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Author Topic: Keeping the economy honest  (Read 1816 times)
ryepdx
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May 02, 2011, 12:31:01 PM
 #1

From what I can tell, bitcoins embody a democratic, open approach to currency and economics. I like this about bitcoins, and I imagine I'm not the only one. However, I'd like to try extending this approach to the institutions that the bitcoin economy builds itself on. These institutions are, after all, going to pop up and provide the foundation for most of the latter-day companies that enter the arena. MyBitcoin and their SCI, which quite a few vendors have come to rely on (from what I can tell), is a prime example of this. If these institutions are not likewise democratic and open, they will serve to attenuate the tone of the entire economy. Bitcoins cannot be printed, but they are really hard to tie to any given individual or organization. If a bitcoin bank were to misrepresent the number of bitcoins they were in possession of and loan out more than they had, they would effectively be printing money. If they were to use different addresses for every deposit, verifying the amount of money they actually had on hand would be nearly impossible.

I think that it would be in our best interests as a group to create practices and institutions that will keep the foundation of this economy as open and democratic as the currency itself. I've begun a service similar to MyBitcoin for this purpose, and I have a couple ideas on how to keep it open and accountable, but without a system for the communal government of a bitcoin service I'm afraid it'll end up just being me over in a corner with my service enacting policies to satisfy my own ideology like some South American dictator.

My initial thoughts are to either have a direct democracy for the direction of the website, with open proposals and direct voting, or else a representative government, where elected leaders are given the right to run the website for either a term or for as long as they service the will of the customers, whichever comes first. The end result I want is a system by which a bitcoin service can be run efficiently, with its workings visible to the public and its leadership directly accountable to the people they are serving.

Does anyone have any ideas on how that might be achieved?

Also, does anyone have any ideas on how a community might be able to keep an institution honest? As far as banks go, I was thinking it might be wise to organize annual or semi-annual bank runs, where all the customers of a bank withdraw all their holdings at the same time. This would help keep banks from playing fast and loose with other people's bitcoins and would force them to keep their dealings at least partially transparent.

What do you think of this idea? Does anyone have any more ideas like this? Or am I barking up the wrong tree entirely?
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kiba
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May 02, 2011, 12:33:35 PM
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From what I can tell, bitcoins embody a democratic, open approach to currency and economics.

Bitcoin is not democratic. It is voluntary.

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May 02, 2011, 02:01:18 PM
 #3

Also, does anyone have any ideas on how a community might be able to keep an institution honest? As far as banks go, I was thinking it might be wise to organize annual or semi-annual bank runs, where all the customers of a bank withdraw all their holdings at the same time. This would help keep banks from playing fast and loose with other people's bitcoins and would force them to keep their dealings at least partially transparent.

Hey, that sounds like a pretty good idea!  Imagine if we organized something like that around the bricks-and-mortars banks.  We'd be labeled as terrorists.

"A small body of determined spirits fired by an unquenchable faith in their mission can alter the course of history." --Gandhi
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May 02, 2011, 03:42:35 PM
 #4

If a bitcoin bank were to misrepresent the number of bitcoins they were in possession of and loan out more than they had, they would effectively be printing money.

Can you explain how you send more bitcoins than you have?

You can't. That's kind of the point. Fractional reserve banking is what it's called:
You have people who deposit funds in your bank for safe keeping, convenience, financial gain, whatever. Only a limited percentage of those funds will actually be withdrawn in any given timeframe, so you calculate that you can give out, say, 150% of funds people have actually deposited into your bank as loans, increasing your profits. As long as there's no bank run, no-ones the wiser.

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May 02, 2011, 03:46:04 PM
 #5

It's an interesting thought experiment and it's not entirely impossible either; say for example, if Mt Gox became sufficiently large, after they compiled statistics on their average cash withdrawals and deposits per day, they could quite feasibly loan out their hard currency on the interbank market; they may potentially already be doing this, however, it is extremely unlikely it would ever have any impact on users unless they are lending the funds out for extended periods, in which case a run becomes possible, otherwise, worst case scenario is that someone has to wait an extra 24 hours for their withdrawal.

The same could potentially be applied to BitCoins, but with the current level of market activity and the nature of the system itself, there's no real feasibility to it.
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May 02, 2011, 04:09:25 PM
 #6

If each bank account is a bitcoin address, would it then be possible to monitor automatically how much money remains?

Each bank customer can set how much of their deposits the bank is allowed to use.
If you specify 0% this would mean the bank just stores your money and you'd have to pay a fee.
If you specify 25% perhaps then it would be free, but you earn no interest.
At 50%, you earn a small interest
At 90%,  you earn max interest

Your monitor software or service is then programmed to warn you if the account drops below your specified limit. The software or service could also provide stats for different banks, how much reserve they have on average.

Could this be implemented in practice?

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May 02, 2011, 04:59:15 PM
 #7

This isn't hard to do with Bitcoin.

The block chain is already public.

You could for example use a single Bitcoin address for each bank account.

The customer can then simply use the block explorer to see if her coins are still there.
 
