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

[anth0ny]

And yes, many are under the impression that money is literally created out of nothing (there was an animation presented earlier here that shows just that)...

Really? It showed money being literally created out of nothing?

Was it created out of nothing, or was it created out of thin air? If we're going to be literal, there's quite a big difference. Thin air is, after all, something.

Was there some magician who pulled dollar bills out of his hat?

I don't quite remember the details of the animation but it showed that banks could unconditionally increase their assets by just writing numbers...

So literally, money was created out of a balance sheet entry. That's how it works. But it's only legal if you do it with the permission of the Federal Reserve.

Bank takes money from a depositor, and now it has a liability (depositor's claim) and an asset (his money)...

And when the bank gets its money from the discount window?

Then it's just a balance sheet entry.

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[deisik]

Central bank emitted money can be considered in this context as base money (as it is)...

So then it is money that is created through fractional reserve banking. Central bank emitted money is created when the Federal Reserve lends through the discount window, right?

It is called "money printing", lol

[anth0ny]

Central bank emitted money can be considered in this context as base money (as it is)...

So then it is money that is created through fractional reserve banking. Central bank emitted money is created when the Federal Reserve lends through the discount window, right?

It is called "money printing", lol

It's also called "creating money out of thin air".

[deisik]

Central bank emitted money can be considered in this context as base money (as it is)...

So then it is money that is created through fractional reserve banking. Central bank emitted money is created when the Federal Reserve lends through the discount window, right?

It is called "money printing", lol

It's also called "creating money out of thin air".

Following this logic, all fiat currencies can be said to be created "out of thin air"

[anth0ny]

Central bank emitted money can be considered in this context as base money (as it is)...

So then it is money that is created through fractional reserve banking. Central bank emitted money is created when the Federal Reserve lends through the discount window, right?

It is called "money printing", lol

It's also called "creating money out of thin air".

Following this logic, all fiat currencies can be said to be created "out of thin air"

Correct. And as I've said before, as far as the metaphor goes, Bitcoin can also be said to be created "out of thin air".

[deisik]

Central bank emitted money can be considered in this context as base money (as it is)...

So then it is money that is created through fractional reserve banking. Central bank emitted money is created when the Federal Reserve lends through the discount window, right?

It is called "money printing", lol

It's also called "creating money out of thin air".

Following this logic, all fiat currencies can be said to be created "out of thin air"

Correct. And as I've said before, as far as the metaphor goes, Bitcoin can also be said to be created "out of thin air".

So it is not much different from the former. Q.E.D.

[anth0ny]

Central bank emitted money can be considered in this context as base money (as it is)...

So then it is money that is created through fractional reserve banking. Central bank emitted money is created when the Federal Reserve lends through the discount window, right?

It is called "money printing", lol

It's also called "creating money out of thin air".

Following this logic, all fiat currencies can be said to be created "out of thin air"

Correct. And as I've said before, as far as the metaphor goes, Bitcoin can also be said to be created "out of thin air".

So it is not much different from the former. Q.E.D.

That's quite a leap from having one minor similarity to being "not much different".

There are many differences, including some major ones. Bitcoin, unlike the fiat currencies which came before it, is decentralized. That's probably the quintessential difference. Another very important difference is that the amount of bitcoin that can be created, "out of thin air" or otherwise, is limited (to something slightly less than 21 million BTC, if I recall correctly).

[deisik]

That's quite a leap from having one minor similarity to being "not much different".

There are many differences, including some major ones. Bitcoin, unlike the fiat currencies which came before it, is decentralized. That's probably the quintessential difference.

How's that relevant in the context of FRB (MM)? No lender of last resort that could print Bitcoins in the case such a need arises? I don't think it good. The system with a central bank works fine unless it decides to print more money than necessary to extinguish all outstanding claims (which banks can't pay due to cash deficiency)...

[anth0ny]

That's quite a leap from having one minor similarity to being "not much different".

There are many differences, including some major ones. Bitcoin, unlike the fiat currencies which came before it, is decentralized. That's probably the quintessential difference.

How's that relevant in the context of FRB (MM)? No lender of last resort that could print Bitcoins in the case such a need arises?

That's certainly one reason it's relevant. As I've said before, the lack of ability to print BTC at will is why fractional reserve banking of Bitcoin would quickly fail, if anyone was ever dumb enough to try it in the first place.

I don't think it good unless a central bank prints more money than necessary to extinguish all outstanding claims (which banks can't pay due to cash deficiency)...

I'm not sure what you mean by that.

[deisik]

That's quite a leap from having one minor similarity to being "not much different".

