IOU's are created but not necessarily money created.

Person A: owns $100
Person B: owns $100
Person C: owns $0 and a nice hat

Person C decides to borrow $100 from Person A and promises to repay $110. This doesn't necessarily have to create any money, if this person can just sell his hat to person B, and we end up with:

Person A: owns $110
Person B: owns $90 and a nice hat
Person C: owns nil

A loan was made and repaid (with interest), and no money was created.

Also, that 'nice hat' doesn't even need to be tangible... it could just be Person C's personal labour or time for example.

[the founder]

The problem with this thread is that it instantly turned to "loans"  .. it's possible to pay people interest on their banking accounts without having to loan bitcoins out.

We charge 1/2 of 1% for external transactions (flexcoin to bitcoin) and this INCLUDES the miners fee.  All other transfers are free (flexcoin to flexcoin,  bitcoin to flexcoin).. etc.

we take that 1/2 of 1% ... give about half of it to the miner.   Then the quater of a percent that is left is 70% allocated to the account holders as an interest payment.    we keep the tiny 30% of the 1/2 of 1/2 of 1%.

are people going to get rich off interest allocated like that?  No.

But are we doing fractional reserve lending?  No ...  are we loaning out bitcoins?  No...   

Now the other issues ARE valid...  security for example (mtgox)... the threat of some idiot collecting 100,000 coins and vanishing due to hardware failure, hacking or theft (mybitcoin)  ...

But those issues exist as well for your desktop client...  like the guy that lost 25,000 bitcoins from his desktop.

The answer to this is simple,  do whatever you feel is proper.    I can't force you guys to use flexcoin...  All I can say is we made the most secure online bitcoin bank that we can think of.  We don't loan out bitcoins,  and you get interest based on a 100% transparent formula. 

Make your own decisions if you are going to use an online wallet /  bank / whatever..   personally I think we're doing the community a service by allowing people to  pay for their cup of coffee at the coffeshop with no fees from their cell phone and just use flexcoin ID: coffeshop as compared to the harder to use process now that involves remoting to your desktop and trying to pay that way... or lugging around a laptop.

Again it's your call... 

[JoelKatz]

in an inflationary currency you mostly just give your money to someone who can invest it into something that doesnt lose value. so a big part of the profit you share is just avoiding inflation. in a deflationary or stable currency the interest rate has to be significantly lower and might not justify the risk of not getting your money back.

While it's true that an inflationary currency must be invested or loaned just to maintain its value, the benefit to investing or loaning is the same with a deflationary currency.

If the currency would drop 2% a year and you can make 4% interest with an inflationary currency, all other things being roughly equal, an deflationary currency that would go up 3% a year will offer you about 9% interest. You still lose the same 9% by not investing.

You can easily see why this has to be true. If it wasn't, inflation would be harmless since you could just loan your money to offset it. That would mean the government could print and spend all it wanted without hurting anyone. That's obviously not true.

[cypherdoc]

A banker is an expert at extracting the opportunity value of money.

i stopped reading right there.

the real question is to whose benefit and to whose risk?

[cypherdoc]

Will you give me 100 bitcoins today if I promise to give you 100 bitcoins next year? Of course not -- even if you 100% trust me, you're still giving up the opportunity value of being able to spend those bitcoins within the next year should you choose to do so. There's no reason you should give that up in exchange for nothing. If you hold your bitcoins, that's exactly what you're doing.

I don't understand what you're saying. Your argument seems to imply the exact opposite of your conclusion. You seem to be saying that if you want to be able to use your money at any time, you should let someone else take care of it.

No, I am saying that if you simply hold onto your money, the opportunity value is lost. Whereas, if you deposit the money in a bank, you can extract the opportunity value.

But actually, when you do that, you are risking losing access to your money, because they may run off with it, or do something else irresponsible with it and lose it.

True. That is the downside of a bank. However, the upside is that you don't waste the opportunity value of the money.

And you also seem to argue that this is why you shouldn't hold on to your money... because then you can't use it when you want.

No, that's not what I'm saying. If you hold onto the money, you cannot use it unless you find some way to extract the opportunity value. If you cannot do that, and in general you cannot, that value is wasted. A banker is an expert at extracting the opportunity value of money.

But exactly the opposite of this is true. It is only when you have it that you can use it when you want.

I would say that if you have it, you can only use it when you want. But if you don't want to use it, the opportunity value is wasted. This is value to which you are entitled that you are simply giving up for nothing if you hold the money.

