Fixed supply, really?

[un_ordinateur]

One of the main feature of Bitcoin is that the supply of 21 million BTC is know and cannot be changed. Indeed it is.

But imagine a world where bitcoin is mainstream. Banks will still exist! People will have extra money on hand, and will want to lend it in exchange of interest. Banks will be an intermediate to offer that service. I know a lot of Bitcoiners hate fractionnal reserve, but if it ever gets mainstream, not everybody will be against that. So even thoug the "real" bitcoin supply is fixed, the effective supply will grow.

Also, governments could, and will, hold significant bitcoin reserves they can release, of increase, depending of the market factors, to affect economy to their liking.

I seriously believe that the purported benifit of the 21million cap are overrated.

[Undone]

I think this most recent Goxxing is going to re-shape such practices within the bitcoin community. It is completely possible that the community will not do business with enterprises that practice fractional reserve policies.

That might seem like a stretch, but it is possible. Yes, banks will always exist who will try to use fractional reserve to glean profits from interest, regardless of the currency medium. But your own personal fears on the matter can be put to bed simply by not doing business with an enterprise that supports this.

[odolvlobo]

One of the main feature of Bitcoin is that the supply of 21 million BTC is know and cannot be changed. Indeed it is.

But imagine a world where bitcoin is mainstream. Banks will still exist! People will have extra money on hand, and will want to lend it in exchange of interest. Banks will be an intermediate to offer that service. I know a lot of Bitcoiners hate fractionnal reserve, but if it ever gets mainstream, not everybody will be against that. So even thoug the "real" bitcoin supply is fixed, the effective supply will grow.

Also, governments could, and will, hold significant bitcoin reserves they can release, of increase, depending of the market factors, to affect economy to their liking.

I seriously believe that the purported benifit of the 21million cap are overrated.

You are completely correct, but this is an old topic. Fractional reserve bitcoin banking is inevitable to some degree, and a bitcoin reserve bank functioning like the Federal Reserve could be created. Both existed in the U.S. when it was on a gold standard.

[alexeft]

One of the main feature of Bitcoin is that the supply of 21 million BTC is know and cannot be changed. Indeed it is.

But imagine a world where bitcoin is mainstream. Banks will still exist! People will have extra money on hand, and will want to lend it in exchange of interest. Banks will be an intermediate to offer that service. I know a lot of Bitcoiners hate fractionnal reserve, but if it ever gets mainstream, not everybody will be against that. So even thoug the "real" bitcoin supply is fixed, the effective supply will grow.

Also, governments could, and will, hold significant bitcoin reserves they can release, of increase, depending of the market factors, to affect economy to their liking.

I seriously believe that the purported benifit of the 21million cap are overrated.

You know, there are various altcoins out there that do not have a fixed supply. Why don't you go with them?

[un_ordinateur]

You know, there are various altcoins out there that do not have a fixed supply. Why don't you go with them?

My point was not "fixed supply is good or bad". My point was that even if Bitcoin is built with fixed supply hardcoded in, the -effective- supply will not by, with buisnesses operating in fractionnal reserve and governments building reserves.

[Lethn]

The winklevoss twins already have a Bitcoin ETF in the works so you aren't wrong, what I will say though is that precisely because Bitcoin has only 21 million coins that it will be much more difficult for people to commit fraud with any kind of fractional reserve system, think about it, coinmarketcap is telling me that there are currently 12,450,125 Bitcoins in circulation at the moment thanks to the blockchain. So if somebody opens up an ETF with more than that we'll know they're faking how much they have for sure, while they could still commit fraud they won't be able to do it on the same scale that they can with paper money.

I believe there have been people who have already tried to fake their trade volume for example in regards to cryptocurrencies, there was a Chinese based exchange I think that did something like that and people though the numbers looked so strange for something that had only just opened they didn't trust it, scarcity and divisibility has many practical uses beyond just trade, you also see people dividing up Bitcoins for testing purposes and so on, I've done it myself because that way you don't end up using a large chunk of money to do testing before you even have the website up and running.

There's also something to consider in regards to the usual tactics central banks try, if they for instance, decided to try and buy out Bitcoin to try and restrict the trade completely, not only I'm sure would community members stop them but also they would be forced to buy it at a higher and higher price because of it's fixed supply, meanwhile they'd have to print more and more dollars completely devaluing their own currency.

