What do you think about Fiat and Banks? Can Bitcoin solve the problem?

[tjtonmoy]

The problem with Fractional reserve banking system.

Fractional reserve banking is a type of banking system in which banks keep only a fraction of the total deposits made by customers in reserve, while the rest is available for lending out to other customers or investing.

This means that banks are only required to keep a certain percentage of the deposited money in their bank vault or at the central bank. The remaining money is loaned out to other customers who need the money to finance various activities, such as buying a home, starting a business, or making a large purchase.

Fractional reserve banking allows banks to make profits by charging interest on loans while ensuring that depositors have access to their money whenever they need it. So, they are under the condition to let their customers withdraw mass amount of their deposits, thus creating a crisis.

This is the reason why all the Banks are broken. They are lending out money to people which they don't have or own. And the most concerning thing is counterfeiting. If a normal person does it, then it's a crime, but when the central banks and government does it, they can get away with it. This is the one thing that hurts the economy the most.
When they go bankrupts, the whole pressure is put upon taxpayers. This is a criminal scandal.

Bitcoin could solve all of this. Counterfeiting could be avoided at all cost with this, and bitcoin having limited supply makes it impossible to create more, as they are able to do with fiat currency. Other aspect of Bitcoin is already known to people, so I don't want to talk about those now. All I want to know is, how good is it in terms of preventing these crises. 

What is your view on this?

[o_e_l_e_o]

This means that banks are only required to keep a certain percentage of the deposited money in their bank vault or at the central bank.

Or indeed, no money at all. In 2020 the reserve requirement for banks in the US was lowered to 0%. Yup, you read that right. There is now no requirements for banks to have any money on hand whatsoever.

The remaining money is loaned out to other customers who need the money to finance various activities, such as buying a home, starting a business, or making a large purchase.

It is not just the remaining money that is loaned out, but banks also create new money out of thin air when they hand out loans.

What is your view on this?

Bitcoin could absolutely solve this, but if and only if people actually hold it in their own wallets and not on centralized exchanges. We already know that most centralized exchanges are running fractional reserve systems with bitcoin and other coins. We've seen this in particular over the last few months when the likes of Celsius, Voyager, BlockFi, FTX, and more have collapsed and been unable to pay back everyone who had deposited. With a centralized exchange you don't own any bitcoin - all you have is an entry on their spreadsheet. That exchange can show you any number they like, while they actually spend/gamble/loan your coins out freely. The only difference is that centralized exchanges cannot just create new bitcoin out of thin air like banks can with fiat, but they are very much fractional reserve just like banks are.

[KiaKia]

What is your view on this?

Bitcoin could absolutely solve this, but if and only if people actually hold it in their own wallets and not on centralized exchanges. We already know that most centralized exchanges are running fractional reserve systems with bitcoin and other coins. We've seen this in particular over the last few months when the likes of Celsius, Voyager, BlockFi, FTX, and more have collapsed and been unable to pay back everyone who had deposited. With a centralized exchange you don't own any bitcoin - all you have is an entry on their spreadsheet. That exchange can show you any number they like, while they actually spend/gamble/loan your coins out freely. The only difference is that centralized exchanges cannot just create new bitcoin out of thin air like banks can with fiat, but they are very much fractional reserve just like banks are.

I don't see people getting used to not keeping their funds on centralized exchanges any time soon, because some people won't just learn until something very bad happen to them or their money.

Before the FTX saga there was Luna, before Luna there was Mt-Gox if people should have learned it would have been a long time ago and centralized exchanges will struggle to survive, the only thing closer to Banks in crypto space are centralized exchanges.

This is why I called CEX the bank of the digital space, and it is also why I still blame some developers, I wonder why they have not been able to come up with a decentralized exchange that is 99% close to everything that a CEX has to offer, but in a Decentralized form, this is why Bitcoin existed right? Everyone should use Bitcoin as an example, and also follow its way.

