Why Bitcoin is ultimately doomed to fail (not today or tomorrow)

[deisik]

Can we converse in English please 

Rotfl, I was thinking I couldn't understand well!!!

In fact, your thinking was probably not very far from truth, lol. I changed the original post significantly since then with simplicity in mind...

[Maddin]

so what you actually want to say it that banks will borrow unfounded bitcoins just like they actually doing with fiat currency.
Like in Europe banks only need to have 1% of the money they borrow.
And yes I think in a few years they'll do the same with bitcoin and even with less the 1% covering.
This would lead to inflation and therefore banks could destroy Bitcoin

You probably meant lend. And not necessarily unfounded. I mean that money multiplier should work just fine even in the case of bitcoins. Banks wouldn't lend bitcoins directly (though they can actually borrow them), they would evidently lend bitcoin notes and take them for extinguishing debt and voila!

You're right I wanted to say lend.

But I think it's questionable if people will accept such hardly founded "paper-bitcoins".
Maybe many people now become aware of "money multipling" and are dissapointed with the actual financal system and therefore don't want to uses banks anymore.

However I think for the next few years Bitcoin will become very popular in e-commerce (at least when ebay or amazon accept bitcoins all the others on the market will catch up) and less in physical stores (due to too long transaction confirmation time).

And it's very likely that the e-commerce provider will only accept real bitcoins transfered by a bitcoin-wallet.

[deisik]

so what you actually want to say it that banks will borrow unfounded bitcoins just like they actually doing with fiat currency.
Like in Europe banks only need to have 1% of the money they borrow.
And yes I think in a few years they'll do the same with bitcoin and even with less the 1% covering.
This would lead to inflation and therefore banks could destroy Bitcoin

You probably meant lend. And not necessarily unfounded. I mean that money multiplier should work just fine even in the case of bitcoins. Banks wouldn't lend bitcoins directly (though they can actually borrow them), they would evidently lend bitcoin notes and take them for extinguishing debt and voila!

You're right I wanted to say lend.

But I think it's questionable if people will accept such hardly founded "paper-bitcoins".
Maybe many people now become aware of "money multipling" and are dissapointed with the actual financal system and therefore don't want to uses banks anymore.

The aim of this thread is to show the way bitcoin has to pass that has already been treaded before. People in the 19th century already loaned (i.e. gave) their gold and silver coins to banks accepting paper "bank notes" in return, i.e. just receipts. Why should it be different now, especially if peeps wanted to borrow from banks? If banks are ready to take back their "paper" bitcoin derivatives as they would, I see no problem here...

In any case, greed is above reason

[deisik]

Also, these bank loans will be backed up to the last bitcoin even if quantitatively they exceed the number of bitcoins 10 times. Money multiplication is not about creating money out of thin air in the sense most people think

[Lloydie]

Also, these bank loans will be backed up to the last bitcoin even if quantitatively they exceed the number of bitcoins 10 times. Money multiplication is not about creating money out of thin air in the sense most people think

Ridiculous. These bank loans are backed by nothing and anyone can see that on the blockchain. You will not be able to deliver bitcoins that you don't have. Sure you can try and borrow them short term from someone but I think that will get expensive very quickly.

Money multiplication via fractional reserve banking is creating money out of thin air exactly as people think. Keynesians and neo classical economists just don't admit it. This is because people are bringing forward future expenditures by borrowing. They are in fact creating new money today. That inflates asset prices today, which devalues currency today.

[deisik]

Also, these bank loans will be backed up to the last bitcoin even if quantitatively they exceed the number of bitcoins 10 times. Money multiplication is not about creating money out of thin air in the sense most people think

Ridiculous. These bank loans are backed by nothing and anyone can see that on the blockchain. You will not be able to deliver bitcoins that you don't have. Sure you can try and borrow them short term from someone but I think that will get expensive very quickly.

Money multiplication via fractional reserve banking is creating money out of thin air exactly as people think. Keynesians and neo classical economists just don't admit it. This is because people are bringing forward future expenditures by borrowing. They are in fact creating new money today. That inflates asset prices today, which devalues currency today.