[Ix]

So if somebody opens up an ETF with more than that we'll know they're faking how much they have for sure, while they could still commit fraud they won't be able to do it on the same scale that they can with paper money.

FRB is an accepted practice in the world community, rage against it or not. If there is a profit opportunity to practice it, people can and will do it. Although bitcoin FRB will stand on a much slipperier slope because of its limited nature, that does not mean there aren't people smart enough to (for some time at least) get away with it. And it will probably cause the same economic problems that bitcoin is supposed to help avoid. In this instance, the problem is not the banking system itself but that bitcoin can't stop it.

[gotgoxxed]

You are completely correct, but this is an old topic. Fractional reserve bitcoin banking is inevitable to some degree, and a bitcoin reserve bank functioning like the Federal Reserve could be created.

It already has been created. And they called it Mt. Gox 

[sgk]

In a world where Bitcoin is mainstream and fixed supply is a hurdle, a new, ideal and far better currency will be invented and all Bitcoins can be traded/converted to the new and infinite currency.

[creepywheepy]

In a world where Bitcoin is mainstream and fixed supply is a hurdle, a new, ideal and far better currency will be invented and all Bitcoins can be traded/converted to the new and infinite currency.

MtGox was a vestige of which we need to get rid of to make Bitcoin helthier.

[sgk]

In a world where Bitcoin is mainstream and fixed supply is a hurdle, a new, ideal and far better currency will be invented and all Bitcoins can be traded/converted to the new and infinite currency.

MtGox was a vestige of which we need to get rid of to make Bitcoin helthier.

I don't see how MtGox has anything to do with fixed Bitcoin supply.

[DanielVG]

In a world where Bitcoin is mainstream and fixed supply is a hurdle, a new, ideal and far better currency will be invented and all Bitcoins can be traded/converted to the new and infinite currency.

goxbux?

[ning]

Please note that even if the supply of Bitcoin is capped, there will always be enough Bitcoins to be used. This is because digital currencies, very unlike gold or silver, are infinitely* divisible. Carrying or sending or storing 0.00000001 BTC is not much harder than doing the same with 100 BTC. Precious metals, even fiat currencies, don't have this property. Imaging chopping up a penny coin evenly into one thousand pieces. This can be very time-consuming, if possible.

Once having enough coins is guaranteed, the market will just adjust itself accordingly. (Well, this can lead to open discussions...)

Footnote:
* Infinite divisibility can be achieved either by extending the Bitcoin protocol (the current protocol supports 8-decimal-digit divisibility) or by the supports of 3rd-party payment processors that use Bitcoin as reserves.

[polarhei]

One of the main feature of Bitcoin is that the supply of 21 million BTC is know and cannot be changed. Indeed it is.

But imagine a world where bitcoin is mainstream. Banks will still exist! People will have extra money on hand, and will want to lend it in exchange of interest. Banks will be an intermediate to offer that service. I know a lot of Bitcoiners hate fractionnal reserve, but if it ever gets mainstream, not everybody will be against that. So even thoug the "real" bitcoin supply is fixed, the effective supply will grow.

Also, governments could, and will, hold significant bitcoin reserves they can release, of increase, depending of the market factors, to affect economy to their liking.

I seriously believe that the purported benifit of the 21million cap are overrated.

In computational analysis, If bitcoin was treated as inodes (Filesystem), in the first layer, there are only 21M available.

However the first layer may be filled with reference "addresses" so the supply is not main problem as it can be fractional.

[ZephramC]

FRB is possible with bitcoin. But it would be much more difficult to get away with miscalculations and frauds.
Bitcoin bank can accept bitcoins and maintain "virtual bitcoins" balances for their customers. It can pay interest on bitcoins and lend bitcoins with (higher) interest. It can administer more "virtual bitcoins" than "real BTC" in its balance. And it can work well.
But it would be very easy to ask the bank about hard "real BTC" balance and quite easy for the bank to prove it owns this "backing". In light of this ease of proving real balance it would be much more difficult for bank to lie plausibly about its backing. (Bank can still issue false statements about its balance, but the extra careful customers will not be fooled.)
If the bank defaults there will be nothing like "too big to fail" no one will be able to (forcefully) bail out the bank and its customers.

