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Author Topic: Can Bitcoin even work in our current system?  (Read 12678 times)
Indamuck
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October 13, 2018, 11:26:37 AM
 #1

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?
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October 13, 2018, 02:09:34 PM
Merited by Green_Bulb (1)
 #2

That is the key difference between any fiat and Bitcoin - Bitcoin is finite, and it is still not available in its total quantity.
This will, first of all, make it extremely hard for bank and governments to control economy - the only way to influence the amount of money on the market is to mine faster, which has its limitations in spending money on mining equipment. It still leaves the issue of mining difficulty open, though.

As for the people, the problem is in slowly increasing time for each transaction - no one wants to wait 5 minutes every time they pay for anything. The prices, as you said, should  drop.
It is natural thing if only limited supply of currency is available.
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October 13, 2018, 04:25:17 PM
 #3

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?

Yeah, and Governments will start to see that and forbids it to happen since they can lose everything in power if that happens.
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October 13, 2018, 04:47:42 PM
Merited by Lucusfoundation (1)
 #4

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?

It's bigger than that.

Our economy is not merely stimulated by people buying on credit. It is built upon companies being able to take credit to invest in future developments. As such I don't think an economy where there would be only Bitcoin would flourish.

For as much flak as fiat gets, it did enable economic growth in a previously unprecedented way. As such I think we won't be able to operate without it all that easily, unless we find an economic model that does not rely on wealth generation by borrowing money from the future.

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October 13, 2018, 05:10:14 PM
 #5

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?

Lending can still happen even with bitcoin, it's just that the money being used for lending will not be generated out of thin air and therefore there won't be such inflationary pressure on the currency. As for how that would work from an economic point of view it's hard to truly answer as it's never before happened.

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October 13, 2018, 06:17:28 PM
 #6

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?

I think it could. As we are immersed in online banking and the use of digital money and is slowly becoming a cashless society, I think that as bitcoins would improve its stability and value, it can integrate itself in the system and can be used in such a way other similar assets can be used like in the stock market. Also, it's just a matter of how people would accept it. I mean, we can remember that before the spread of the use of the internet, people are doubtful if a cashless society would even be possible, but now, it's what most people use. So, since it's an innovation, there is always a chance for it to happen.
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October 13, 2018, 07:45:40 PM
 #7


It's bigger than that.

Our economy is not merely stimulated by people buying on credit. It is built upon companies being able to take credit to invest in future developments. As such I don't think an economy where there would be only Bitcoin would flourish.

For as much flak as fiat gets, it did enable economic growth in a previously unprecedented way. As such I think we won't be able to operate without it all that easily, unless we find an economic model that does not rely on wealth generation by borrowing money from the future.


It enabled it because it gave people fake money on credit. If you have a company, need 10000 USD to buy equipment and want to borrow from your family members but all they have is 1000 USD, you struggle. Your company doesn't grow, you don't make money.But when suddenly you're able to write a check with 10000 on it and get what you need it all starts to work well.
Is it ok when the money is fake? You are happy because your company grows, the seller of the equipment gets paid, he's happy, but somewhere at the end of the line is a person who doesn't get paid. Who wants to cash in the check but the money isn't there. The fiat system works well as long as only a few people want to cash in their checks. There's not enough money for all of them.

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October 13, 2018, 08:43:34 PM
Merited by pixie85 (1)
 #8

It's bigger than that.

Our economy is not merely stimulated by people buying on credit. It is built upon companies being able to take credit to invest in future developments. As such I don't think an economy where there would be only Bitcoin would flourish.

For as much flak as fiat gets, it did enable economic growth in a previously unprecedented way. As such I think we won't be able to operate without it all that easily, unless we find an economic model that does not rely on wealth generation by borrowing money from the future.


It enabled it because it gave people fake money on credit. If you have a company, need 10000 USD to buy equipment and want to borrow from your family members but all they have is 1000 USD, you struggle. Your company doesn't grow, you don't make money.But when suddenly you're able to write a check with 10000 on it and get what you need it all starts to work well.
Is it ok when the money is fake? You are happy because your company grows, the seller of the equipment gets paid, he's happy, but somewhere at the end of the line is a person who doesn't get paid. Who wants to cash in the check but the money isn't there. The fiat system works well as long as only a few people want to cash in their checks. There's not enough money for all of them.

Not quite.

The part where "there's not enough money for all of them" is what you get if you'd apply a credit based system to a fixed, constant money supply. Both the boon and bane of fiat currencies is that the supply is potentially endless, so there will always be money available. Increasing the money supply works well enough if it correlates with economic growth (ie. credit is being used to create wealth by producing and providing useful goods and services). It utterly fails whenever the economy doesn't reflect the available money supply (ie. credit is wasted on empty housing, failing startups, dictators with lavish lifestyles etc).

That is, generally speaking. Obviously the problem you are describing does exist, it just has a slightly different cause. It's what you get when fractional banking goes wrong, that is, when people start over-leveraging their assets, risks are wrongfully assessed and credit by consequence becomes more plentiful than healthy. As with everything, it is the dose that makes the poison. A sane credit system does work and makes sure that the money borrowed will later on be reflected in the wealth created. Unfortunately that is not always the case, eg. when reckless crediting becomes incentivized and accountability becomes close to nil. Risking other people's money is easier than risking your own. Even moreso if you get a bonus when something goes wrong and merely a slap on the wrist when disaster strikes.