I specifically wrote this as a separate post since I knew in advance someone would definitely come out and say something along these lines, lol. So many people don't understand what money multiplication actually means in general, and why one bitcoin can back up any number of loans in particular...

[deisik]

People in the 19th century already loaned (i.e. gave) their gold and silver coins to banks accepting paper "bank notes" in return, i.e. just receipts. Why should it be different now, especially if peeps wanted to borrow from banks?

Bitcoin already has most of the advantages that paper has over gold, divisibility probably being the most important one. The only advantage it really doesn't have is the ability to do completely offline transactions.

If people want to lend to banks and borrow from banks, that's fine. But that doesn't need to involve paper money.

No, that doesn't need to involve paper money, but nothing either prevents banks from issuing some "paper" bitcoins (i.e. bitcoin redeemable notes). Banks right now issue many forms of private money redeemable for fiat, bills of exchange being just one such example (and someone obviously buys them)...

[deisik]

Greed is above reason?

Yes, that's why there are Ponzi schemes and all other kinds of fraudulence based on greed taking over reason...

[deisik]

No, that doesn't need to involve paper money, but nothing either prevents banks from issuing some "paper" bitcoins (i.e. bitcoin redeemable notes).

If they can find anyone dumb enough to let them do that.

I'd rather say, greedy enough. And they already do that (I mean fiat derivatives), so there is no question about (the possibility of) that really...

[deisik]

No, that doesn't need to involve paper money, but nothing either prevents banks from issuing some "paper" bitcoins (i.e. bitcoin redeemable notes).

If they can find anyone dumb enough to let them do that.

I'd rather say, greedy enough. And they already do that (I mean fiat derivatives), so there is no question about (the possibility of) that really...

I don't see what greed has to do with it. I'm as greedy as anyone (and more greedy than most), but if anything that's a reason not to lend my bitcoin to banks.

You can speak only for yourself. Indeed, if this were the case for all people, banks wouldn't exist in the first place, right? Do you really think that people lent gold backed dollars to banks (that would later go belly up) and now they wouldn't lend bitcoins?

[Lloydie]

Do you really think that people lent gold backed dollars to banks (that would later go belly up) and now they wouldn't lend bitcoins?

Yes. Because of deflation. We have a period of learning to finance things with equity. Equity financing is an economically more robust structure not subject to credit freezes.

[Lloydie]

As for the existence of banks, there are two primary reasons for that. One is that banks do serve some useful purposes. Facilitating the fractional-reserve paper money scam isn't one of those purposes, but other bank services are. The second reason is that the government has repeatedly intervened to maintain the existence of banks and in particular the centralized fractional-reserve banking system. But each intervention has been bigger and bigger, and eventually the crisis is going to be too big, and the whole thing is going to collapse. And Bitcoin, should the government not succeed in killing it, likely will serve to make this day come sooner.

The old is passing and the new is dawning. The old still stick to their old ways. The new use divisibility as their new liquidity tool.

[deisik]

You can speak only for yourself. Indeed, if this were the case for all people, banks wouldn't exist in the first place, right? Do you really think that people lent gold backed dollars to banks (that would later go belly up) and now they wouldn't lend bitcoins?

People will lend bitcoins. But I doubt many will do so in exchange for paper money. Like I said before, paper money in exchange for gold makes sense in many ways that paper money in exchange for bitcoin doesn't. Furthermore, we've learned a lot about the evils of fractional reserve banking since the 19th Century, and if Bitcoin ever becomes ubiquitous it's likely that we'll learn even more, as ubiquitous Bitcoin will probably coincide with yet another (and possibly the final) collapse of the fractional reserve banking system

People lend money in exchange for bank receipts. These receipts in case of bitcoins will become the simplest bitcoin derivatives which can be used as negotiable instruments (such as checks). Anyway, you will necessarily have to use some offline bitcoin derivatives, provided it ever takes off...

Banking system will persist as long as persist loans (and humans love loans)...

