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Author Topic: Debt and banks in BitCoin world?  (Read 2987 times)
Realpra
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February 27, 2012, 02:07:14 AM
 #1

Lets say you are a bank and the world runs on BTC.

Could you loan out money? Could you even operate?

I'm thinking "no". Everyone would essentially hold their own wallet which they would use even if they had a little in a bank for spending.

This basically means all banks would at all times face a "bank run"-scenario.

Pause for a moment and consider the vastness of this; not only could BTC kill off MasterCard, Visa, WU and Paypal - it could kill off ALL banks.

Since BTC makes money very "real" and finite it is either spent or not spent. The closest to a bank you could run would be an investment firm.

You would have to provide yields above the rate of BTC deflation (I'm guessing 2-6% akin to gold after the adoption period) though.

You could also loan money against collateral - however you could only do so ONCE. Money is no longer just circling around bank databases so you can't loan out the same money 5-10 times as is done today.

However all core bank functions; card payment, ATMs, accounts and transfers would become irrelevant with BTC:

Selfish clients at retailers accept pure BTC cards, ATMs are not necessary as BTC payments can be made even with simple phones, wallets are the new accounts and transfers are as easy and cheap as email.


I'm sure the free market will still make mistakes, but in a BTC future they might well be smaller and much less catastrophic than today.

Obviously along with the anonymity this means BTC could change the entire world structure and I don't think many people fully realize this.
What are your thoughts on this hypothesis?


If I am right and bitcoin does not fail somehow - what will happen when the big banks discover this? Death penalties for any merchants revealed to be accepting BTC?

Will the most productive parts of the economy be using BTC slowly leaving the US, Greece and such behind?

I'm thinking only partially here, it cannot be denied that these places have workforce and natural resources and that BTC trade could to some extent be suppressed locally.

On the other hand it would be easy to hide on the internet even in the US and convert $ to BTC and back - essentially leading to de facto mass abandonment of the $ and thus rapid $ inflation as the market realizes no one wants to hold it and that everyone has the means to achieve just that.

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matthewh3
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February 27, 2012, 02:13:58 AM
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I don't think Bitcoin could kill off banks totally.  Holding all your funds on your hard-drive is not safe due to malware, viruses, hackers, hard-drive errors and your hard-drive dying.  So there will always be a call for a central place's to store wealth.  Once these centres/banks have all these deposits they can lend it, invest it and so on.  So Bitcoin does not mean the end of banks or central reserves.

Stephen Gornick
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February 27, 2012, 04:01:17 AM
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Related:

 - http://en.bitcoin.it/wiki/Fractional_Reserve_Banking_and_Bitcoin
 - http://bitcointalk.org/index.php?topic=22553.0
 - http://www.webisteme.com/blog/?p=192

Realpra
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February 27, 2012, 04:41:40 AM
 #4

Matthewh3:
There probably would be banks left, but I think they would become so rare there might as well not.

I think in time people will come to trust a backed up and highly encrypted file far more than the banks we have today.

I mean yes trojans exist, but where would you be most likely to loose your money today?

I am investing practically all my money in an industrial wind turbine right now, but when/if I have cash I might well put almost all of it in a BTC wallet.
Greece anyone?


Stephen Gornick:
Of course they can do fractional banking just as it has been done with gold for centuries - However unlike with GOLD, you don't NEED a bank with BTC.
Bitcoin security is easily better than that of many banks, you run no risk of default on your credit, tax grabbing, fees or account freezing.

Further as soon as merchants/workplaces take/pay BTC there will be no reason to even have an account for a credit card.

Why do you use a bank? Me:
1. Money storage (-> BTC wallet)
2. Money transfer (-> BTC transfer with NO fee)
3. Easy use credit card (-> future BTC cards/phone apps)

If using a bank does not give an advantage why should I trust them or even bother to open an account? I am a lazy person after all... and so are most!


Just imagine what will happen to the Swiss slush fund banks when the dictators of the world discover bitcoin and the virtues of a long password.

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qualalol
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February 27, 2012, 07:35:59 AM
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Banks won't disappear, although they certainly would be marginalised.

