Why There Should Be A Bitcoin Central Bank

[LakeBTC]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

[toinew]

interest paid in bitcoin or in fiat ?

that would lead to the creation of "paper" bitcoin, because the bitcoin at the bank would worth less than a "real" bitcoin

, so by this banking magic trick you can have more than 21 millions bitcoins in circulation.
Also, an exchange should not be a bank.

Bitcoin individual wallets should be secure enough so as banks are not needed.


Also, why 80% fractional reserve ? if 80% why not 50% then 20, then 10, then 1% ?

There are 21 millions coins, the customers coins are not yours, and they should not be yours.

[keithers]

The elimination of a central bank is one of the key factors in the creation and the beauty of BTC.   A central bank would just be to apply old school banking procedures to crypto-currencies.   Not to mention a central bank would quickly become the target of more cyber attacks than probably anything on the planet.

[fryarminer]

People who want banks should just use cash.

[Death]

BTC itself is a central bank, owned by the people. at least until some dude hoard all the money, again.

[nioc]

So Forbes says we need a "central" btc bank with "fractional reserve" banking.

That's it I'm in

[jonald_fyookball]

this article is retarded.  demand for bitcoin can never go unmet because it's divisible. duhh. it just deflates (appreciates) in value.  there is no need for central banks or for fractional reserves.

[Divinespark]

I am also a little lost
I thought the whole point of cryptos is to get out of the bubbles that the fractional reserve banking business entails

[deepestfear]

Absolutely against any centralising force in the ecosystem such as a Central Bank
Take responsibility for your wealth. BTC acts like a distributed central bank.

[bornil267645]

The reason for inventing Bitcoin is to avoid Bank, not just to use one.

[Swordsoffreedom]

People who want banks should just use cash.

A central bank is not needed in Bitcoin
Services that can convert bitcoin to local currencies and relationships will work.

As for reserve ratios fees will be greater in the long run and those will do the same work as fractional banking.
Simply put a 1% fee traded a hundred times will follow the same multiplier effect that a fractional reserve uses by utilizing its own profit margin and keeping it in Bitcoin the reserve ratio of the bank will artificially grow to cover the positions they have in the exchange.

As a result volume and trading will in time provide their own form of fractional reserve banking but actually be based on real assets.

[QuestionAuthority]

Isn't this what Realcoin is doing?

[rax]

Haha yeah, right. No. Maybe I totally missed the point but I always thought that exchanges were meant to exchange fiat money for altcoins and viceversa, not to engage in any kind of lending.

[zetaray]

There shouldn't be any central bank for bitcoin because it will just inflate the money supply. The blockchain is the central "bank" in the form of a ledger.

[lihuajkl]

Don't think a good idea! Once btc banks go to bankruptcy, no matter which customers will be losing BTC. There is no central government who will insure your BTC depost. There is no way to guarantee your fund.

[titulng]

Haha yeah, right. No. Maybe I totally missed the point but I always thought that exchanges were meant to exchange fiat money for altcoins and viceversa, not to engage in any kind of lending.

what do you mean?

[Plank]

There is no bitcoin central bank but there are bitcoin central wallets which regulate the bitcoins. Probably of the makers.

[intron]

that would lead to the creation of "paper" bitcoin, because the bitcoin at the bank would worth less than a "real" bitcoin

At some point in time there will be paper bitcoin.
Just like paper gold, paper wheat and paper
pork belly. Just wait for the guys from Wall Street
march in...

[rax]

Haha yeah, right. No. Maybe I totally missed the point but I always thought that exchanges were meant to exchange fiat money for altcoins and viceversa, not to engage in any kind of lending.

what do you mean?

Alright, let me elaborate this a little. The point of the fractional reserve scheme is to allow banks to lend more money than they actually have in its vaults. That's why banking is inherently a risky (and I'd say fraudulent) business, and why a central bank is needed to guarantee deposits, prevent bank runs and instill trust to the depositors.

What I meant to say is that the exchanges' core business is not banking, so none of this applies.

Moreover, central banks can print as much money as they feel like (and they need to be able to do that in order to fulfill their duties). Where would a bitcoin central bank get their bitcoins from?  

