Fixed supply, really?

[teukon]

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.

Lending to receive interest is perfectly sound, but let's not cast aside alexeft's attempt to distinguish bitcoins from "virtual bitcoins" by lumping it all under "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.

I'm 100% with you here (assuming "regulated" allows for market regulation).  Savings and investment are a wonderful thing.  Hopefully, people that are skilled in finding good investments will begin to offer their services to people that are prepared to take on some risk for interest.  Hopefully real banks will eventually emerge for the Bitcoin economy.

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.

Aaaand, you've gone off the rails again.  You made a great case for deposit banking and loan banking.  What on earth does this have to do with fractional reserve banking?

[BitOnyx]

There will always be some kind of limits when it comes to supply of anything. Modern monetary policies lead us into probably limitless supply of money only in exchange of it constant fall of value. In general there wont be any real benefit between stable prices and inflation, in long run relation between prices and salaries shall stay the same, in short run it is different issue. Short run changes of price might create stress and confusion or even panic for consumers. Sudden growth of prices while salaries still stayed the same is not something that any one enjoy. Of course we are all aware that after some time it all would go back to balance.
Banks are well known for manipulation when it comes to monetary system. They are probably biggest reason for inflation over all. Every time when we keep some money in bank, and use same money to buy anything, bank still hold this money and do whatever it wants with it. Until elixir and actual movement of money between banks, we are all working only on virtual numbers that doesn't need to represent any actual value behind it. Bank from single 100 dollar bill can make 200 $, 300 $, 400$. Doubling its value with every transaction. Cheque and other kind of financial papers creates even bigger manipulation.

[gannicus]

There may be fractional reserve money and there is no reason to worry. The difference, when it exists, between real money and fractional reserve money will be clear, because either you have bitcoins in an andress that only you have access or you don't. Bitcoin notes or digits in some bitcoin bank account will not be bitcoin and everyone with basic knowledge will be able do deduce this. The problem today is exactly the fact that this distinction between "real money" and "fractional reserve generated money" is not clear because there is no such thing as a the bitcoin protocol, adresses, private keys, etc for fiat money and because there are central banks to act as lender of last resort, which does not exist in bitcoin.

[Undone]

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"?

This.

I'm not sure why there are so many references to fears about fractional reserve practices relative to bitcoin. If you know better, then don't do business with someone who is practicing this.

It's so antithetical to the very purpose that the blockchain serves that it's just stupid. No enterprise or third party is ever going to hold my private keys. I'm the only one who has access to them now, and I'm the only one that ever will.

This seems to be made out much more complicated than it needs to be.

[un_ordinateur]

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.

Aaaand, you've gone off the rails again.  You made a great case for deposit banking and loan banking.  What on earth does this have to do with fractional reserve banking?

Maybe I fail to understand something (I'm not an economist, I'm a physicist), but what I understood from my introduction to economics class in high school was that deposit/loan banking = fractionnal reserve banking.

If I go to a bank to deposit my money, and then the bank lends that money to somebody else, then two people have some "claim" to that money. Of course, the lended does not "own" the money; he'll have to reimburse later, but he has it on hand, and may use it do do economic activity. On my side, by having lent money to the bank, I may legitimately claim I own that much money, especially if there's is a guarantee on my deposit, which I believe is the case in all western country for checking/saving accounts.

Of course, my money in that bank is not real cold hard cash (they don't have it, they lent it), but because it is guaranteed by governement, it has almost the same value. (To most people at least) The bank IOU for one dollar has the same value that a one dollar coin. I can transfer that IOU to somebody else (exactly what happens when I write a cheque, or use my debit card), in exchange for a good or a service. These are the same "virtual BTC" others have talked about.

Thus, for a given "amount" of $ deposited in the bank, twice as much economic activity has happened. Which is exactly what happens in a fractionnal banking reserve.

I guess the only way to prevent that would be that when people deposit a certain amount in a bank, it should always be locked for a number of years/equivalent to the duration the bank will lend it, so that it can never finds itself in a situation of a bank run, where people withdraw their money faster that loans are repayed. (But I'm not quite sure how this would work with bad loans). But I'm quite sure that even in a world ran by BTC, people would still like to have their money available at all time, even if this implies slightly higher risk/lower intersts, especially if the deposits are guaranteed by the government.

[Undone]

But I'm quite sure that even in a world ran by BTC, people would still like to have their money available at all time, even if this implies slightly higher risk/lower intersts, especially if the deposits are guaranteed by the government.

This is starting to feel like a slow-troll.

Higher risks always match to higher rewards, not lower rewards. And if you want to deal with an enterprise that practices fractional reserve with bitcoin, it means that they have control over your private keys, not you.

