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Author Topic: Disruptive technology  (Read 1797 times)
JohnOliver
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December 11, 2011, 01:49:54 AM
 #21

I really don't see how Bitcoins will take business away from banks.

If I have a dollar, and I won't be needing it for while, I could keep it in my wallet. But that would waste away its opportunity value. If instead I put it in a savings account I could receive part of its opportunity value, the interest.

If I have a BTC, and I won't be needing it for while, I could keep it in my wallet.dat. But that would waste away its opportunity value. If instead I put it in a savings account I could receive part of its opportunity value, the interest.


Take a look at "Money illusion": http://en.wikipedia.org/wiki/Money_illusion

The main target of the Fed is economic growth, not inflation. The Fed will adopt inflationary measures to achieve growth, even if that means eroding the savings of American citizens. On the other hand, the main target of the European Central Bank is inflation, which must be below but near 2%.

Central banks systematically increase the supply of their currencies like euro and dollar. In dire situations, especially in current times, with high debt levels, central banks may be tempted to expand the money supply well over reasonable limits. Inflation is strongly correlated to money supply.

So, most of the time, a savings account in dollars or euros in a bank can not even compensate for inflation. The savers lose real value, i.e. savers lose purchasing power. On the other hand, Bitcoin supply will not expand in the long term (21 million BTC, maximum), so you can keep your purchasing power without the banking system.

The more central banks abuse Quantitative Easing, the more Bitcoin will be valuable in relation to those fiat currencies.

I completely agree that putting USD in a savings account is retarded, however I said "dollar", not "USD". Not every fiat currency is tumbling into worthless.

But I digress, you completely missed the point of my post. It's partly my fault since I used fiat as an example, and obviously this crowd doesn't like fiat that much. I'll rephrase my point in more general terms:

"things of value" have a opportunity value associated with it. If my car is sitting in my garage while I go on a vacation, I'm wasting my car's opportunity value while I'm gone. If I shutdown my computer while I'm sleeping, I'm wasting my computer's opportunity value while I slept. If I have 1BTC sitting in my wallet, I'm wasting the opportunity value of that BTC as long as it's in my wallet.

The only way to recover that lost opportunity value would be to lend my valuables out whenever I'm not using it. If I lend that 1BTC out from the time I received it to the time that I needed to spend it, someone else could have used that BTC for something productive. This way both the lender and the borrower profits.
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Shawshank
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December 11, 2011, 07:27:58 AM
 #22


I completely agree that putting USD in a savings account is retarded, however I said "dollar", not "USD". Not every fiat currency is tumbling into worthless.


Well, if a period of high inflation is to come to such a heavy-weight country as the US, be sure it will spread to a certain extent to Europe too, and viceversa. In that case, the unbalances generated in the export/import sector and in salaries due to high inflation, will have to be balanced by more inflation in neighboring countries, which in a extreme case may lead to an inflationary spiral. The limited supply of Bitcoin tries to avoid this situation.


But I digress, you completely missed the point of my post. It's partly my fault since I used fiat as an example, and obviously this crowd doesn't like fiat that much. I'll rephrase my point in more general terms:

"things of value" have a opportunity value associated with it. If my car is sitting in my garage while I go on a vacation, I'm wasting my car's opportunity value while I'm gone. If I shutdown my computer while I'm sleeping, I'm wasting my computer's opportunity value while I slept. If I have 1BTC sitting in my wallet, I'm wasting the opportunity value of that BTC as long as it's in my wallet.

The only way to recover that lost opportunity value would be to lend my valuables out whenever I'm not using it. If I lend that 1BTC out from the time I received it to the time that I needed to spend it, someone else could have used that BTC for something productive. This way both the lender and the borrower profits.

You are not forced to keep your BTC in your wallet you can always lend it to someone for a profit. You can do this person to person, or via MSB, banks, etc. In fact, fractional reserve banking is still possible with BTCs. The only difference is, because it is so easy to store vast wealth in a single file, you can avoid banks altogether, avoid fractional reserve and still keep the value of your savings through time, no matter how much fiat currencies depreciate.

Once Bitcoin is understood, the consequences of a bank-only system are evident: your wallet is your national identity card and all private keys are handed to the government
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December 15, 2011, 07:56:30 AM
 #23

You are not forced to keep your BTC in your wallet you can always lend it to someone for a profit. You can do this person to person, or via MSB, banks, etc. In fact, fractional reserve banking is still possible with BTCs. The only difference is, because it is so easy to store vast wealth in a single file, you can avoid banks altogether, avoid fractional reserve and still keep the value of your savings through time, no matter how much fiat currencies depreciate.
That is precisely true. However, there is an important detail to be aware of. With ordinary currencies you are almost always dealing with fractional reserve banking (often with only around 5% bank backup capital), because cash is so difficult to handle.

With bitcoins this is remarkably different. They have most or all qualities of cash, but in addition they also have some qualities that otherwise only fiat money has, namely that you can transmit them worldwide within minutes.

This means that you can easily avoid the risks associated with other currencies by using pure, direct bitcoins. The only remaining attraction of doubly virtual bitcoins, i.e. borrowed bitcoins or fiat money based on bitcoin, is that you can ask interest when you lend and that you can borrow by paying interest.

People who do that should be keenly aware that they are giving up the security of cash and incur the risk of somebody's bankruptcy and other ways to lose their money. Only a real bitcoin has all the qualities of bitcoins. And, as things stand, if their borrower defaults, nobody will bail them out like the Europeans try to do with their governments and banks.

So  I will not care if people do fractional reserve banking with bitcoins. But I will always be aware of the difference between a borrowed (doubly virtual, unsafe) bitcoin and a real one.
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