The opportunity value is decreased, not increased, by storing money in a bank.

No, it is increased. That's how the bank pays you interest.

Look, say you have 100 bitcoins and you don't need them until next week. Say someone else needs 100 bitcoins right now, badly enough that he's willing to pay back 110 bitcoins next week. If you hold your 100 bitcoins, you lose the 10 bitcoins of opportunity value you could have made by loaning those bitcoins out. Even if you say "well, then you risk losing the whole 100", you can easily imagine a situation where you could also obtain insurance against loss of your principle for, say, 2 bitcoins. So you still waste 8 bitcoins of opportunity value by holding your bitcoins, and the guy who could have done something with the bitcoins today doesn't get to do that either. Lose/lose. (But then the fewer bitcoins in circulation do benefit some people, so they win.)

Actually, more likely someone else will lend the guy the 100 bitcoins. So he'll have 110 bitcoins less 2 for insurance and you'll have 100. You're playing the sucker.

But Joel, you're thinking is clouded by the system we have in place today which pays interest.

First of all, the banks pay way less interest than they should given the enormous risks they take with our money.  in fact the FDIC has made way more guarantees than it can possibly handle and only maintain the facade thru the taxpayers guarantee.

and none of what you say applies with a deflationary currency which may increase in value with time more than compensating for the small amt of interest paid by a bank along with the risk.

[fornit]

If the currency would drop 2% a year and you can make 4% interest with an inflationary currency, all other things being roughly equal, an deflationary currency that would go up 3% a year will offer you about 9% interest. You still lose the same 9% by not investing.

for everything you win, somebody has to lose. since very few can pay 9% long term, interest will be lower in a deflationary currency than in a inflationary currency. so you lose less when you stick with your money.

You can easily see why this has to be true. If it wasn't, inflation would be harmless since you could just loan your money to offset it. That would mean the government could print and spend all it wanted without hurting anyone. That's obviously not true.

eh, how exactly can everybody loan all his money? in the end, someone has to have it and thats the one who is hurting.

[the founder]

and none of what you say applies with a deflationary currency which may increase in value with time more than compensating for the small amt of interest paid by a bank along with the risk.

That the adoption rate of bitcoins are not exceeding the additional 50 coins per every 10 minutes dumped on the market.  Hence the inflationary pressures on bitcoins currently exceed the adoption rate... it's why we're seeing inflation (IE: bitcoins going from 30 to 13) as compared to deflation (13 to 30).

Now that might change over time... but in all honestly thought it's not centralized via a central bank we're still "bernankeing" the system.   or better said.. printing too many bitcoins to cause deflation at this time.

In fact we're printing more bitcoins in relation to the US dollar because we're seeing the bitcoin exchange rate falling in relation to the US dollar.

[cypherdoc]

and none of what you say applies with a deflationary currency which may increase in value with time more than compensating for the small amt of interest paid by a bank along with the risk.

That the adoption rate of bitcoins are not exceeding the additional 50 coins per every 10 minutes dumped on the market.  Hence the inflationary pressures on bitcoins currently exceed the adoption rate... it's why we're seeing inflation (IE: bitcoins going from 30 to 13) as compared to deflation (13 to 30).

Now that might change over time... but in all honestly thought it's not centralized via a central bank we're still "bernankeing" the system.   or better said.. printing too many bitcoins to cause deflation at this time.

In fact we're printing more bitcoins in relation to the US dollar because we're seeing the bitcoin exchange rate falling in relation to the US dollar.

its more complex than that.  there are the psychological aspects of dynamic markets involved as well.  the decrease from 30-12 could just be a normal cyclical wave which could reverse upwards at any time and have nothing to do with the 50 btc / 10 min.

[Astrohacker]

Perhaps that's what he meant. However, I believe this economic analysis is incorrect. You're saying that by keeping the money in the bank, and having the bank loan it out, that this was good for the economy. There was some positive contribution of wealth that would not have happened without loaning that money out. I believe this is wrong because the total quantity of money is irrelevant. You're not going to improve things by adding money into the system (and I'm well aware that Ben Bernanke disagrees, but he's wrong). So long as the money is sufficiently divisible, the sum total of it is an irrelevant quantity.

I agree with that. However, see my post above. If you don't loan your money out and someone else does, you will turn 100 bitcoins into 100 bitcoins while someone else turns 100 bitcoins into 108 bitcoins.