There are many differences, including some major ones. Bitcoin, unlike the fiat currencies which came before it, is decentralized. That's probably the quintessential difference.

How's that relevant in the context of FRB (MM)? No lender of last resort that could print Bitcoins in the case such a need arises?

That's certainly one reason it's relevant. As I've said before, the lack of ability to print BTC at will is why fractional reserve banking of Bitcoin would quickly fail, if anyone was ever dumb enough to try it in the first place.

I wouldn't call it Bitcoin advantage. Yes, the fiat system with a central bank can be misused badly, but it can effectively prevent bank-runs without sacrificing the value of the currency or overall economic stability...

[deisik]

I don't think it good unless a central bank prints more money than necessary to extinguish all outstanding claims (which banks can't pay due to cash deficiency)...

I'm not sure what you mean by that.

I reworded the phrase. Should have read before posting, lol...

[anth0ny]

That's quite a leap from having one minor similarity to being "not much different".

There are many differences, including some major ones. Bitcoin, unlike the fiat currencies which came before it, is decentralized. That's probably the quintessential difference.

How's that relevant in the context of FRB (MM)? No lender of last resort that could print Bitcoins in the case such a need arises?

That's certainly one reason it's relevant. As I've said before, the lack of ability to print BTC at will is why fractional reserve banking of Bitcoin would quickly fail, if anyone was ever dumb enough to try it in the first place.

I wouldn't call it Bitcoin advantage. Yes, the fiat system with a central bank can be misused badly, but it can effectively prevent bank-runs without sacrificing the value of the currency

Yeah, I don't think it can do that. "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."

[deisik]

That's quite a leap from having one minor similarity to being "not much different".

There are many differences, including some major ones. Bitcoin, unlike the fiat currencies which came before it, is decentralized. That's probably the quintessential difference.

How's that relevant in the context of FRB (MM)? No lender of last resort that could print Bitcoins in the case such a need arises?

That's certainly one reason it's relevant. As I've said before, the lack of ability to print BTC at will is why fractional reserve banking of Bitcoin would quickly fail, if anyone was ever dumb enough to try it in the first place.

I wouldn't call it Bitcoin advantage. Yes, the fiat system with a central bank can be misused badly, but it can effectively prevent bank-runs without sacrificing the value of the currency

Yeah, I don't think it can do that. "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."

Ok, I should have said possible negative effects from bank-runs (such as bank bankruptcies). This doesn't in the least exclude the necessity of liquidating some banks...

[anth0ny]

That's quite a leap from having one minor similarity to being "not much different".

There are many differences, including some major ones. Bitcoin, unlike the fiat currencies which came before it, is decentralized. That's probably the quintessential difference.

How's that relevant in the context of FRB (MM)? No lender of last resort that could print Bitcoins in the case such a need arises?

That's certainly one reason it's relevant. As I've said before, the lack of ability to print BTC at will is why fractional reserve banking of Bitcoin would quickly fail, if anyone was ever dumb enough to try it in the first place.

I wouldn't call it Bitcoin advantage. Yes, the fiat system with a central bank can be misused badly, but it can effectively prevent bank-runs without sacrificing the value of the currency

Yeah, I don't think it can do that. "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."

Ok, I should have said possible negative effects from bank-runs (such as bank bankruptcies). This doesn't in the least exclude the necessity of liquidating some banks...

I'm not sure what you're getting at. Bank runs are a consequence of fractional reserve banking. The proper way to eliminate bank runs is to move to 100% reserve banking. All the other solutions cause terrible negative side-effects, and don't even work in the long run.

[deisik]

Ok, I should have said possible negative effects from bank-runs (such as bank bankruptcies). This doesn't in the least exclude the necessity of liquidating some banks...

I'm not sure what you're getting at. Bank runs are a consequence of fractional reserve banking. The proper way to eliminate bank runs is to move to 100% reserve banking. All the other solutions cause terrible negative side-effects, and don't even work in the long run.

Absolutely not. FRB can indeed deepen and aggravate negative consequences of bank runs, but to say that bank runs are a consequence of fractional reserve banking is a bit far-fetched. Bank runs could happen even if we implemented 100% reserve banking, couldn't they?

[anth0ny]

Ok, I should have said possible negative effects from bank-runs (such as bank bankruptcies). This doesn't in the least exclude the necessity of liquidating some banks...

I'm not sure what you're getting at. Bank runs are a consequence of fractional reserve banking. The proper way to eliminate bank runs is to move to 100% reserve banking. All the other solutions cause terrible negative side-effects, and don't even work in the long run.