Note, however, that fractional banking does not only affect fiat currencies. We've seen the same thing happen in crypto, most famously with MtGox. And here we arrive at what in my opinion is one of the most important features of Bitcoin: Being able to autonomously store and transact money, without being dependent on any third parties. Bitcoin being deflationary is, in my opinion, more or less incidental, even though it was necessary to move digital assets into the spotlight. Self-reliance and independence is what makes crypto important in my book.



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October 13, 2018, 09:09:47 PM
 #9

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

Well, if in this case we ignore scalability, I think this will only end the same as banknotes in general, it might only be different in a usage system that might be more prectic and sophisticated. well, scalability is an advantage of using bitcoin, I think in this case bitcoin will only end in unsustainable development
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October 13, 2018, 09:18:25 PM
 #10

I don't think that's gonna be a problem. Separate tokens can be created for credit. Nothing can replace the purity in the economy after crypto acceptance. Imagine that there will only be limited money and no one will intervene.

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October 13, 2018, 10:17:47 PM
 #11

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?

Lending can still happen even with bitcoin, it's just that the money being used for lending will not be generated out of thin air and therefore there won't be such inflationary pressure on the currency. As for how that would work from an economic point of view it's hard to truly answer as it's never before happened.

 Shocked Lending in fiat requires some form of security by including third party like guarantors but how will that also be possible with bitcoin where bitcoin even don't adopt third party agreement.

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October 13, 2018, 11:04:33 PM
 #12

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?
If Bitcoin is to be used in place of fiat, I believe it can still fit in perfectly. In the aspect of borrowing, Bitcoin can be borrowed the same way you borrow fiat.

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October 13, 2018, 11:10:21 PM
 #13

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?

Lending can still happen even with bitcoin, it's just that the money being used for lending will not be generated out of thin air and therefore there won't be such inflationary pressure on the currency. As for how that would work from an economic point of view it's hard to truly answer as it's never before happened.

 Shocked Lending in fiat requires some form of security by including third party like guarantors but how will that also be possible with bitcoin where bitcoin even don't adopt third party agreement.
Does an escrow is not enough to be a form of like guarantors? But i'm also confused if how would they will going to do that if everyone was using bitcoin, then people should be talking here forever if they want to loan some bitcoin in the future. I doubt if there's another forum that looks like a bank in the future.
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October 13, 2018, 11:31:47 PM
 #14

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.

actually, you can. fractional reserve banking is a separate issue from the money supply. fractional reserve just means a bank holds only a fraction of its deposit liabilities on hand. this is not necessarily incompatible with "bitcoin banking"---it just means bitcoin bank deposits may not be fully backed.

hal finney spoke cogently about this subject in the early days:

Actually there is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins. Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.

Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.

George Selgin has worked out the theory of competitive free banking in detail, and he argues that such a system would be stable, inflation resistant and self-regulating.

I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers. Bitcoin transactions by private individuals will be as rare as... well, as Bitcoin based purchases are today.

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October 13, 2018, 11:34:33 PM
 #15

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?

Definetly in my own thought,at this situation now crypto could not adapt or totally works in our current system now especially if we imagine that fiat all are gone and crypto become the alternate all of this asdoing all the transaction,because the crypto are not totally awaken now in order to doing all system in monetary fund of the whole world.

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October 14, 2018, 03:49:21 AM
 #16

I think borrowing money with  Bitcoin will be the same thing as borrowing money with the local fiat currency.

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October 14, 2018, 04:44:36 AM
 #17

I agree, more and more people are borrowing from banks to fiat, making large fluctuations and making the price of necessities more expensive if it continues.

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October 14, 2018, 05:56:35 AM
 #18

NO.That's why we have to change the current system into another system that is build on a crypto foundation.
The current debt/credit fiat system is going to collapse sooner or later.We have to be prepared for the financial Armagedon and we have to solve our own problems inside the crypto world.


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October 14, 2018, 07:02:01 AM
 #19

Well, I mean it's kinda the only way to do if we pretend that all the fiat money is gone. Bitcoin was the main choice after that, it does work for our system but  I think it might be need time for it, will not so easy changing the economy system of the entire world using cryptocurrency.
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October 14, 2018, 07:27:05 PM
 #20

Pretend that all the fiat money in the world is gone and the whole world is only using Bitcoin.  Ignore scalability issues for this scenario.

I'm sure most of you know that most money is actually created by banks through fractional reserve lending.  Our economy is stimulated by people constantly taking out loans to make purchases.  But with bitcoin you can't loan money that doesn't exist.  Maybe we would have to change our consumerism as a society and prices would drop.  Being able to borrow money easily makes everything rise in price.   What are your thoughts?

Lending can still happen even with bitcoin, it's just that the money being used for lending will not be generated out of thin air and therefore there won't be such inflationary pressure on the currency. As for how that would work from an economic point of view it's hard to truly answer as it's never before happened.

 Shocked Lending in fiat requires some form of security by including third party like guarantors but how will that also be possible with bitcoin where bitcoin even don't adopt third party agreement.
Does an escrow is not enough to be a form of like guarantors? But i'm also confused if how would they will going to do that if everyone was using bitcoin, then people should be talking here forever if they want to loan some bitcoin in the future. I doubt if there's another forum that looks like a bank in the future.

It's really not too difficult, it's the same as in fiat, persons asks to borrow money and the lender asks for something to use as collateral, a  house for example with a mortgage. As for governments borrowing money from themselves which they intend to print in the future then as I said that won't be possible. We are already moving away from a world where banks and governments can lend/borrow with little reserves so it's not impossible to function with 100% reserves.

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