In practice, inflating a money supply does not increase the wealth. It merely redistributes the purchasing power of the money to the people who get the new money. It is a way of taking wealth from everyone who uses the money and giving it to the people who get the new money. It's equivalent to counterfeiting. For some reason, everyone understands that when a non-banker counterfeits a dollar, it is wrong. But when bankers do it, they think it is right and good, when in fact it is equally as bad.

You are entirely correct in the case of, say, a government printing money. However, this is not correct in the case of loans. The people who get the money pay it back with interest. They get purchasing power today (presumably when they need it more) in exchange for foregoing purchasing power in the future when they expect to need it less.

If people are willing to pay interest, it will typically be because they can make better use of the purchasing power today. Loans help people to efficiently time-shift consumption and production in cases where the most efficient pattern isn't produce-consume.

The obvious example is the guy who gets a job that pays 20% more than he's making, but he needs a car. He can't produce the value he needs to consume in the form of a car without the job. A loan allows how to consume the car now when he needs it, and produce the value of the car later when he will most likely be able to.

Certainly banks do some bad things and certainly people take bad loans. But the fundamental logic of banking and loans is completely sound.

There is nothing sound about fractional reserve banking. It is a giant scam, and probably the biggest mistake in the history of the legal system. It should be illegal. Or better, unregulated, so the market can force banks to keep high reserves.

Here's how banks counterfeit money. You deposit $100. The bank loans out $80 of your money to someone else. They put that money back in the bank. The bank now has $100 - all your money. But your checking account says $100, and the loanee's checking account says $80, for a total of $180. The bank has now effectively created--that is, counterfeited--$80 in new money. They gave this new money to themselves, and then loaned it out. Since their reserves are still over 20% (or whatever the present reserve requirement is), they keep doing this until they have stolen control over 80% of the money.

Banks declare themselves owner of most of the money, and charge a toll (interest) for using it. They are not providing a valuable service. They are trolls executing a giant scam that rips off everyone.

In response to your other points, I defer to cypherdoc.

[D.H.]

Every loan creates money. If you have a problem with money creation, you have a problem with lending.

If I borrow money to buy a house, the money I borrowed is still in circulation because I gave it to the person who sold me the house. However, now there is an IOU in circulation as well -- the future money I will earn to pay that mortgage is now already in circulation.

I agree that IOU's are created but not necessarily money created.

Whether those IOU's are money or not is just a matter of definition. In the real world we often see IOU's as money. Take as an example the balance on your bank account. This is just a statement that the bank owes you X dollars (i.e. an IOU), yet we refer to it as money, and we use it as money (when we transfer money to a friend using the same bank).

People often confuse the "IOU-money" that the bank creates with the "central bank money" that they owe you.

[harm]

Perhaps that's what he meant. However, I believe this economic analysis is incorrect. You're saying that by keeping the money in the bank, and having the bank loan it out, that this was good for the economy. There was some positive contribution of wealth that would not have happened without loaning that money out. I believe this is wrong because the total quantity of money is irrelevant. You're not going to improve things by adding money into the system (and I'm well aware that Ben Bernanke disagrees, but he's wrong). So long as the money is sufficiently divisible, the sum total of it is an irrelevant quantity.

I agree with that. However, see my post above. If you don't loan your money out and someone else does, you will turn 100 bitcoins into 100 bitcoins while someone else turns 100 bitcoins into 108 bitcoins.

In practice, inflating a money supply does not increase the wealth. It merely redistributes the purchasing power of the money to the people who get the new money. It is a way of taking wealth from everyone who uses the money and giving it to the people who get the new money. It's equivalent to counterfeiting. For some reason, everyone understands that when a non-banker counterfeits a dollar, it is wrong. But when bankers do it, they think it is right and good, when in fact it is equally as bad.

You are entirely correct in the case of, say, a government printing money. However, this is not correct in the case of loans. The people who get the money pay it back with interest. They get purchasing power today (presumably when they need it more) in exchange for foregoing purchasing power in the future when they expect to need it less.

If people are willing to pay interest, it will typically be because they can make better use of the purchasing power today. Loans help people to efficiently time-shift consumption and production in cases where the most efficient pattern isn't produce-consume.

The obvious example is the guy who gets a job that pays 20% more than he's making, but he needs a car. He can't produce the value he needs to consume in the form of a car without the job. A loan allows how to consume the car now when he needs it, and produce the value of the car later when he will most likely be able to.