Just as in the case of fractional reserve banking, you therefore don't really own any actual bitcoin. You only have an IOU from the bank.

This is antithetical to the bitcoin model. You understand this, right?

[un_ordinateur]

But I'm quite sure that even in a world ran by BTC, people would still like to have their money available at all time, even if this implies slightly higher risk/lower intersts, especially if the deposits are guaranteed by the government.

Higher risks always match to higher rewards, not lower rewards. And if you want to deal with an enterprise that practices fractional reserve with bitcoin, it means that they have control over your private keys, not you.

This is antithetical to the bitcoin model. You understand this, right?

Sorry about the interest thing. I've mixed things up. Yeah of course higher risk=higher reward. I was thinking about GICs: They offer an higher reward than checking accounts in exchange of the inconvenience of having your funds unavailable for a few years.

This is antithetical to the bitcoin model. You understand this, right?

Yes... And no. Of course, SOME bitcoin idealists/early adopter, that see banks and fractionnal banking as being necessarely a bad thing see in Bitcoin a way to evade that. It is, and those people may freely chose to never entrust their btc in a buisness operating in fractionnal reserves.

But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Early adopters dislike fractionnal banking, but most people dont. If bitcoin ever gets mainstream, nothing will prevent people from operating a buisness operating in fractionnal reserve, and probably that a lot people will do buisness with them. Not the early adopters, but they don't care as long as some people do buisness with them.

[CurbsideProphet]

But I'm quite sure that even in a world ran by BTC, people would still like to have their money available at all time, even if this implies slightly higher risk/lower intersts, especially if the deposits are guaranteed by the government.

Higher risks always match to higher rewards, not lower rewards. And if you want to deal with an enterprise that practices fractional reserve with bitcoin, it means that they have control over your private keys, not you.

This is antithetical to the bitcoin model. You understand this, right?

Sorry about the interest thing. I've mixed things up. Yeah of course higher risk=higher reward. I was thinking about GICs: They offer an higher reward than checking accounts in exchange of the inconvenience of having your funds unavailable for a few years.

This is antithetical to the bitcoin model. You understand this, right?

Yes... And no. Of course, SOME bitcoin idealists/early adopter, that see banks and fractionnal banking as being necessarely a bad thing see in Bitcoin a way to evade that. It is, and those people may freely chose to never entrust their btc in a buisness operating in fractionnal reserves.

But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Early adopters dislike fractionnal banking, but most people dont. If bitcoin ever gets mainstream, nothing will prevent people from operating a buisness operating in fractionnal reserve, and probably that a lot people will do buisness with them. Not the early adopters, but they don't care as long as some people do buisness with them.

You're correct that it's more about freedom, hence the reason everything is decentralized and open market.  If the market wants a fractional reserve system, then one will rise.  Hopefully what happens is people learn from the mistakes of the current fractional reserve debacle.  For instance, maybe it's not smart to have only 10% in reserves.  Maybe something closer to 50% is safer.  Just because a system is misused doesn't necessarily mean it's broken, I think this is essentially what you're trying to say?

[Undone]

I'm sure the point is becoming belabored at this point, but the point that needs to be made again is that if you don't have sole possession of your private keys, you do not own any bitcoin.

un_ordinateur, your point is valid that the "majority" may want to engage in fractional reserve practices. But hopefully we can all educate the masses to understand that this is antithetical to the trust-less model that the bitcoin protocol itself provides.

Sure, that means I'll never earn 'bitcoin interest' from a 2nd party. But I will also never be goxxed, either.

[teukon]

Maybe I fail to understand something (I'm not an economist, I'm a physicist), but what I understood from my introduction to economics class in high school was that deposit/loan banking = fractionnal reserve banking.

Kind of.

Deposit banking is to "hiding your money under the bed" as loan banking is to "lend money to someone that promises to pay back more".  These are both ways of storing your wealth with different upsides.  With deposit banking, you have instant access to your money and no investment risk; with loan banking you get interest.  These are both sound forms of banking.

Fractional reserve banking is an attempt to get the best of both worlds.  A bank that practices fractional reserve banking does not balance the maturities of its assets with its liabilities.  Consequently, it's vulnerable to a "bank run" (where it is called upon to fulfil promises its made but can't keep).

If I go to a bank to deposit my money, and then the bank lends that money to somebody else, then two people have some "claim" to that money. Of course, the lended does not "own" the money; he'll have to reimburse later, but he has it on hand, and may use it do do economic activity. On my side, by having lent money to the bank, I may legitimately claim I own that much money, especially if there's is a guarantee on my deposit, which I believe is the case in all western country for checking/saving accounts.