[mv1986]

Bitcoin could absolutely solve this, but if and only if people actually hold it in their own wallets and not on centralized exchanges. We already know that most centralized exchanges are running fractional reserve systems with bitcoin and other coins. We've seen this in particular over the last few months when the likes of Celsius, Voyager, BlockFi, FTX, and more have collapsed and been unable to pay back everyone who had deposited. With a centralized exchange you don't own any bitcoin - all you have is an entry on their spreadsheet. That exchange can show you any number they like, while they actually spend/gamble/loan your coins out freely. The only difference is that centralized exchanges cannot just create new bitcoin out of thin air like banks can with fiat, but they are very much fractional reserve just like banks are.

Right, an exchange could go broke and any entity using that exchange would go broke along with it, but the Bitcoins would still be somewhere and not leave the economy/economic cycle. Someone else would have it and either save it or reintroduce it into the economy.

With fiat the problem is that pseudo-value is created to represent assets, like a house. That is where the real bubbles are generated because that pseudo-value fiat is not backed by any real EVA, i.e. by work or effort of some kind. It is pure dust that out of pure volume makes the house bigger than it is. Once the market realizes this, the dust dissolves into thin air, houses literally collapse and lose their pseudo-value, and since this is a systemic issue the entire real estate industry collapses, spilling over to anything remotely related to that industry.

With Bitcoin this pseudo-value creation isn't possible in the same way. Someone either has the real Bitcoin to buy a house (which can still be overpriced), or not. If it is overpriced, someone else gets a good deal, but the overpricing has sort of a cap concerning the industry.

Could pseudo-Bitcoin be created? Oh yes! But imagine someone coming to you saying "hey this is Bitcoin-TA (thin-air), I want to buy your house, I pay a good price". The person could accept the offer, but knows that the Bitcoin-TA should be invested very quickly because Bitcoin-TA can lose value due to infinite printing, aka inflation.

Now one might think the person buying with Bitcoin-TA got a good deal as well, but let's assume that every house, every estate that was bought with Bitcoin-TA is also labeled "TA-Estate", such that everyone knows all these objects have been bought with Bitcoin-Thin-Air, meaning that there is no real value backing the estate, that more Bitcoin-TA could be printed any second. Everyone buying a house with Bitcoin-TA will also only be paid salaries in Bitcoin-TA from when the contract for the purchase is signed.

Greed will get this Bitcoin-TA economy going, but over time people will become suspicious as estate prices are rising while salaries are not. It is all too good to be true, and there are always enough people that it is too good to be true, but it ignore it regardless. The Bitcoin-TA economy will crash at some point because of market uncertainties as nobody knows the real value of the estate as the money used to buy it isn't based on EVA, but created out of thin air.

An economy based on real Bitcoin has less options for monetary policy, or let's say less scope, but with less scope also comes less risk. Some say with less risk comes less opportunity, but that only counts for a few % of our population as those who are rich and play it smart are the ones who win when bubbles burst.

Just imagine someone wants to buy a house and someone wants to sell a house, the question will be whether the buyer decides to go with a little bit of a smaller house with the label "Bitcoin-Real" and the seller prefers "Bitcoin-Real" over "Bitcoin-TA", because that is the route to go if you want assets that are backed by money that is based on EVA.

Bitcoin carries value on its own merits because effort must be put in to create it. Bitcoin-TA doesn't. The problem is that there is no USD-REAL and USD-TA, we can't differentiate whether the dollar bill we hold in our hands was just a button on a keyboard or a human being's or machines hard work.

[o_e_l_e_o]

I wonder why they have not been able to come up with a decentralized exchange that is 99% close to everything that a CEX has to offer

Because of fiat. It is impossible to have an instant decentralized fiat/bitcoin exchange because of how slow fiat is. CEXs get around this by taking custody of your fiat first, but the price you pay is zero privacy and zero security.

-snip-

The caveat to what you have said is that some exchanges, such as Coinbase, already allow instant off-chain transactions between their users. Such transactions are internal only - Coinbase update balances on their internal database, but nothing ever touches the blockchain. In such cases, Coinbase doesn't move any bitcoin and does not even need to own the bitcoin in question. Such transactions are absolutely "thin air bitcoin", as you put it.