Certainly banks do some bad things and certainly people take bad loans. But the fundamental logic of banking and loans is completely sound.

There is nothing sound about fractional reserve banking. It is a giant scam, and probably the biggest mistake in the history of the legal system. It should be illegal. Or better, unregulated, so the market can force banks to keep high reserves.

Here's how banks counterfeit money. You deposit $100. The bank loans out $80 of your money to someone else. They put that money back in the bank. The bank now has $100 - all your money. But your checking account says $100, and the loanee's checking account says $80, for a total of $180. The bank has now effectively created--that is, counterfeited--$80 in new money. They gave this new money to themselves, and then loaned it out. Since their reserves are still over 20% (or whatever the present reserve requirement is), they keep doing this until they have stolen control over 80% of the money.

Banks declare themselves owner of most of the money, and charge a toll (interest) for using it. They are not providing a valuable service. They are trolls executing a giant scam that rips off everyone.

In response to your other points, I defer to cypherdoc.

If you expect to get interest from your bank, how should they pay you off, if they didn't lend it for interest? How else could one get a credit?

The interesting part in the fractional reserve banking is that with a reserve of 20% one bank after another can lend in total 4 times the inital money!
1. bank: $100 = $80 credit + $20 reserve
2. bank: $80 = $64 credit + 16 $reserve
3. bank: $64 = $51,2 credit + 12,8 $reserve
...
The Summ of money held as reserve by all banks equals the inital cash deposit, while 4 times that money is spend as credits.

[JoelKatz]

Here's how banks counterfeit money. You deposit $100. The bank loans out $80 of your money to someone else. They put that money back in the bank. The bank now has $100 - all your money. But your checking account says $100, and the loanee's checking account says $80, for a total of $180. The bank has now effectively created--that is, counterfeited--$80 in new money. They gave this new money to themselves, and then loaned it out. Since their reserves are still over 20% (or whatever the present reserve requirement is), they keep doing this until they have stolen control over 80% of the money.

I'm curious about your reasoning and whether you actually believe it. Say I am short on cash right now, maybe I get paid next week and am hungry today. So I give someone an IOU for $20, payable to the bearer in two weeks, in exchange for $18. The $20 IOU is new money. Have I counterfeited, in your view?

The $100 in your checking account is an IOU, stating that the bank owes you $100. It is an IOU that the bank fully intends to repay, has made reasonable arrangements to ensure they can repay, and barring unusual circumstances, that they actually do repay. No fraud is involved. Nothing is claimed to be something that it is not.

[Astrohacker]

Here's how banks counterfeit money. You deposit $100. The bank loans out $80 of your money to someone else. They put that money back in the bank. The bank now has $100 - all your money. But your checking account says $100, and the loanee's checking account says $80, for a total of $180. The bank has now effectively created--that is, counterfeited--$80 in new money. They gave this new money to themselves, and then loaned it out. Since their reserves are still over 20% (or whatever the present reserve requirement is), they keep doing this until they have stolen control over 80% of the money.

I'm curious about your reasoning and whether you actually believe it. Say I am short on cash right now, maybe I get paid next week and am hungry today. So I give someone an IOU for $20, payable to the bearer in two weeks, in exchange for $18. The $20 IOU is new money. Have I counterfeited, in your view?

The $100 in your checking account is an IOU, stating that the bank owes you $100. It is an IOU that the bank fully intends to repay, has made reasonable arrangements to ensure they can repay, and barring unusual circumstances, that they actually do repay. No fraud is involved. Nothing is claimed to be something that it is not.

Yes I actually believe it. For more information, read "The Mystery of Banking" by Murray Rothbard.

It's not fraud to loan someone your money and get an IOU in exchange. It's fraud to counterfeit money. You're right about your checking account being an IOU of sorts. Another way of looking at it is that banks have conned everyone into using their IOUs as money instead of dollars, and they own 80% of the IOUs, and charge a toll for using them. It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

Further fraud is caused the Federal Reserve because they counterfeit new dollars, so today's dollar is not the same thing as yesterday's dollar. $(today) != $(yesterday). But the Fed lies to you and makes you think $(today)=$(yesterday) by calling both of them "dollars", hence the fraud. So banks are a fraud on top of a fraud.