Someone can consider situation: "Customer trusts untrustworthy bank, do not verify the information, is irresponsible and therefore looses all his money." a problem. Someone else can consider situation: "Customer trusts untrustworthy bank, do not verify the information, is irresponsible and he is NOT punished by loosing his money." a problem.

FRB will offer more possibilities and more profit with more risk and more need for trusting some institution (or persons, or safeguards). It will not affect the ones who will not want to participate. Virtual bitcoins will be clearly distinguishable from the real ones. It is up to everyone to decide his position.

[alexeft]

FRB is possible with bitcoin. But it would be much more difficult to get away with miscalculations and frauds.
Bitcoin bank can accept bitcoins and maintain "virtual bitcoins" balances for their customers. It can pay interest on bitcoins and lend bitcoins with (higher) interest. It can administer more "virtual bitcoins" than "real BTC" in its balance. And it can work well.
But it would be very easy to ask the bank about hard "real BTC" balance and quite easy for the bank to prove it owns this "backing". In light of this ease of proving real balance it would be much more difficult for bank to lie plausibly about its backing. (Bank can still issue false statements about its balance, but the extra careful customers will not be fooled.)
If the bank defaults there will be nothing like "too big to fail" no one will be able to (forcefully) bail out the bank and its customers.

Someone can consider situation: "Customer trusts untrustworthy bank, do not verify the information, is irresponsible and therefore looses all his money." a problem. Someone else can consider situation: "Customer trusts untrustworthy bank, do not verify the information, is irresponsible and he is NOT punished by loosing his money." a problem.

FRB will offer more possibilities and more profit with more risk and more need for trusting some institution (or persons, or safeguards). It will not affect the ones who will not want to participate. Virtual bitcoins will be clearly distinguishable from the real ones. It is up to everyone to decide his position.

A "bank" would only be able to sell "virtual bitcoins" to unknowing people and then, only up to a point, just until they go bankrupt.
Why would I want a bank if the blockchain is so secure and why would I accept "virtual bitcoins"?

[CurbsideProphet]

You know, there are various altcoins out there that do not have a fixed supply. Why don't you go with them?

My point was not "fixed supply is good or bad". My point was that even if Bitcoin is built with fixed supply hardcoded in, the -effective- supply will not by, with buisnesses operating in fractionnal reserve and governments building reserves.

It would still be fixed because it would be similar to the gold standard in which everything is tied to something.  You needed to have some amount of gold to print notes, you would need some amount of Bitcoin to do the same.  This is different from now where most fiat in the world can just be printed with nothing but faith backing it up.

[un_ordinateur]

A "bank" would only be able to sell "virtual bitcoins" to unknowing people and then, only up to a point, just until they go bankrupt.
Why would I want a bank if the blockchain is so secure and why would I accept "virtual bitcoins"?

Because you may have more moneny on hand than you need in the next few years, so you'd like to earn interest from it.

Other people want to start a buisness, buy a house, a car, and need to be lent money.

Bitcoin WILL replace traditional bank when it comes to payment processing and checking accouts. But it does not provide an investment service, earn interests, of offer loans. Banks will coexist with bitcoin to offer those services.

And I do not consider those service fraudulents, if they are managed well/properly regulated. Such bitcoin banks can -prove- they have at least that much cash on hand, and thus can prove their compliance with laws requiring that their deposit must be over their loans by at leat 10% for example.

[odolvlobo]

A "bank" would only be able to sell "virtual bitcoins" to unknowing people and then, only up to a point, just until they go bankrupt.
Why would I want a bank if the blockchain is so secure and why would I accept "virtual bitcoins"?

You might deposit your bitcoins into a bank if the bank pays interest on them.

As for the "virtual bitcoins", here's how it (and FRB) works:

You deposit 100 BTC into the bank and you can withdraw at any time. The bank loans out 90 of your 100 BTC.

So, you effectively have 100 BTC (90 of which are "virtual") because there is enough for you to withdraw at any time, assuming that others have also deposited bitcoins.

The borrower has 90 BTC.

Your 100 BTC has become 190 BTC. If the borrower deposits the 90 BTC and the bank loans out 81 BTC, then it becomes 271 BTC. If that happens over and over again, then it eventually becomes 1000 BTC.

The house of cards falls down when people want to withdraw money from the bank faster than the loans are repaid, or enough borrowers default on their loans.

[Thylacine]

... and on the other side of the coin, you can always owe your friend half a satoshi if you like.