[deisik]

As for the existence of banks, there are two primary reasons for that. One is that banks do serve some useful purposes. Facilitating the fractional-reserve paper money scam isn't one of those purposes, but other bank services are. The second reason is that the government has repeatedly intervened to maintain the existence of banks and in particular the centralized fractional-reserve banking system. But each intervention has been bigger and bigger, and eventually the crisis is going to be too big, and the whole thing is going to collapse. And Bitcoin, should the government not succeed in killing it, likely will serve to make this day come sooner.

Why do you think money multiplication (which is the correct term for what you wanted to say here) is a scam? Do you also hold the view that banks can "create money out of thin air"? Besides that, first banks were just financial institutions without any centralized banking system existing along...

The primary purpose of banks is redistribution of money from those who don't need it right now to those who do (thus facilitating production, trade and so on)

[Lloydie]

You can speak only for yourself. Indeed, if this were the case for all people, banks wouldn't exist in the first place, right? Do you really think that people lent gold backed dollars to banks (that would later go belly up) and now they wouldn't lend bitcoins?

People will lend bitcoins. But I doubt many will do so in exchange for paper money. Like I said before, paper money in exchange for gold makes sense in many ways that paper money in exchange for bitcoin doesn't. Furthermore, we've learned a lot about the evils of fractional reserve banking since the 19th Century, and if Bitcoin ever becomes ubiquitous it's likely that we'll learn even more, as ubiquitous Bitcoin will probably coincide with yet another (and possibly the final) collapse of the fractional reserve banking system

People lend money in exchange for bank receipts. These receipts in case of bitcoins will become the simplest bitcoin derivatives which can be used as negotiable instruments (such as checks). Anyway, you will necessarily have to use some offline bitcoin derivatives, provided it ever takes off...

Banking system will persist as long as persist loans (and humans love loans)...

Governments and banks love loans. Other people not so much. Prior to the 80s loans were actually paid back with real savings. Minsky describes that the end phase of debt systems is towards disequilibrium because more debt is required just to pay off old debt and cover interest. Economists always forget Minsky.

I'm sure you are aware that the whole point of bitcoin is to replace centralised systems like banks. You can argue with this all you want but now there is real competition and choice.

[deisik]

People lend money in exchange for bank receipts. These receipts in case of bitcoins will become the simplest bitcoin derivatives which can be used as negotiable instruments (such as checks). Anyway, you will necessarily have to use some offline bitcoin derivatives, provided it ever takes off...

Banking system will persist as long as persist loans (and humans love loans)...

Governments and banks love loans. Other people not so much. Prior to the 80s loans were actually paid back with real savings. Minsky describes that the end phase of debt systems is towards disequilibrium because more debt is required just to pay off old debt and cover interest. Economists always forget Minsky.

I'm sure you are aware that the whole point of bitcoin is to replace centralised systems like banks. You can argue with this all you want but now there is real competition and choice.

Banks were not centralised initially, so centralization is not inherent to them. It means that they can coexist with bitcoin without a hitch...

Businesses love loans too. If banks make loans, someone necessarily borrows from them

[Lloydie]

As for the existence of banks, there are two primary reasons for that. One is that banks do serve some useful purposes. Facilitating the fractional-reserve paper money scam isn't one of those purposes, but other bank services are. The second reason is that the government has repeatedly intervened to maintain the existence of banks and in particular the centralized fractional-reserve banking system. But each intervention has been bigger and bigger, and eventually the crisis is going to be too big, and the whole thing is going to collapse. And Bitcoin, should the government not succeed in killing it, likely will serve to make this day come sooner.

The primary purpose of banks is redistribution of money from those who don't need them right now to those who do (thus facilitating production, trade and what not)

Why do you think money multiplication (which is the correct term for what you wanted to say here) is a scam? Do you also hold the view that banks can "create money out of thin air"? Besides that, first banks were just financial institutions without any centralized banking system existing along...

