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

[Xav]

Actually you are asking me to explain "their books", which is a giant set of "derivatives" and other crazy financial inventions. In short, it comes to this; "their books" describe the value of their assets. The crux is that banks pretend to (already) own that money and use this to lend money. Bitcoin does not allow any pretense; i.e. a Bitcoin account represents 'real' (haha) digi-coins.

Here is another animation about "derivatives" (sorry, again in Dutch):
http://www.trosradar.nl/standalone-player/aflevering/16-12-2013/derivaten/#sites/radarextra/animaties/

I didn't understand your idea, but if you lend somebody bitcoins, you get a claim on them which would be an asset that you can either sell for actual bitcoins (with discount for a long term loan in case you need money) or just use instead of them. Thus you have effectively multiplied bitcoins without double spending them. I don't really see how Bitcoin is different in this aspect from gold, fiat of whatever...

You don't get my "idea"? Well, maybe I talk nonsense to you, but I do understand the essential difference between a number representing an amount of money and a Bitcoint account, which actually IS the money.

If I don't understand something, it doesn't in the least mean that it is nonsense or I think it is. Be sure of that, but nevertheless address my point from my previous post (about effectively multiplying bitcoins through lending). I'm primarily concerned with that part about double spending..

The multiplication of cars. Let's say I own 1 of exactly 21 million cars that were made. Now, I lend you my car and in return you sign a certificate that you will return it within 1 year. I don't understand why you might think that this results into 21 million plus one cars now.

[deisik]

You don't get my "idea"? Well, maybe I talk nonsense to you, but I do understand the essential difference between a number representing an amount of money and a Bitcoint account, which actually IS the money.

If I don't understand something, it doesn't in the least mean that it is nonsense or I think it is. Be sure of that, but nevertheless address my point from my previous post (about effectively multiplying bitcoins through lending). I'm primarily concerned with that part about double spending..

The multiplication of cars. Let's say I own 1 of exactly 21 million cars that were made. Now, I lend you my car and in return you sign a certificate that you will return it within 1 year. I don't understand why you might think that this results into 21 million plus one cars now.

Actually, I don't think so. But this holds true for fiat too. Every banknote has a number printed on it and banks don't emit electronic money like Central Bank does, right? So let those guys here who insist on "money creation" by banks try to explain this phenomenon regarding fiat vs. cars first (and then we proceed to cars and bitcoins), i.e. what makes your analogy wrong...

If you want my opinion on that, well, my point is that your analogy is not quite correct in respect to usage. Indeed, you can't drive a certificate, lol, but if we pretend that Bitcoin is money, it should be used as money and claims on this fit perfectly here. It means if cars could be used to buy things, then car certificates would effectively multiply the number of cars in "circulation" (they could even lead to car "depreciation" and so on)...

[deisik]

Also, as cars' utility consists primarily in driving you from point A to point B (or vice versa), loaning it for, say, a teleport would as well effectively increase their number. So it all depends on usage and whether something you get for your loan can be used instead of and on par with what the latter is used for...

[Xav]

You don't get my "idea"? Well, maybe I talk nonsense to you, but I do understand the essential difference between a number representing an amount of money and a Bitcoint account, which actually IS the money.

If I don't understand something, it doesn't in the least mean that it is nonsense or I think it is. Be sure of that, but nevertheless address my point from my previous post (about effectively multiplying bitcoins through lending). I'm primarily concerned with that part about double spending..

The multiplication of cars. Let's say I own 1 of exactly 21 million cars that were made. Now, I lend you my car and in return you sign a certificate that you will return it within 1 year. I don't understand why you might think that this results into 21 million plus one cars now.

Actually, I don't think so. But this holds true for fiat too. Every banknote has a number printed on it and banks don't emit electronic money like Central Bank does, right? So let those guys here who insist on "money creation" by banks try to explain this phenomenon regarding fiat first (and then we proceed to cars and bitcoins)...

If you want my opinion on that, well, my point is that your analogy is not quite correct in respect to usage. Indeed, you can't drive a certificate, lol, but if we pretend that Bitcoin is money, it should be used as money and claims on this fit perfectly here...

Grip on life slips through our fingers when 'we' no longer can distinguish between real and unreal, between a representational (sometime false) notation of money accounts and a true amount of money - Bitcoin will clear this vagueness.

[deisik]

You don't get my "idea"? Well, maybe I talk nonsense to you, but I do understand the essential difference between a number representing an amount of money and a Bitcoint account, which actually IS the money.

If I don't understand something, it doesn't in the least mean that it is nonsense or I think it is. Be sure of that, but nevertheless address my point from my previous post (about effectively multiplying bitcoins through lending). I'm primarily concerned with that part about double spending..

The multiplication of cars. Let's say I own 1 of exactly 21 million cars that were made. Now, I lend you my car and in return you sign a certificate that you will return it within 1 year. I don't understand why you might think that this results into 21 million plus one cars now.

Actually, I don't think so. But this holds true for fiat too. Every banknote has a number printed on it and banks don't emit electronic money like Central Bank does, right? So let those guys here who insist on "money creation" by banks try to explain this phenomenon regarding fiat first (and then we proceed to cars and bitcoins)...