You could also publish ALL Bitcoin addresses owned by your bank, but without saying which one corresponds to which bank account.

You could even prove that your bank has X amount of Bitcoin in the vault by digitally signing  requests from inspectors, journalists, etc. with the private keys of your Bitcoin addresses.

This degree of verfiability and transparency would eliminate the need for a democratic bureaucracy.
no to the gold cult
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May 02, 2011, 05:05:06 PM
 #8

If a bitcoin bank were to misrepresent the number of bitcoins they were in possession of and loan out more than they had, they would effectively be printing money.

Can you explain how you send more bitcoins than you have?

You can't. That's kind of the point. Fractional reserve banking is what it's called:
You have people who deposit funds in your bank for safe keeping, convenience, financial gain, whatever. Only a limited percentage of those funds will actually be withdrawn in any given timeframe, so you calculate that you can give out, say, 150% of funds people have actually deposited into your bank as loans, increasing your profits. As long as there's no bank run, no-ones the wiser.


oh fer crying out loud. Roll Eyes

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mewantsbitcoins
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May 02, 2011, 05:08:17 PM
 #9

If a bitcoin bank were to misrepresent the number of bitcoins they were in possession of and loan out more than they had, they would effectively be printing money.

Can you explain how you send more bitcoins than you have?

You can't. That's kind of the point. Fractional reserve banking is what it's called:
You have people who deposit funds in your bank for safe keeping, convenience, financial gain, whatever. Only a limited percentage of those funds will actually be withdrawn in any given timeframe, so you calculate that you can give out, say, 150% of funds people have actually deposited into your bank as loans, increasing your profits. As long as there's no bank run, no-ones the wiser.


http://www.youtube.com/watch?v=ZPWH5TlbloU
no to the gold cult
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May 02, 2011, 05:10:40 PM
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Quote
You can't. That's kind of the point. Fractional reserve banking is what it's called:
You have people who deposit funds in your bank for safe keeping, convenience, financial gain, whatever. Only a limited percentage of those funds will actually be withdrawn in any given timeframe, so you calculate that you can give out, say, 150% of funds people have actually deposited into your bank as loans, increasing your profits. As long as there's no bank run, no-ones the wiser.

Quote
The reserve requirement (or cash reserve ratio) is a central bank regulation that sets the minimum reserves each commercial bank must hold (rather than lend out) of customer deposits and notes. It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank.

The reserve ratio is sometimes used as a tool in the monetary policy, influencing the country's borrowing and interest rates by changing the amount of loans available.[1] Western central banks rarely alter the reserve requirements because it would cause immediate liquidity problems for banks with low excess reserves; they generally prefer to use open market operations (buying and selling government-issued bonds) to implement their monetary policy. The People's Bank of China uses changes in reserve requirements as an inflation-fighting tool,[2] and raised the reserve requirement nine times in 2007. As of 2006 the required reserve ratio in the United States was 10% on transaction deposits and zero on time deposits and all other deposits.

An institution that holds reserves in excess of the required amount is said to hold excess reserves
.

http://en.wikipedia.org/wiki/Reserve_requirement

It's not some sort of scam, it's merely how the system works.

Jeesh, Fucking zeitgeist.

Yes there is corruption in banking, and an enforcement gap in fact, many many problems indeed. But at least understand the problem, let's drop all this 'black helicopters' shit. Personally, I don't want people to think bitcoin is for wing-nuts.

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theymos
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May 02, 2011, 08:23:13 PM
 #11

Bitcoin is not democratic. It is voluntary.

Agreed. Democracy is the enemy of liberty.

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ryepdx
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May 02, 2011, 08:53:01 PM
 #12

Bitcoin is not democratic. It is voluntary.

Sorry, I meant democratic in the sense that it currency is "issued" by the users of the currency instead of a central organization, and in the sense that it would take a majority of us agreeing on a change to the bitcoin system for such a change to take place. Granted, we would be splitting the block chain and thus would not be a true democracy, as the minority would not be forced to go along with the majority. I say "democratic" for lack of a better word. The essence of what I am trying to say is that bitcoins tip the balance of power over currency away from central organizations and back into the collective hands of the currency holders. "Voluntary" is, I see, probably more accurate, though not exactly the word I was looking for as it fails to capture the redistribution of power the bitcoin system entails.

Hey, that sounds like a pretty good idea!  Imagine if we organized something like that around the bricks-and-mortars banks.  We'd be labeled as terrorists.

Which is why I think it would be a good idea to start any preventative practices now, while our community is still nascent. Once the normals start pouring in it'll be quite hard to start such a movement for that very reason. "You want me to do what? Isn't that bad?"

Can you explain how you send more bitcoins than you have?

Of course. When your bitcoins are held by a bitcoin bank, the only assurance you have that the bitcoins are still there is the number on your screen and, someday, your ATM receipt. Bitcoins are like cash minus the infini-flation and are subject to many of the same abuses.

As far as the rest of your post, the way to keep organizations honest is to be a knowledgeable consumer/user and don't use the organizations that do business in ways you dislike.