Money multiplication is a scam because any idiot can borrow cheap money and speculate on property and shares, which pushes up asset prices. This devalues our currency in real terms.

The rich then withdraw equity or generate capital gains to fund their lifestyles. They never have to spend their real wealth which they keep invested in assets. This widens the wealth gap as ordinary workers' earnings are less than capital gains of the rich, generated simply by holding assets. This is the exact definition of the rentier class that Keynes himself detested.

The fed reserve then helps the rich by printing money to suppress long term interest rates, which encourages yet more credit creation which devalues the dollar via asset price inflation. Meanwhile, workers are subjected to mild inflation whilst their wage growth is stagnant.

Could we design a more cruel economic system?

[Lloydie]

People lend money in exchange for bank receipts. These receipts in case of bitcoins will become the simplest bitcoin derivatives which can be used as negotiable instruments (such as checks). Anyway, you will necessarily have to use some offline bitcoin derivatives, provided it ever takes off...

Banking system will persist as long as persist loans (and humans love loans)...

Governments and banks love loans. Other people not so much. Prior to the 80s loans were actually paid back with real savings. Minsky describes that the end phase of debt systems is towards disequilibrium because more debt is required just to pay off old debt and cover interest. Economists always forget Minsky.

I'm sure you are aware that the whole point of bitcoin is to replace centralised systems like banks. You can argue with this all you want but now there is real competition and choice.

Banks were not centralised initially, so centralization is not inherent to them. It means that they can coexist with bitcoin without a hitch...

Businesses love loans too. If banks make loans, someone necessarily borrows from them

Bitcoin the PROTOCOL obviates the need of a third party in any transaction. Therefore, *poof* bank no longer required.

If banks made loans and someone necessarily borrows then why are there $4 trillion sitting in bank reserves? Why is velocity at decade lows? It is simply not true that someone necessarily borrows. There is a limit to debt based systems and I can see the end is coming soon.

[deisik]

As for the existence of banks, there are two primary reasons for that. One is that banks do serve some useful purposes. Facilitating the fractional-reserve paper money scam isn't one of those purposes, but other bank services are. The second reason is that the government has repeatedly intervened to maintain the existence of banks and in particular the centralized fractional-reserve banking system. But each intervention has been bigger and bigger, and eventually the crisis is going to be too big, and the whole thing is going to collapse. And Bitcoin, should the government not succeed in killing it, likely will serve to make this day come sooner.

The primary purpose of banks is redistribution of money from those who don't need them right now to those who do (thus facilitating production, trade and what not)

Why do you think money multiplication (which is the correct term for what you wanted to say here) is a scam? Do you also hold the view that banks can "create money out of thin air"? Besides that, first banks were just financial institutions without any centralized banking system existing along...

Money multiplication is a scam because any idiot can borrow cheap money and speculate on property and shares, which pushes up asset prices. This devalues our currency in real terms.

The rich then withdraw equity or generate capital gains to fund their lifestyles. They never have to spend their real wealth which they keep invested in assets. This widens the wealth gap as ordinary workers' earnings are less than capital gains of the rich, generated simply by holding assets. This is the exact definition of the rentier class that Keynes himself detested.

What does it have to do with that as such? Should we prohibit lending money at all?

[deisik]

Governments and banks love loans. Other people not so much. Prior to the 80s loans were actually paid back with real savings. Minsky describes that the end phase of debt systems is towards disequilibrium because more debt is required just to pay off old debt and cover interest. Economists always forget Minsky.

I'm sure you are aware that the whole point of bitcoin is to replace centralised systems like banks. You can argue with this all you want but now there is real competition and choice.

Banks were not centralised initially, so centralization is not inherent to them. It means that they can coexist with bitcoin without a hitch...

Businesses love loans too. If banks make loans, someone necessarily borrows from them

Bitcoin the PROTOCOL obviates the need of a third party in any transaction. Therefore, *poof* bank no longer required.

I have written above the primary purpose that banks serve in the economy. Unless you can substitute this with something else without the help of banks (or somehow eliminate the need for money redistribution), banks will exist....