If you want my opinion on that, well, my point is that your analogy is not quite correct in respect to usage. Indeed, you can't drive a certificate, lol, but if we pretend that Bitcoin is money, it should be used as money and claims on this fit perfectly here...

Grip on life slips through our fingers when 'we' no longer can distinguish between real and unreal, between a representational (sometime false) notation of money accounts and a true amount of money - Bitcoin will clear this vagueness.

I still don't see how Bitcoin multiplication is impossible and how it is connected (if ever) to double-spending. If Bitcoin is money and serves that end before all, then claims on it can also work as money just like claims on fiat do. If you think otherwise, I'm looking forward to your counterarguments...

[Mk2vr6]

Just hit under $800 on Coinmarketcap.

[deisik]

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....

By "bank" do you mean "financial institution"? Because not all lending institutions are banks.

No. To play their role in the economy and accumulate significant means banks have to attract money into term deposits, which no other financial institution is allowed to do. In any case, the possibility of accumulation of money is what important here (names don't matter)...

Any institution can borrow money for a specified term. If names don't matter, then by "banks will exist" you mean...some unspecified thing will exist?

Okay, let's call it the thing that accumulates money through borrowing and redistributes it through lending. You can easily specify the thing by its functions (just like money is specified through its own), so in no case I would call it something unspecified...

[deisik]

I don't think you can equate (Bitcoin) multiplication with double spending. As said before, under the process of money multiplication you don't create actual money (so there is no double spending), you create money derivatives (claims of different kinds) which just work and counted as money (and can be exchanged for "real" money). I see no reasons why Bitcoin should be any different in this aspect. If you do, bring them forward...

The problem, it seems, is that people are counting non-real money as money.

If "non-real" money as you termed it functions or can function to a significant degree as "real" money (i.e. can be used as a means of exchange or whatever), I see no reason we should distinguish it but only for a specific purpose...

[deisik]

I don't think you can equate (Bitcoin) multiplication with double spending. As said before, under the process of money multiplication you don't create actual money (so there is no double spending), you create money derivatives (claims of different kinds) which just work and counted as money (and can be exchanged for "real" money). I see no reasons why Bitcoin should be any different in this aspect. If you do, bring them forward...

The problem, it seems, is that people are counting non-real money as money.

If "non-real" money as you termed it functions or can function to a significant degree as "real" money (i.e. can be used as a means of exchange or whatever), I see no reason we should distinguish it but only for a specific purpose...

You were the one using terms like "actual money" and "'real' money". I'd personally use terms like M0 money and M1 money.

Fractional reserve banks certainly create M1 money, and M1 money can certainly "be used as a means of exchange or whatever".

Yeah, maybe. Though in this case I would rather stick with the term money derivative(s) (being a substitute for or an addition to a government emitted money), which I used as well. The idea was to make a clear distinction between them to show that bitcoin is not much different in this aspect...

[deisik]

Okay, let's call it the thing that accumulates money through borrowing and redistributes it through lending.

Those will always exist. But they won't always use fractional reserve banking.

Fractional reserve banking refers only to a banking system where a fraction of deposits is being reserved for insurance purposes (In Canada there is no reserve requirement if I'm not mistaken, so it is obviously not omnipresent). You probably meant to say 'money multiplier' (which it is, even in Muslim world to a degree). Some proponents of bitcoin say quite the opposite here though, that no borrowing/lending as a means to finance the growing economy will exist if bitcoin becomes universally accepted as money (at least in significant amount as is the case now with fiat)...

[deisik]

Fractional reserve banking refers only to a banking system where a fraction of deposits is being reserved for insurance purposes (In Canada there is no reserve requirement if I'm not mistaken, so it is obviously not omnipresent). You probably meant to say 'money multiplier' (which it is, even in Muslim world to a degree).

I meant to say "fractional reserve banking". The government of Canada may not mandate a particular reserve requirement, but banks in Canada still keep a fraction of their deposits in reserves.

Then your whole argument makes no sense, since "fractional reserve banking" is the lesser of the two evils (which is actually good for depositors), and it surely doesn't change anything substantial with regard to the question discussed here (bitcoin banking). Fractional reserve banking certainly DOES NOT create M1 money, it is MONEY MULTIPLIER that does the thing (which would work even better if there were no reserve requirements). Also, you came here asking questions, so you are expected to behave appropriately and reply with all due respect...

I think the latter is beyond discussion

[deisik]

Fractional reserve banking refers only to a banking system where a fraction of deposits is being reserved for insurance purposes (In Canada there is no reserve requirement if I'm not mistaken, so it is obviously not omnipresent). You probably meant to say 'money multiplier' (which it is, even in Muslim world to a degree).

I meant to say "fractional reserve banking". The government of Canada may not mandate a particular reserve requirement, but banks in Canada still keep a fraction of their deposits in reserves.

Then your whole argument makes no sense, since "fractional reserve banking" is the lesser of the two evils (if at all), and it surely doesn't change anything substantial with regard to the question discussed here (bitcoin banking).