[harm]

One simple question:
Why would I want to use bitcoins, when the current banking system ("double spending" through fractional reserve banking; creating money by accepting securities) seems to be not so bad? Obviously there are allways good economic reasons.

Is is only the anonymity and the decentralization?

Considering the previous post the bitcoin system does lack of the possibility to offer credits higher than the deposits as one cannot create money to give away even more credits, which the economy might need! --> slower growth??!

[JoelKatz]

It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

So there are people who think they are 100% backed by dollars? Where can I find some of these people? And how do banks make people think this? Is it some form of mind control?

Further fraud is caused the Federal Reserve because they counterfeit new dollars, so today's dollar is not the same thing as yesterday's dollar. $(today) != $(yesterday). But the Fed lies to you and makes you think $(today)=$(yesterday) by calling both of them "dollars", hence the fraud. So banks are a fraud on top of a fraud.

Let's stick to fractional reserve banking first. I can only rebut one conspiracy theory at a time. (But yes, inflation caused by government expansion of the money supply does act like a tax on all wealth. But this is no secret.)

[Astrohacker]

One simple question:
Why would I want to use bitcoins, when the current banking system ("double spending" through fractional reserve banking; creating money by accepting securities) seems to be not so bad? Obviously there are allways good economic reasons.

Is is only the anonymity and the decentralization?

Considering the previous post the bitcoin system does lack of the possibility to offer credits higher than the deposits as one cannot create money to give away even more credits, which the economy might need! --> slower growth??!

Are you kidding? The present system is terrible. It allows the people who control the money supply to create new money and give it to themselves. This is one of the problems that bitcoin solves by limiting the supply to 21 million. Read all of my posts in this thread and read my article: http://astrohacker.com/ahc/central-banks-are-the-scam-not-bitcoin/

However, in practice this is not why most people will use bitcoin, since most people don't understand how screwed they are by this system. Instead, they will use bitcoin because there will be many services that only accept bitcoin, because those services will only be possible or practical with bitcoin. An example of this is anything that charges very small fees over the internet, which will work with bitcoin, because the fees are low, but not dollars or other fiat currencies, because the fees are too high.

[Astrohacker]

It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

So there are people who think they are 100% backed by dollars? Where can I find some of these people? And how do banks make people think this? Is it some form of mind control?

Further fraud is caused the Federal Reserve because they counterfeit new dollars, so today's dollar is not the same thing as yesterday's dollar. $(today) != $(yesterday). But the Fed lies to you and makes you think $(today)=$(yesterday) by calling both of them "dollars", hence the fraud. So banks are a fraud on top of a fraud.

Let's stick to fractional reserve banking first. I can only rebut one conspiracy theory at a time. (But yes, inflation caused by government expansion of the money supply does act like a tax on all wealth. But this is no secret.)

You can find them anywhere since 99% of people do not understand how banking works.

[harm]

One simple question:
Why would I want to use bitcoins, when the current banking system ("double spending" through fractional reserve banking; creating money by accepting securities) seems to be not so bad? Obviously there are allways good economic reasons.

Is is only the anonymity and the decentralization?

Considering the previous post the bitcoin system does lack of the possibility to offer credits higher than the deposits as one cannot create money to give away even more credits, which the economy might need! --> slower growth??!

Are you kidding? The present system is terrible. It allows the people who control the money supply to create new money and give it to themselves. This is one of the problems that bitcoin solves by limiting the supply to 21 million. Read all of my posts in this thread and read my article: http://astrohacker.com/ahc/central-banks-are-the-scam-not-bitcoin/

However, in practice this is not why most people will use bitcoin, since most people don't understand how screwed they are by this system. Instead, they will use bitcoin because there will be many services that only accept bitcoin, because those services will only be possible or practical with bitcoin. An example of this is anything that charges very small fees over the internet, which will work with bitcoin, because the fees are low, but not dollars or other fiat currencies, because the fees are too high.

Banks can use saver's money to give away as credits, but they can also create it:
Banks can create money by accepting mortgage and granting credits at the amount of the mortgage value.
Later the credit receiver pays back the money. This is not possible with bitcoins, but what is the problem anyway? Why is this bad?

[JoelKatz]

You can find them anywhere since 99% of people do not understand how banking works.

Ahh, nice goalpost shifting there. 99% of people don't understand how anything works. That doesn't make everything fraud. The question is whether there are people who think that when you deposit money in a checking account, the bank keeps your money in the vault for you and pays you interest either out of the goodness of their heart or by magic.