I understand. Unfortunately it's not that simple, though I wish it were. Being a "knowledgeable consumer/user" isn't possible if an organization lies well. I was too young at the time to remember any details, but I understand this is what happened with Enron. Sure, they went under eventually and all their lying caught up with them, but by that time the damage had been done. I don't think there's anything wrong with consumer activist groups helping keep willing businesses transparent and forcing the unwilling ones (through peaceful means, by my ideology) to do the same.

If a bank is practicing fractional reserve while claiming full reserve, well that's fraud.

True enough. Though I would argue that it is also an undesirable state of affairs akin to fraud, though obviously not the same as fraud, when there is a disconnect between what a bank's customer means when they say "fractional reserve" and what the bank means when they say "fractional reserve." The bank's culpability in such a case would come in degrees directly correlated to how clear or obfuscated they chose to make their use of their customers' money. After all, nobody should be held liable for another person's willful ignorance; nor should a person be faulted for believing falsely when another deceives them.

Each bank customer can set how much of their deposits the bank is allowed to use.
If you specify 0% this would mean the bank just stores your money and you'd have to pay a fee.
If you specify 25% perhaps then it would be free, but you earn no interest.
At 50%, you earn a small interest
At 90%,  you earn max interest

Your monitor software or service is then programmed to warn you if the account drops below your specified limit. The software or service could also provide stats for different banks, how much reserve they have on average.

Could this be implemented in practice?

Yes, actually. My initial thoughts were to keep the loaning institutions and the banking institutions separate, at least in terms of interface. But if one wanted to keep them together and allow fractional reserve banking while keeping things voluntary and transparent, that would be a pretty good way to do it.

Couldn't one monitor a banks transactions through block explorer?

The block chain is already public.

You both make really good, really obvious points. I can't believe I overlooked that. I fail.

Though I can see how the bank run idea *could* become relevant if a bank were to become big enough to offer "instant transfers between bank members and improved interest rates" if only every participating member sends their bitcoins to the same address and uses the bank's interface to transfer. But you both are right: the system itself resists allowing a person to unwittingly become party to fractional reserve banking.

It's not some sort of scam, it's merely how the system works.
...
Yes there is corruption in banking, and an enforcement gap in fact, many many problems indeed. But at least understand the problem, let's drop all this 'black helicopters' shit.

Fair enough. Although as far as I'm concerned, banks should be full reserve unless a person opts in to some sort of well-defined investment or loaning program. Loans should follow as direct a path between the source of the money and the recipient as possible. Think Kiva, but on a bigger scale. That's my dream system at present.

Btw, any ideas on how one might allow/encourage community ownership and development of a bitcoin service? The bank run idea was obviously a bust, fractional reserve banking being impossible to pull off without a vigilant account-holder's knowledge thanks to the block chain.

Edit:
I really do think the development of more freely available, non-profit, public bitcoin services would be in the best interest of the bitcoin community. I mean, it wouldn't be a bad thing if people could exchange their currency for bitcoins at no cost, right? And pulling my money in and out of a bank for free and without restriction (as MyBitcoin allows) is good too, right? And allowing a bank's customers to add new services to the bank, a la Facebook apps, and allowing the same to peruse the source code of the bank's system to audit and learn and perhaps start their own services would, in fact, be in the community's best interests, right? That is, after all, what I am hoping to accomplish with my service. Am I preaching to the choir or am I out of tune here?
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May 02, 2011, 09:26:27 PM
 #13

Bitcoin is not democratic. It is voluntary.

Agreed. Democracy is the enemy of liberty.

Yeah. Democracy has been bastardized to mean Authoratize come and make you pick someone to hire more bureaucracy with your own money to tyrannize you for a few years until you get to pick again and a new asshole can add to the bureaucracy.

Democracy ought mean that people determine what is right for themselves, but since it doesn't anymore, fuck democracy.

Play Bitcoin Poker at sealswithclubs.eu. We're active and open to everyone.
ryepdx
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May 02, 2011, 10:26:17 PM
 #14

I agree up to the forcing part. A private or non-profit consumer group would be great! If businesses don't want to participate, they should not be forced though. It would be up to the consumer to avoid their product.

Okay, I can agree with that. By "forcing" I simply meant creating an environment hostile to opaque business practices.

Anyone up for creating a consumer advocacy group of some sort?
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February 15, 2014, 03:43:15 AM
 #15

Try honestCoins

You are a smart man...I believe you might be knowledgible enough to understand

An economy is a political system with people's ability to proxy their votes according

to their ability or power to leverage themselves against the system...

If we start this...it has to be done in front of the governments and people of the world

so that there is no doubt about the implementations of the system...

the system only implies one-thing there is no toleration on cheating.


Yet the world is big and time shall bring cheating with it...when enough curious minds will learn how to break the system

The first curious guy probably we don't worry about cause he honestly was in the search...

The second guy need only find the solution to save the system or break the system...

The third guy need only judge if it is worth his while...

My designs for this coin may just ensure world peace...and if we are the ones to get it...we might be allowed to continue smoking the weed...
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