Absolutely not. FRB can indeed deepen and aggravate negative consequences of bank runs, but to say that bank runs are a consequence of fractional reserve banking is a bit far-fetched. Bank runs could happen even if we implemented 100% reserve banking, couldn't they?

What's a bank run in 100% reserve banking? There's no such thing. Bank runs are a consequence of fractional reserve banking. Saying that this is far-fetched doesn't convince me otherwise.

A bank run by definition occurs because depositors fear that the bank doesn't or won't have enough in reserves to redeem their deposits.

[deisik]

Ok, I should have said possible negative effects from bank-runs (such as bank bankruptcies). This doesn't in the least exclude the necessity of liquidating some banks...

I'm not sure what you're getting at. Bank runs are a consequence of fractional reserve banking. The proper way to eliminate bank runs is to move to 100% reserve banking. All the other solutions cause terrible negative side-effects, and don't even work in the long run.

Absolutely not. FRB can indeed deepen and aggravate negative consequences of bank runs, but to say that bank runs are a consequence of fractional reserve banking is a bit far-fetched. Bank runs could happen even if we implemented 100% reserve banking, couldn't they?

What's a bank run in 100% reserve banking? There's no such thing. Bank runs are a consequence of fractional reserve banking. Saying that this is far-fetched doesn't convince me otherwise.

A bank run by definition occurs because depositors fear that the bank doesn't or won't have enough in reserves to redeem their deposits.

You yourself said that 100% reserve banking in respect to reserves refers only to demand deposits, so in no case it can preserve a bank run when people request back all their deposits (term deposits as well as demand deposits), even if they may be fined. In my country a depositor can at any time request back his deposit (though loosing the accumulated interest in most cases)...

[anth0ny]

What's a bank run in 100% reserve banking? There's no such thing. Bank runs are a consequence of fractional reserve banking. Saying that this is far-fetched doesn't convince me otherwise.

A bank run by definition occurs because depositors fear that the bank doesn't or won't have enough in reserves to redeem their deposits.

You yourself said that 100% reserve banking in respect to reserves refers only to demand deposits, so in no case it can preserve a bank run when people request back all their deposits (term deposits as well as demand deposits), even they may be fined. In my country a depositor can at any time request back his deposit (loosing the accumulated interest in most cases)...

If your deposit is payable on demand, then it is by definition a demand deposit. At least, that's what I was under the impression of when I made my comment about demand deposits. Am I wrong about that?

If some countries have goofy laws which force banks to consider all deposits to be payable on demand, then that sounds like a bad law which ought to be eliminated if we want to have a sound banking system.

In any case, you haven't answered my question. What's a bank run in 100% reserve banking? There's no such thing.

[iMineCoins]

Regardless of whether or not BTC is eventually doomed to fall, there is nothing stopping us from riding this wave all the way until it's eventual crash into the shore.

[R3qUi3M]

Central bank emitted money can be considered in this context as base money (as it is)...

So then it is money that is created through fractional reserve banking. Central bank emitted money is created when the Federal Reserve lends through the discount window, right?

It is called "money printing", lol

It's also called "creating money out of thin air".

Following this logic, all fiat currencies can be said to be created "out of thin air"

Correct. And as I've said before, as far as the metaphor goes, Bitcoin can also be said to be created "out of thin air".

Wrong. Bit coin is not created out of thin air. Its created because you used a labor force to get a miner that has a value to you and everyone else, and used that miner along with electric power to produce BTC. Even if you are aiming to produce less worth BTC than you originaly estimate - dont worry. You just sell them more expensive to cover your mining costs. Thus you have increased the BTC price and it's available supply by the act of mining out of two reasons:
1. You made BTC more scarce to others because you have mined out some of the finite pool that will not be available anymore to mine and raised the difficulty of mining for all others (BTC value rises).
2. You used cosiderable amount of energy and resource (miner) to create BTC. The ammount of energy and valuable resources (miner) used at the moment of creation has value LESS than BTC price at the moment of creation BTC (BTC value rises and has to rise because labor was done).

Fiat currency is created in exactly oposite direction: First you create money and then you do the labor - slavery (this makes sense of course in the bigger relation picture like this: Banks (FED) -> Money user).
So by doing labor you are paying debt that FED (Banks) created for you. Here is how Fiat cureency works:
1. Print money and make them more available to others (value declines)
2. Energy used to produce money is less than the value of the new paper (value declines)

Keeping in mind that with BTC its the exact oposite. There is no debt to work for in the first place. Its just the fact who wants to have more BTC (or any other coin) that perpetuates its value. Of course there are many people that dont mine any coins and dont even cosider the fact that all world's fiat currencies are doomed to be destroyed by creation of cryptographic currencies. But its just a matter of time when they realize.