Only if you have bitcoin in your own wallet do you actually own any bitcoin. Otherwise all you own is an entry in a spreadsheet.

[Don Pedro Dinero]

Or indeed, no money at all. In 2020 the reserve requirement for banks in the US was lowered to 0%. Yup, you read that right. There is now no requirements for banks to have any money on hand whatsoever.

I was reading the OP and the first thing I thought of was this. It should be renamed because the system is no longer even a reserve system at 0%. However, it's not 0% in all cases, for example, in Europe the ECB maintains a reserve of 1% for deposits with a term of less than two years, lol, and 0% for the rest.The funny thing is that since the fractional reserve system has been in place, the world has reached high levels of development and welfare, but I guess that's like the temporary welfare of someone who keeps refinancing credits to spend more and more, until it all blows up.

I don't see people getting used to not keeping their funds on centralized exchanges any time soon, because some people won't just learn until something very bad happen to them or their money.

I don't see it either but I think that things like the SVB cases and others attract people to bitcoin and even if it is a small percentage, it makes some people understand that if you manage your bitcoin keys it is an amount that you own, just as if you own and hold an amount of gold, but the numbers that appear in your bank account are a mere bookkeeping entry based on a house of cards.

[franky1]

bitcoin.. the bitcoin network is real store of wealth that CANT be taken off the network, nor away from the owner, because bitcoin has a good private key/signing policy, bitcoin is safer then banks..(as long as you dont share/give away/leave open for someone to find your private key)

however when it comes to subnetworks that allows other unit balance without Xconfirms. is where fractional reserve occurs again because as one flaw, the pegging mechanisms of subnetworks are not strong.. as another flaw the ability to create balance using fake/non existent or unconfirmed funding locks allows fractional reserve/counterfeiting/ loss of value games to be played

so this is why people that want safe secure value should stick to only using the bitcoin network and request that the bitcoin network scales. instead of using the abusive subnetworks that pretend to have the same security as bitcoin

there is a big reason why blockchains solves things which other "digital money" doesnt solve. so yes bitcoin solves this, as long as people dont then start using bitcoin as the staging system to then use other systems like centralised custodians or badly conceived subnetworks

[UchihaSarada]

Does Bitcoin have intrinsic value?

Bitcoin has many outrageous specifications that can help it to be a very good alternative for fiat currencies, banks and gold. Only if people don't be blinded with chance to get rich by centralized exchanges.

Reminder: do not keep your money in online accounts

If they leave their bitcoins on centralized exchanges, in online accounts, they are practicing like storing fiat currencies at banks.

[mv1986]

-snip-

The caveat to what you have said is that some exchanges, such as Coinbase, already allow instant off-chain transactions between their users. Such transactions are internal only - Coinbase update balances on their internal database, but nothing ever touches the blockchain. In such cases, Coinbase doesn't move any bitcoin and does not even need to own the bitcoin in question. Such transactions are absolutely "thin air bitcoin", as you put it.

Only if you have bitcoin in your own wallet do you actually own any bitcoin. Otherwise all you own is an entry in a spreadsheet.

In essence that is what I said when I asked "Could pseudo-Bitcoin be created? Oh yes!", but I get your point. The problem might be that too many people use custodians to manage their funds and then the thin air bubble game begins again in the books of the custodians, here Coinbase.

But @o_e_l_e_o I think I have some trouble to get my head around the example I myself provided with the real estate transaction. For such a transaction you actually need real Bitcoin right? Are you only referring to on-platform lending services where users can use fake-Bitcoin (aka leverage) to trade on platform and either lose or win thin air?

As soon as it comes to transactions of Bitcoin vs. real assets, on-chain Bitcoin will be needed, right? Or does Coinbase operate a Bitcoin lending service where they send Bitcoin off-platform to users requesting a loan? So to say, they keep 10% real Bitcoin as a reserve, lend out 90% off-platform and cover the 90% + even more via typing thin air Bitcoin into their books?

