Bitcoin fractional banking?

[jackg]

Everyone keeps going on about how much fractional banking is a scam (and it is just a Ponzi scheme reliant on inflation) but, what stops the same thing happening with bitcoin?

If a bank gets 2 million bitcoin, what stops them from doing the exact same thing? There’s a lot of holders in crypto, it would technically function as a system but you’d have to be more sure a loan will be repaid...

[bitmover]

Fractional banking is not possible with blockchain technology, as far as I understand.

Fractional banking is possible because Fiat doesn't have an public ledger such as blockchain.

It works because if you deposit 1000 USD in a CD (certificate deposit) or some type of bonds, the bank will just be working with that money (buying selling stocks, lending, etc etc). At the same time you will see in your bank account , every month, that you have 1000 USD + interests, while in fact your money is not there.

Let's suppose banks wanna do it will Bitcoin.  Your bitcoin address allows you track where your Bitcoin is. It's a public ledger. There is no way for a bank to receive 5 BTC and lend 20, because blockchain does not allow them to do so. If they buy stocks or lend it, you will be able to see. It's auditable by anyone.

Fractional banking is a global financial pyramid.

[bitmover]

Fractional banking is not possible with blockchain technology, as far as I understand.

Fractional banking is possible because Fiat doesn't have an public ledger such as blockchain.

Not if they send loaned Bitcoin to user's account and loaned Bitcoin only can be sent to other users within bank system. Everything happen off-chain, so there's no way to verify the bank use fractional system.

That's like keeping money in a exchange. It's possible ofc, but it is a turn around.

 But the bank cannot lend that money (BTC) to anyone outside its system, on chain. So it cannot be spent as BTC, only as dólar.

Let's suppose all bank clients lend the bank 100 BTC. So there is a transaction on chain of 100 BTC to the bank.
The bank cannot lend 1000 BTC to another people, because doesn't have that BTC. It can lend usd, not BTC.
If the banks lend only inside it's syatem, off chain, how will people spend those BTC? They can spend only in bank products, or some partner that accept that kind of payment, which is almost a debt security (something like tether of btc, like btct?)

[ABCbits]

Let's suppose all bank clients lend the bank 100 BTC. So there is a transaction on chain of 100 BTC to the bank.
The bank cannot lend 1000 BTC to another people, because doesn't have that BTC. It can lend usd, not BTC.
If the banks lend only inside it's syatem, off chain, how will people spend those BTC? They can spend only in bank products, or some partner that accept that kind of payment, which is almost a debt security (something like tether of btc, like btct?)

Yes, that's what i meant. Big banks or credit-card provider such as Visa might able to pull it off.

In fact, MasterCard tried to patent this¹

[bitmover]

Yes, that's what i meant. Big banks or credit-card provider such as Visa might able to pull it off.

In fact, MasterCard tried to patent this¹

I  liked this idea, BitcoinTether
 Probably the future of our ecosystem. Banks or other financial companies promises to pay you with a bitcoin they don't have,and they can make a crypto for it, so you can use it on chain. It's going to be huge. Lol

[jackg]

Yes, that's what i meant. Big banks or credit-card provider such as Visa might able to pull it off.

In fact, MasterCard tried to patent this¹

I  liked this idea, BitcoinTether
 Probably the future of our ecosystem. Banks or other financial companies promises to pay you with a bitcoin they don't have,and they can make a crypto for it, so you can use it on chain. It's going to be huge. Lol

Enough people are convinced to have a bank account that stores fiat/prints it whatever you want to say.
I can think of some circumstances this week where I’ve had to use a bank account instead of fiat or blockchain and have been forced to...
Everyone likes the idea and I hope MasterCard doesn’t get the parent on that because I want to do it .



Whenever you give someone bitcoin to store, on an exchange or in a walled, you can never track where it is or what it’s being used for.
The last wallet it’s sat in could be a wallet in anexchange, a mistake, a proper wallet...

[Jet Cash]

It's already here. It isn't possible if you have a transaction on the blockchain with an association with your wallet, but some of the new banking services are not attaching transactions to investors' wallets. They even state in their T&Cs that they will allow rehypothecation. This is similar to the difference between holding real gold coins, and bits of paper that confirm you own some unspecified bits of gold.

If you are buying Bitcoin as a long term investment, you should keep it in your own secure wallets, and not leave it on an exchange, or in some investment bundle.

[TECSHARE]

Does every exchange hold 100% reserves? What about margin trades? Futures? Other forms of leveraging? Bitcoin is being subverted in the same ways precious metals are manipulated. As with precious metals, unless the Bitcoin is in hand, it is meaningless.

[Jet Cash]

Margin trades and derivatives, especially with gearing, don't seem to be based on actual holdings of Bitcoin. They just seem to be paper gambling contracts. I suspect that real Bitcoin is only involved when profits/investments are withdrawn into a real wallet. Depositing Bitcoin into an exchange account  will probably lose the association with the depositing transaction as well. I don't think that these are really a problem. If you are going to play with speculative instruments, then you should be aware of the risks.

Much more of a problem is the deception that some "secure" investment holdings are creating. Investors believe that they are investing in an asset with the potential to appreciate. Rehypothecation allows the fund managers to pay withdrawals in a currency with a lower increase in value if Bitcoin shoots up in value. Alternatively, if Bitcoin drops in value, then they can repay in Bitcoin.