Of course, my money in that bank is not real cold hard cash (they don't have it, they lent it), but because it is guaranteed by governement, it has almost the same value. (To most people at least) The bank IOU for one dollar has the same value that a one dollar coin. I can transfer that IOU to somebody else (exactly what happens when I write a cheque, or use my debit card), in exchange for a good or a service. These are the same "virtual BTC" others have talked about.

Thus, for a given "amount" of $ deposited in the bank, twice as much economic activity has happened. Which is exactly what happens in a fractionnal banking reserve.

I guess the only way to prevent that would be that when people deposit a certain amount in a bank, it should always be locked for a number of years/equivalent to the duration the bank will lend it, so that it can never finds itself in a situation of a bank run, where people withdraw their money faster that loans are repayed. (But I'm not quite sure how this would work with bad loans). But I'm quite sure that even in a world ran by BTC, people would still like to have their money available at all time, even if this implies slightly higher risk/lower intersts, especially if the deposits are guaranteed by the government.

Yes, I think money in the bank has a similar value to money in one's pocket in most western nations.  The primary differences are in convenience and the risk of theft; consequently, most people put almost all of their money in the bank and carry around a little in cash as well as a bank card.

With bitcoin, everything is different.  A government guarantee can't mean the same thing (because the government can't print as a last resort; sure they can hold a treasury of bitcoins, but even this strategy I believe will ultimately fail, just as it has several times with gold).  Banks can't offer the same boost to convenience (as people can send bitcoins around the world cheaply and easily themselves) and I feel it's likely that they will be unable to offer much additional security.

All around, while the potential for fractional reserve banking is certainly there with Bitcoin, the extent to which it could develop is far more limited.

[teukon]

But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.

[ZephramC]

But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.

I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)

[un_ordinateur]

But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.

I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)

What do you make of the will of the People? If a majority of the citizens of the United States (for example), wishes that their deposit be guaranteed by their government, if
a) Only deposits made at an US based company shall be guaranteed;
b) The company is required to always keep at hand 10% of its deposits ready for withdrawal;
c) They are ready to pay some taxes for that service.

I'm not saying that the -current- government cares about the will of the people. I have not a real opinion on that; I'm not from the US. I'm more interested by the theorical possibility that a majority of the people dissagree with you; and be absolutely willing of something you seem to consider stupid.

The way I see it, my opinion or your opinion is one of many. I might disagree with it, but I'll always accept that the will of the People trumps my will. (If that will is legitimately expressed in a fair vote) I need not to be idle about it either: I can spend time convincing people why I believe the current policy is wrong, and why it should be changed, hoping it will be in 10-20 years.

[ZephramC]

But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.

I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)

What do you make of the will of the People? If a majority of the citizens of the United States (for example), wishes that their deposit be guaranteed by their government, if
a) Only deposits made at an US based company shall be guaranteed;
b) The company is required to always keep at hand 10% of its deposits ready for withdrawal;
c) They are ready to pay some taxes for that service.

I'm not saying that the -current- government cares about the will of the people. I have not a real opinion on that; I'm not from the US. I'm more interested by the theorical possibility that a majority of the people dissagree with you; and be absolutely willing of something you seem to consider stupid.

The way I see it, my opinion or your opinion is one of many. I might disagree with it, but I'll always accept that the will of the People trumps my will. (If that will is legitimately expressed in a fair vote) I need not to be idle about it either: I can spend time convincing people why I believe the current policy is wrong, and why it should be changed, hoping it will be in 10-20 years.

Well. There are some things which should remain "unenforcebale" even by popular vote or "will of the People". Of course there will always be discussion which things this should be. Common example is that two wolves and a sheep can not vote "what is for dinner?". Some believe that by the same logic you can not have 100 people voting if 95 of them will (steal and) redistribute wealth of the remaining 5. Even if it is will of the (majority of) people. Some believe that you can not have (even "perfectly democratic") referendum about killing innocent man.
If the majority of people wishes that their deposit to be guaranteed by their government they can do that. But this guarantee should not use money of the ones disagreeing. If I wish my deposit NOT to be guaranteed (perhaps because I believe that this offers greater profit with acceptable risk) and there is a company which will grant me this wish and provide me this service then by what right do other people force us to change this.

[lemfuture]

yes limited supply, besides theres always litecoin for back up

[ZephramC]

yes limited supply, besides theres always litecoin for back up

Reports about gold being limited supply are greatly exaggerated, there is plenty of silver for back up (and copper and iron and aluminum). 

[un_ordinateur]

But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.

I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)

What do you make of the will of the People? If a majority of the citizens of the United States (for example), wishes that their deposit be guaranteed by their government, if
a) Only deposits made at an US based company shall be guaranteed;
b) The company is required to always keep at hand 10% of its deposits ready for withdrawal;
c) They are ready to pay some taxes for that service.