Perhaps you can help me get a better understanding here. I feel I might be missing a piece of the puzzle.

[Japinat]

The banking system may seem like a huge fraud, but whether we like it or not, it will continue to exist and fool us because it's established by the government. With Bitcoin, we can enjoy the freedom we've been wishing for, but unfortunately, we can see how strict the government is with Bitcoin and cryptocurrencies in general.

Although Bitcoin is ideal and could provide transparency, we will not be able to enjoy it if we hope for mass adoption, since we live in a world governed by people who serve their own interests first.

Bitcoin promotes anonymity, but the government wants to make KYC compulsory, which will defeat its purpose.

[jeraldskie11]

You receive interest as an incentive for keeping money in an account the bank can use to create loans.

They just use people's money to make money. In other words, the bank only uses people.

I'm not sure if people know that this is how their money will be used. Or maybe they know but they continue to use the bank because they get interest on what they deposit. Even though the depositors in the bank receive some interest but the bank earns more than what they earn from the borrowers.

If the purpose of why they used to deposit in the Bank is just the interest, it is better if you invest it in Bitcoin, it will grow even more and you can be sure that your money is secured.

[Z-tight]

If the purpose of why they used to deposit in the Bank is just the interest, it is better if you invest it in Bitcoin, it will grow even more and you can be sure that your money is secured.

I don't feel people keep their money in the bank because of interest, banks offer a small interest rate. We all use banks because it is not possible to do without them for now. If you have a job in your country, your salary would be paid into your bank account, if you offer a service or you want to receive money from friends or families, most times they send it through your bank account, so it has nothing to do with investment, the banks remain important in our society.

If you own BTC, it does not mean your money is secure. Your money is only secure if you store your BTC in the correct way, that's in your self custody wallet which you must have set up in a safe enviroment. I hold a lot of my money in my BTC self custody wallet, but i also have some of my funds in my bank account, and i am sure that's the same thing for a lot of BTC enthusiasts.

[o_e_l_e_o]

The funny thing is that since the fractional reserve system has been in place, the world has reached high levels of development and welfare, but I guess that's like the temporary welfare of someone who keeps refinancing credits to spend more and more, until it all blows up.

Pretty much. There is no end to all the projects you can fund when you can just print money out of thin air. But at some point that has to come to an end, either because you stop printing money or you print so much of it the whole system collapses.

But @o_e_l_e_o I think I have some trouble to get my head around the example I myself provided with the real estate transaction. For such a transaction you actually need real Bitcoin right?

Well, it depends. If the other party is happy to accept bitcoin through their Coinbase account, then you can pay them without any real bitcoin moving whatsoever: https://help.coinbase.com/en/coinbase/trading-and-funding/sending-or-receiving-cryptocurrency/instant-sends
If the other party wants bitcoin sent to an external wallet, then of course Coinbase would have to send out real bitcoin, but with them running a fractional reserve system doing so leaves even fewer bitcoin to cover the deposits of other customers who are at constant risk of losing everything in a bank run.

[bluebit25]

I think that Fiat and Bank are important components in the modern economy. Fiat is a currency issued by the government and widely used in commercial transactions, while Banks are financial institutions that provide financial services, including lending and savings. However, the Fiat and Banking systems also have limitations and problems.

Some of those issues include:
Depreciation: Fiat can depreciate due to inflation and other factors, while Bank can go bankrupt and lose customer's money.
Control: Governments and Banks have control over the issuance and use of Fiat, which can lead to restrictions on financial freedom and privacy

[DapanasFruit]

There are so many problems affecting the banking system and of course we know that most fiat monies are not anymore backed by gold and are issued with just faith of the government printing them...and couple with an economy based on debt one day things will really go wary and I think we have been witnessing this happening right now to some extent. Can Bitcoin be the solution? I would say partly in terms of protecting one's assets like a safe haven which is the role of physical gold. The only problem with Bitcoin is its volatility...let's hope that somebody stability can be coming to Bitcoin.