[jackg]

Does every exchange hold 100% reserves? What about margin trades? Futures? Other forms of leveraging? Bitcoin is being subverted in the same ways precious metals are manipulated. As with precious metals, unless the Bitcoin is in hand, it is meaningless.

I can actually imagine there are probably a few exchanges with unbalanced balance sheets most of the time with more being owed than they own...

[TECSHARE]

Margin trades and derivatives, especially with gearing, don't seem to be based on actual holdings of Bitcoin. They just seem to be paper gambling contracts. I suspect that real Bitcoin is only involved when profits/investments are withdrawn into a real wallet. Depositing Bitcoin into an exchange account  will probably lose the association with the depositing transaction as well. I don't think that these are really a problem. If you are going to play with speculative instruments, then you should be aware of the risks.

Much more of a problem is the deception that some "secure" investment holdings are creating. Investors believe that they are investing in an asset with the potential to appreciate. Rehypothecation allows the fund managers to pay withdrawals in a currency with a lower increase in value if Bitcoin shoots up in value. Alternatively, if Bitcoin drops in value, then they can repay in Bitcoin.

You touched on something very important here I forgot to mention. IMO this was at the center of the MTGOX scandal. In the case of MTGOX it appears to be an inside job. The idea was "oh we got hacked at the market bottom! I guess since all that Bitcoin is gone we must pay our debts in cash!".  When a company has obligations to you via these contracts, when they owe you a debt, they can choose to pay you in USD (or other relevant legal tender) value instead of crypto.

They do the same thing with gold and silver. In the case of MTGOX, I think they thought it would be the perfect crime to rob themselves at market bottom, create minimum possible dollar value liabilities, the market crashes more because of the hack, they accumulate even more, then pay everyone off in USD and Yen while they hold all the soon to be heavily revalued upward Bitcoin while they file for bankruptcy and use that sweet Bitcoin to pay lawyers fees.

[bitart]

Fractional banking is not possible with blockchain technology, as far as I understand.
...
Let's suppose banks wanna do it will Bitcoin.  Your bitcoin address allows you track where your Bitcoin is. It's a public ledger. There is no way for a bank to receive 5 BTC and lend 20, because blockchain does not allow them to do so. If they buy stocks or lend it, you will be able to see. It's auditable by anyone.
...

As long as they keep your BTC balance they owe you just in their books and you can't check it on the blockchain, they can give out as many BTC loans as they wish, the important thing for them to have the necessary liquidity in BTC when you want to withdraw your BTC.
In this case it's the same as the fiat system.
Just an example:
I've checked the available BTC debit cards lately, and found out that according to this excel the most suitable is Wirex if you are in the EU, and others are if you are in the US.
I read thru Wirex's fine print and found out that it's just an electronic bank with a possibility of using BTC debit card, but:
your BTC balance is stored in a 'cold storage' and you won't have your own BTC address to check your funds. You can only check your balance inside their app or on their website. Even, you cannot send in any BTC, because they don't allow it, you can only buy BTC using their exchange, this is the way you can use your BTC debit card to spend BTC (you previously bought there).
So it seems there's nothing that can prevent them to use the same mechanism with your BTC funds, just like it was fiat or anything...

[bitmover]

So it seems there's nothing that can prevent them to use the same mechanism with your BTC funds, just like it was fiat or anything...

What can prevent is that there is no incentive to keep money in exchanges or banks, unless they give you some interest rate. This way you would be lending BTC to the bank,so they can do whatever they want with the BTC you deposited in their address.

But if you don't want their interest rate and you know how to keep your privatekeys (which is very simple) there is no reason to deposit BTC in exchanges/banks addresses

It is convenient to keep cash or any Fiat in the bank. How would you store 10thousand dollars by yourself? Under your bed? You need the banks for that.

But it's easy to keep 10k usdin btc by yourself, and you don't need banks.

[bitart]

...
It is convenient to keep cash or any Fiat in the bank. How would you store 10thousand dollars by yourself? Under your bed? You need the banks for that.

But it's easy to keep 10k usdin btc by yourself, and you don't need banks.

You are fine because you know how to do that.
The Average Joe who don't know how to secure their computer, how to avoid phising links and malware... they won't be so confident. If they are not confident, there comes the bank, because they trust the bank now (and people are not used to be in control of their full amount of money these days...)
So most of them would rely on a bank to handle their cryptos, as soon as the banks (or any kind of financial service providers, who are trustable enough) will start to handle them. You can be sure that governments would suggest/force it (to let the banks handle the money of the people, fiat or crypto), or they would create their own crypto and make people use it instead of bitcoin and other decentralized cryptos (via the banks).
People lack too much knowledge about financial things (money management, technical things, etc...) because they were not forced to know these things, it's easy to have only a bank card and have all the money in the bank, safe and sound, needs to know the PIN only and that's all.
They know that the bank charges some monthly fee for keeping the account but that's all, they are not interested in the background, because they don't have that much money that would make them care.
The difference is if you have a lot of money and you don't trust the banks or the goverment... in this case you need an independent solution, this is where cryptos comes in.

[BitBustah]

A economic system that doesn't have debt would thrive and it wouldn't be prone to boom and busts cycle.  The cost of housing would drop dramatically because credit gives everyone access to easy money that they wouldn't have otherwise.  I always hear the argument that people wouldn't be able to afford houses and cars without debt.  Well the market would respond and the invisible hand would lower the prices accordingly.