Yes, most people use banks for money storage, transfer and loans. However banks do provide much more, especially in terms of investment services / wealth management, stock trading etc (with my bank account I have access to almost everything financial from one provider, and also from one online interface). I don't see this disappearing if bitcoin becomes the standard.

Furthermore, I would prefer to have a bank account to keep most of my money safe in, since I trust a bank more in its capabilities of keeping my money/BTC safe than I trust myself (add to this the fact that you would probably be given interest when depositing BTC with a bank -- won't happen if you store your btc under the mattress). (Although it's only Swiss banks that I trust -- I wouldn't keep significant amounts in UK banks due to my previously poor experiences with them.) Finally -- even if I did store an encrypted or paper wallet -- I would probably place the physical item (paper/USB stick / etc.) in a safe -- which I can rent at the bank.
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February 28, 2012, 07:32:05 PM
 #6

There are already Bitcoin banks now. Check out IBB and the lending section of this forum.

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cryptoanarchist
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February 28, 2012, 08:16:42 PM
 #7

Banks as we know them should disappear, but physical exchange locations might still exist. There might be a need down the road to be able to easily convert bitcoins to physical currency like silver/gold.
hashman
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February 29, 2012, 11:43:16 AM
 #8

BS!

Did publishing disappear after Gutenberg? 
To use Falkvinge's analogy: Did ice sales and cold storage end after refrigerators were invented? 
Are you saying bitcoin will kill flexcoin, blockchain.info, and mtgox?   


No, publishing technologies -help- publishers.  Mp3 has helped and will continue to help musicians.  And new financial technologies will help banks.

Sure, there will be some banks that fail because they don't embrace what people want fast enough but others will profit. 
Blockbuster has struggled but look at Netflix. 

New tools for finance and commerce will only give banks more business, not less!!!   

The only thing bitcoin tries to kill off is fraud via counterfeiting and other secret money creation. 

While some will be happy to keep paper wallets under their pillows others will want to use a bank. 

You can take that the bank. 



rebuilder
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February 29, 2012, 12:02:06 PM
 #9

Banks and the CC companies do a lot of things, but let's talk about lending.

People want loans. They want them so much, they're willing to pay for the money they get, in the form of interest. This is true now, it's likely to be true in the future. Bitcoin won't change that.

Personally I'm skeptical very many will want to handle their own security vis-a-vis wallets, but even if I turn out to be wrong, all a bank needs to do to draw deposits is to offer sufficient interest on them. Even in the worst case (for the bank), they'd just need to offer higher interest on deposits than banks currently do, and correspondingly charge higher interests on loans, but that's not going to stop lending. As long as the returns on loans given out are greater than the costs of operating, lending is profitable.

If, in this scenario. the long-term situation remains such that interest rates stay high, the banks may have an incentive to hold significant reserves of their own money for lending  purposes, as this reduces the need for expensive (for the bank) deposits to finance lending. So, even if Bitcoin banking starts off small, and no established, large institutions enter the market, any long-term players in the lending business are likely to take as much of their profits as they can and hold it for lending to get a competitive edge in the form of the ability to lend at lower rates.

This is all pretty premature IMO. Bitcoin lending may spring up in a bigger way soon enough. Probably it's going to get quite ugly. There will be fractional reserve banking, but at first anyway, it's going to be wild west - style, with little to no assurance on the level of reserves actually held by lenders.

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February 29, 2012, 01:01:08 PM
 #10

Yeah there is already a lending bank available, as was mentioned IBB, http://www.ib-bitcoin.com/

They're a dividend paying share on GLBSE.

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pusle
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February 29, 2012, 09:44:17 PM
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With todays fiat system private banks can create money. This is not possible with bitcoin.
The total amount of bitcoin in the world is still controlled by the bitcoin network and outside of banks control.

Fractional reserve can still easily exist with bitcoin, but only if users allow it.

I would only deposit my money into my own account/address with the bank.
Then I could monitor what the bank did with the money. I'd either have an app on my own computer or
buy some monitoring service from a 3rd party.

I guess you could also have bitcoin scripts making it impossible for the bank to move your money without
your "signature". But then why not just do your own banking and have that safety key with a 3rd party service.

If you don't hate fractional reserve like I do, feel free to put your money in a bank without these safeguards.
But remember this is like investing in the stock market. Suddenly all your money can be gone.