What are the two evils we're talking about here?

Full reserve banking is not an evil.

With full reserve banking there is no banking. Banks on full reserve system can't make loans (lend money) and turn into money warehouses...

[deisik]

Fractional reserve banking certainly DOES NOT create M1 money, it is MONEY MULTIPLIER that does the thing (which would work even better it there were no reserver requirements).

As I understand it, a money multiplier is a number. Maybe you have a different understanding of what that term means?

It is a number reflecting an underlying process of money multiplication which becomes possible by making loans (i.e. lending money), a process opposite to making reserves. How reserves can help it is simply beyond my understanding...

[deisik]

What are the two evils we're talking about here?

Full reserve banking is not an evil.

With full reserve banking there is no banking. Banks on full reserve system can't make loans (lend money) and turn into money warehouses...

Sure they can. They just can't make loans from DEMAND DEPOSITS.

This is just one understanding of what "full reserve banking" is (to make things simple I took an extreme case). In any case, this is irrelevant since money multiplication (which is relevant here) is not about reserves and your assumption is flat out wrong...

[deisik]

This is just one understanding of what "full reserve banking" is (to make things simple I took an extreme case). In any case, this is irrelevant since money multiplication (which is relevant here) is not about reserves and your assumption is flat out wrong...

How does money multiplication work if you have full reserve banking? Under full reserve banking, M0=M1, and the money multiplier is 1. I guess you can have a money multiplier (higher than 1) for M2 if you don't require full reserves for time deposits, but M2 isn't really what I think of when I think of "money".

In this case money multiplication won't work. It won't work if people don't lend their money to banks, and there are a lot of other reasons because of which it may not work. But you said precisely about fractional reserve banking which just happens to exclude banking without reserves at all. In the latter case the money multiplication would work even better. So you won't get away with it just by sticking to "full reserve banking" as you are evidently trying now...

[deisik]

This is just one understanding of what "full reserve banking" is (to make things simple I took an extreme case). In any case, this is irrelevant since money multiplication (which is relevant here) is not about reserves and your assumption is flat out wrong...

How does money multiplication work if you have full reserve banking? Under full reserve banking, M0=M1, and the money multiplier is 1. I guess you can have a money multiplier (higher than 1) for M2 if you don't require full reserves for time deposits, but M2 isn't really what I think of when I think of "money".

In this case money multiplication won't work. It won't work if people don't lend their money to banks, and there are a lot of other reasons because of which it may not work. But you said precisely about fractional reserve banking which just happens to exclude banking without reserves at all.

As I already pointed out, there's no such thing as "banking without reserves at all". There may not be a government mandated reserve requirement in some jurisdictions, but all banks keep reserves.

It doesn't matter if banks actually keep reserves or not. For money multiplication to work banks don't need reserves in the first place, so your whole argument about fractional reserve banking as a necessary requirement for money multiplication is null and void. Why should I repeat that?

[deisik]

In this case money multiplication won't work. It won't work if people don't lend their money to banks, and there are a lot of other reasons because of which it may not work. But you said precisely about fractional reserve banking which just happens to exclude banking without reserves at all.

As I already pointed out, there's no such thing as "banking without reserves at all". There may not be a government mandated reserve requirement in some jurisdictions, but all banks keep reserves.

It doesn't matter if banks actually keep reserves or not. For money multiplication to work banks don't need reserves in the first place, so your whole argument about fractional reserve banking as a necessary requirement for money multiplication is null and void. Why should I repeat that?

You shouldn't repeat it. You should abandon it, because it's absurd. When you multiply zero by anything, you get zero.

You don't multiply reserves, you multiply money given out as loans. Money which you put into reserves, you can't loan. The more you have to reserve, the less you can loan and vice versa. It is not reserves that make money multiplication possible. Never thought it could be that hard to grasp, though it seems that you are just trying to defend your position at any price...

[deisik]

You don't multiply reserves, you multiply money given out as loans.

Where do you get that idea from?

Okay, what is your understanding of money multiplication? And how reserves which banks can't loan are positively relevant here (i.e. contributing to it)?

[deisik]

You don't multiply reserves, you multiply money given out as loans.

Where do you get that idea from?

Okay, what is your understanding of money multiplication?

https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/banking-and-money/v/banking-4--multiplier-effect-and-the-money-supply

As you may have noticed I asked about your understanding

I'd love to hear your explanation in your own words (core principle, 2-3 sentences). I've seen it so many times when people provided links and couldn't explain coherently what was written there. In fact, I expected that you wouldn't try to explain it yourself, lol...

[deisik]

And how reserves which banks can't loan are positively relevant here (i.e. contributing to it)?

That question doesn't make sense.

Are you suggesting that it's possible to run a bank, and accept demand deposits, without keeping any reserves?

This is irrelevant to the question asked. Once again, how do reserves contribute to money multiplication? And yes, there is no miracle in running a bank without keeping any reserves at all (and at the same time accepting demand deposits), provided the bank has access to cheap interbank loans. This is rather a technical question, and I have to repeat it is not relevant in the context...