I'm not saying that the -current- government cares about the will of the people. I have not a real opinion on that; I'm not from the US. I'm more interested by the theorical possibility that a majority of the people dissagree with you; and be absolutely willing of something you seem to consider stupid.

The way I see it, my opinion or your opinion is one of many. I might disagree with it, but I'll always accept that the will of the People trumps my will. (If that will is legitimately expressed in a fair vote) I need not to be idle about it either: I can spend time convincing people why I believe the current policy is wrong, and why it should be changed, hoping it will be in 10-20 years.

Well. There are some things which should remain "unenforcebale" even by popular vote or "will of the People". Of course there will always be discussion which things this should be. Common example is that two wolves and a sheep can not vote "what is for dinner?". Some believe that by the same logic you can not have 100 people voting if 95 of them will (steal and) redistribute wealth of the remaining 5. Even if it is will of the (majority of) people. Some believe that you can not have (even "perfectly democratic") referendum about killing innocent man.
If the majority of people wishes that their deposit to be guaranteed by their government they can do that. But this guarantee should not use money of the ones disagreeing. If I wish my deposit NOT to be guaranteed (perhaps because I believe that this offers greater profit with acceptable risk) and there is a company which will grant me this wish and provide me this service then by what right do other people force us to change this.

Yes. That is why there are charter of freedoms/bills of right/etc... It's a kind of a paradox though since those charters were decided democratically, so democraty has decided to put a limit on itself.

Anyway, it's getting side topic, but I do agree what matters should not be decided democratically can be the subject of disputes. I believe that banks insurance is a democratic matter, but I conceive that you may not agree on that.

[Bit_Happy]

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.

Some of the better alt coins will add to the supply of digital currency

[teukon]

Anyway, it's getting side topic, but I do agree what matters should not be decided democratically can be the subject of disputes. I believe that banks insurance is a democratic matter, but I conceive that you may not agree on that.

May I ask: Do you believe that bank insurance (as you outlined earlier) is largely just or more of a necessary evil?

I'm not judging; I'm genuinely curious.

[un_ordinateur]

Anyway, it's getting side topic, but I do agree what matters should not be decided democratically can be the subject of disputes. I believe that banks insurance is a democratic matter, but I conceive that you may not agree on that.

May I ask: Do you believe that bank insurance (as you outlined earlier) is largely just or more of a necessary evil?

I'm not judging; I'm genuinely curious.

Well, I may see this questions on two sides.

The first doesn't even need to see it as a "necessary evil" or not. Insurance, in general, exists because there are certain events that, albeit unlikely, can be very catastrophic to those caught in it. Someone's home burning up is an example. Someone's bank going bankrupt in another. Someone having cancer is a third. Insurance offers protection to that; in that you pay a small fee over time, but if something bad happens, then it'll pay for you.

If you're "lucky", and nothing bad happened to you, then you'll have payed for nothing. So you lost money with this deal. but a lot of people pay for insurance instead, because we cannot know beforehand if it will happen to us, and we prefer to be slightly less rich, but safe, than risk losing everything.

But all insurance program rely on the fact that most (or at least, some) members will be "lucky" and that nothing bad will happen to them; and that therefore the payments of these members will subsidise those who are unlicky, because, otherwise, insurance would not exist; it would just be advanced payment for the eventual catastrophe.

But insurance is a "special" product that does not behave normally: for a given monthly payment, has "more" value the more people use it. It does not behave like a standart "free market" service where only offer and demand drive the value.

Therefore, if a majority of the people decide that they'd be better off being insured than not, then they have the incentive to make everybody subscribe to that insurance.

And because it is a matter of collective well-being, then it is somewhat legetimate to bypass the individual freedom of not subscribing to insurance. (Especially since the reasoning here is that you are better off being insured, so your "right" to not be insured is only a "right" to be stupid. Because in the first place, if most people believed insurance was bad, then they wouldn't vote for such law to begin with. It is a completely different case of your example where "two wolf and a sheep cannot democratically chose what's for dinner", because, in that example, the democratic "majority" choses to vote to considerably diminish one of the members of the group's well being, wereas, in mandatory inusrance, in theory, the honest will of the majority is to increase everybody's well being)


The other point of view does view it as a necessarely evil. A major bank collapsing would financially ruin a LOT of people. It would necessary lead to civil unrest, which is usually seen as a bad thing. (see: the Great Depression) Therefore, the government insuring the people's deposits in banks is a simple and effective way of preventing that from happening. It is less an an insurance for individual persons against bad banks, but an insurance for the society against the bad banks.