Remember, you said:

It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

[cypherdoc]

Don't blame wasteful consumption on bankers.

you mean like Dick Fuld's $30K bidet?

or how 9/10 yachts in NY harbor are owned by bankers?  read  "Where are the Customers Yachts?" by Fred Schwed.

how bout all the mansions, hookers and blow owned by bankers.  cmon, have you looked at the recent wealth disparity stats?

[markm]

One simple question:
Why would I want to use bitcoins, when the current banking system ("double spending" through fractional reserve banking; creating money by accepting securities) seems to be not so bad? Obviously there are allways good economic reasons.

Is is only the anonymity and the decentralization?

Considering the previous post the bitcoin system does lack of the possibility to offer credits higher than the deposits as one cannot create money to give away even more credits, which the economy might need! --> slower growth??!

Are you kidding? The present system is terrible. It allows the people who control the money supply to create new money and give it to themselves. This is one of the problems that bitcoin solves by limiting the supply to 21 million. Read all of my posts in this thread and read my article: http://astrohacker.com/ahc/central-banks-are-the-scam-not-bitcoin/

However, in practice this is not why most people will use bitcoin, since most people don't understand how screwed they are by this system. Instead, they will use bitcoin because there will be many services that only accept bitcoin, because those services will only be possible or practical with bitcoin. An example of this is anything that charges very small fees over the internet, which will work with bitcoin, because the fees are low, but not dollars or other fiat currencies, because the fees are too high.

Actually, bitcoin creates an entire new 21 million bitcoins, and the software can be used again and again and again to create more and more newfangled coins. Devcoin creates 50,000 devcoins per block! Namecoins are being created even as I type! Groupcoins also are being created! Beertokens possibly have already been created. Gosh knows how many WEEDS there are. And so on.

So it is kind of disingenuous to praise bitcoin as a solution merely because the number of tokens it creates out of thin air are limited. They still came from no-where, and limiting them actually proposes to cause them to suck up more previously-existing tokens of other kinds than it might if it created more.

Of which was more created, monopoly money, totopoly money, mine-a-million money, transport tycoon money, world of warcraft gold or EVE ISKs? How much does it matter?

I am not down on bitcoin, nor its spinoffs such as devcoin and groupcoin and Martian BotCoins etc etc etc. But just aware that creating tokens from nothing is still creating tokens from nothing however much you argue the relative difficulty of the various nothings.

-MarkM-

[UniverseMan]

Remember, you said:

It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

I am going to agree that this quote is the key to toppling your argument against loans here, Astrohacker. Fractional reserve banking doesn't create anything, it doesn't counterfeit money, it only redistributes money and debts. Banking is a closed system; take the sum over the money of every person with a loan and subtract the debt of every person with a savings account, and the total will be exactly as much as was brought in to begin with. Nothing was created, just moved.

The fact that you view their debts as dollars, or perhaps that you feel that's how they are presenting their debts, is not the fault of the banks. It's certainly not fraud, because they are quite up front about it, and fraud requires willful deception.

[Astrohacker]

Everything I have said is correct. You guys are confused and deluded by misinformation. Fractional reserve banking is so thoroughly mainstream that people will go to any lengths to defend them in spite of their being some of the most criminal institutions on the planet.

For a more thorough version of my "banks are a scam" argument, read "The Mystery of Banking" by Murray Rothbard. It is available for free at mises.org: http://mises.org/Books/mysteryofbanking.pdf

[kloinko1n]

[snip>

in an inflationary currency you mostly just give your money to someone who can invest it into something that doesnt lose value. so a big part of the profit you share is just avoiding inflation. in a deflationary or stable currency the interest rate has to be significantly lower and might not justify the risk of not getting your money back.

Given the current banking system, whether a currency is 'inflationary' or not depends on the original owners of the money: the savers.
If they bring it to the bank, they provide a lever to them against which they (the banks) can create money en deflate the currency that the saver brought to the bank.
If the saver does not bring his money to the bank, such a lever doesn't exist, and the money will not inflate (with two meanings).

So, saving money in a bank is like financial suicide if you ask me. Better keep it under your bed or so.

[blogospheroid]

Astrohacker,

Are you ok with bankers if the only lending out was done from term deposits and was completely maturity matched? i.e. 3 month loans made out from 3 month minimum term deposits and so on..

If you're ok with that, you and Joel don't have an argument at all.