PatrickHarnett
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March 01, 2012, 12:27:19 AM
 #12

There are already Bitcoin banks now. Check out IBB and the lending section of this forum.

+1

And a plug for Starfish BCB

Quote
With todays fiat system private banks can create money. This is not possible with bitcoin.

Really?  I'd love to see them try that.
Etlase2
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March 01, 2012, 01:18:56 AM
 #13

It's going to be really, really tricky to pull off lending in bitcoin on a large scale. Fractional reserve will be difficult if not impossible. Most deposits available to loan would have to be CD style deposits that can't be touched for some time. No FDIC or its equivalent will make people much more wary. Interest? Very hard to say. I personally would love to see a global-scale JAK style banking system emerge (http://en.wikipedia.org/wiki/JAK_Members_Bank). But, realistically, I think there will be little to no lending with bitcoin as long as it has to compete with devaluing fiat. It just makes so much more sense for the borrower to use fiat instead.

MPOE-PR
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March 01, 2012, 02:22:58 PM
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Quote
It's going to be really, really tricky to pull off lending in bitcoin on a large scale. Fractional reserve will be difficult if not impossible.
You might want to give a look here.

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March 01, 2012, 06:40:52 PM
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I personally would love to see a global-scale JAK style banking system emerge (http://en.wikipedia.org/wiki/JAK_Members_Bank).
The JAK system seems to be little more than thinly-disguised slight-of-hand. All they really did was force the interest paid/received to be in a different currency ("saving points") than the principle. It's still a form of interest.
qualalol
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March 01, 2012, 07:00:23 PM
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Banks and the CC companies do a lot of things, but let's talk about lending.

People want loans. They want them so much, they're willing to pay for the money they get, in the form of interest. This is true now, it's likely to be true in the future. Bitcoin won't change that.


You seem to be seeing the world out of the eyes of the average anglosaxon...

Having lived in Switzerland for a few years I can tell you that there are considerable groups of people who do not live on debt -- I know of only one person who has a loan there -- specifically a mortgage (house-ownership in Switzerland is uncommon -- most people rent, which means that mortgages are rare -- credit cards do exist but are mostly paid off monthly), most of the Swiss do not rely on the bank for a loan, instead they rely on the bank to keep their money safe, and less often to manage their investments.

There are certainly loans given out for businesses -- this is something I currently know too little about to compare.

Whether or not the above is a factor in the higher quality of life in Switzerland is certainly debatable.
Etlase2
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March 01, 2012, 07:09:17 PM
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I personally would love to see a global-scale JAK style banking system emerge (http://en.wikipedia.org/wiki/JAK_Members_Bank).
The JAK system seems to be little more than thinly-disguised slight-of-hand. All they really did was force the interest paid/received to be in a different currency ("saving points") than the principle. It's still a form of interest.

What an odd viewpoint. Would you rather not pay interest on your mortgage in cost-free savings points or in cash? The savings points allows other people to borrow your money and then when you have enough you may borrow theirs. It encourages saving and it encourages an interest-free economy. How is that a bad thing? There is no necessity to create more currency. The JAK bank system is basically non-profit only charging membership dues to pay for a small staff. There is no sleight-of-hand going on here that I can see. Besides, how much interest do you earn on your checking account? 0.05%? How much is a mortgage rate, 3-6%? There is quite a discrepancy there.

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March 01, 2012, 07:12:55 PM
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Quote
With todays fiat system private banks can create money. This is not possible with bitcoin.

Really?  I'd love to see them try that.
[/quote]
You've heard of the Federal Reserve haven't you?

PatrickHarnett
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March 01, 2012, 07:41:33 PM
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Quote
With todays fiat system private banks can create money. This is not possible with bitcoin.

Really?  I'd love to see them try that.
You've heard of the Federal Reserve haven't you?
[/quote]

The quote was that "private" banks could make their own money.  Sure the Government of the country can inject additional printed currency into circulation via their version of a central bank.

So, when Chase or WellsFargo start printing and issuing, make sure you're in line and spend early.
Etlase2
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March 01, 2012, 08:00:49 PM
 #20

Private banks do create their own money via collateral (mortgages, cars, etc.) and fractional reserve.

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