[BTCGalaxyA12]

>snip<

Bitcoin could solve all of this. Counterfeiting could be avoided at all cost with this, and bitcoin having limited supply makes it impossible to create more, as they are able to do with fiat currency. Other aspect of Bitcoin is already known to people, so I don't want to talk about those now. All I want to know is, how good is it in terms of preventing these crises. 

What is your view on this?

The presence of Bitcoin amid the uncertainty of the economic system at that time to be a solution even though some consider it just a stupid breakthrough made by Satoshi but now all recognize if Sotoshi's idea can really overcome all that.

That's more or less my view.

[tjtonmoy]

I don't feel people keep their money in the bank because of interest, banks offer a small interest rate. We all use banks because it is not possible to do without them for now. If you have a job in your country, your salary would be paid into your bank account, if you offer a service or you want to receive money from friends or families, most times they send it through your bank account, so it has nothing to do with investment, the banks remain important in our society.

We rely on banks so much and that is why they are still around. And no, people don't keep money in banks for interest. It's more like a security thing. They keep their money in banks, thinking that their money is safe there. Even my mom always tells me to keep my money in the bank. I was like hell no.
So it is secure to keep the money in the bank in their point of view.

The moment we stop relying on the banks, they will collapse. As said on OP, when people withdraw massive amount of money from banks, they face crisis. It is important because we make them important. Same goes for fiat currency. It's just a piece of paper. We gave it a value, otherwise it's worthless.

[ilovealtcoins]

Although Bitcoin is ideal and could provide transparency, we will not be able to enjoy it if we hope for mass adoption, since we live in a world governed by people who serve their own interests first.

Bitcoin promotes anonymity, but the government wants to make KYC compulsory, which will defeat its purpose.

This is the contradiction that I am also wondering about, how can we enjoy privacy when bitcoin is mass adoption? And if bitcoin is truly decentralized, why expect the adoption of a centralized institution like the government? They only accept it when they control us or profit from it, I never expected bitcoin to be popular around the world.

[tbct_mt2]

We rely on banks so much and that is why they are still around. And no, people don't keep money in banks for interest. It's more like a security thing. They keep their money in banks, thinking that their money is safe there. Even my mom always tells me to keep my money in the bank. I was like hell no.
So it is secure to keep the money in the bank in their point of view.

They trust banks to store their money and not all people store their money in banks to get interests as bank savings. Storing money in banks and opening bank accounts which serve for your bank savings are different.

In both choices, you can receive interest from banks but with official bank saving account, you will get a higher interest rate because there will be terms on how long your contract with bank will be expired, 3 months, 6 months, 1 year, 2 years. This is cause of something bad, banks will use your money when expiration date is still far and they can bet with your money.

When their bet fails, they go bankrupted and you lose your money. Some banks can be supported and rescued by central banks and governments but investors to bank stocks will lose money forever.

[Z-tight]

So it is secure to keep the money in the bank in their point of view.

To an extent they are correct, it is more secure than keeping your money under your pillow or keeping it somewhere in your home you think is safe, it is even much more secure than buying BTC and storing them in a centralized exchange as a lot of people do. Storing BTC in a self custody wallet and having the knowledge of what you are doing is only what i can consider a safer way to keep your money, but sadly not everyone can do it, especially the aged and those who do not trust BTC.

The moment we stop relying on the banks, they will collapse.

Banks can collapse, but the entire banking system cannot collapse, money may even be printed out of thin air to rescue failing banks. We have to rely on banks because we cannot do without them for now, do you have a job in real life? I do, and my salary is paid into my bank account, and if you do, i am sure that's where yours is paid into as well. When people and friends want to send you money, you can't give them your BTC address if they aren't BTC enthusiasts, so they have to send it to your bank account.

As said on OP, when people withdraw massive amount of money from banks, they face crisis.

Look, if a bank run happens, the bank is surely going to collapse because of their fractional reserve system, but if there is massive withdrawal of money from a particular bank, where are people going to put all that money? You and i would say BTC because we believe in it, but there are millions of people who do not, so they would just put the same money into another bank they think is safer.