[bitsmichel]

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

In a capitalist system any company can fail or succeed, it's up to the company to make profits not up to society. Therefore the current system enforced by the government is not a capitalistic system.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

There is no mystery, Mr. Karpales has them  

[blatchcorn]

This article just demonstrates how little some people know about Bitcoin

[spazzdla]

You support fractional banking..

GEt out.

[Aemon]

I guess what happens if someone is able to hack all the accounts...? 

I think it would sort of suck for someone to completely take over the Bitcoin network and have all the money with no way of reversing it...

At least banks now can reverse transactions so that can protect your money..

[CurbsideProphet]

I guess what happens if someone is able to hack all the accounts...? 

I think it would sort of suck for someone to completely take over the Bitcoin network and have all the money with no way of reversing it...

At least banks now can reverse transactions so that can protect your money..

I don't think you really understand how Bitcoin works, you can't "hack" all the accounts.  You can take over the network with a 51% attack (see wiki for details) but that's not something that would have to be permanent.

[Razick]

The beauty of blockchain technology is that it allows Bitcoin banks to prove solvency while operating on fractional reserve principle. Banks should publish information about their reserves, assets and liabilities and provide as much proof as possible. Consumers should base their decisions about how much to deposit in a given bank on that information.

A non-government organization could provide an easy to read risk-assessment of various banks so that customers could make informed decisions without having to be educated on banking practices.

I don't think you really understand how Bitcoin works, you can't "hack" all the accounts.  You can take over the network with a 51% attack (see wiki for details) but that's not something that would have to be permanent.

Not only is it not permanent, but its effects are also very limited. The attacker cannot mint new coins or steal from other's wallets, they can only double spend their own transactions. According to the wiki:

An attacker that controls more than 50% of the network's computing power can, for the time that he is in control, exclude and modify the ordering of transactions. This allows him to:

Reverse transactions that he sends while he's in control. This has the potential to double-spend transactions that previously had already been seen in the block chain.
Prevent some or all transactions from gaining any confirmations
Prevent some or all other miners from mining any valid blocks

[Fearless]

People who want banks should just use cash.

Absolutely,bitcoin is better as it is,there is no need of any change in its state and it isn't possible as well

[R2D221]

I guess what happens if someone is able to hack all the accounts...? 

I think it would sort of suck for someone to completely take over the Bitcoin network and have all the money with no way of reversing it...

At least banks now can reverse transactions so that can protect your money..

I don't think you really understand how Bitcoin works, you can't "hack" all the accounts.  You can take over the network with a 51% attack (see wiki for details) but that's not something that would have to be permanent.

One can, however, hack the server with all of the hypothetical bank's private keys, and then empty all of them. (Hasn't this happened already?)

[Chris_Sabian]

A fractional reserve banking system and a central bank was just the problem that Satoshi had and the reason why Bitcoin was created. 

This is a absolutely terrible idea.

[jonald_fyookball]

The beauty of blockchain technology is that it allows Bitcoin banks to prove solvency while operating on fractional reserve principle.

so, say that there are several bitcoin banks proving solvency.  one has 100% of reserves, one has 50% , and one has 10%.  Which one will you pick? 

Do see where I am going with this?   Those operating on fractional reserve will be outcompeted.

[odolvlobo]

The beauty of blockchain technology is that it allows Bitcoin banks to prove solvency while operating on fractional reserve principle.

so, say that there are several bitcoin banks proving solvency.  one has 100% of reserves, one has 50% , and one has 10%.  Which one will you pick?  

Do see where I am going with this?   Those operating on fractional reserve will be outcompeted.

Not if they pay interest on deposits.

[jonald_fyookball]

The beauty of blockchain technology is that it allows Bitcoin banks to prove solvency while operating on fractional reserve principle.

so, say that there are several bitcoin banks proving solvency.  one has 100% of reserves, one has 50% , and one has 10%.  Which one will you pick?  

Do see where I am going with this?   Those operating on fractional reserve will be outcompeted.

Not if they pay interest on deposits.

sounds like a Ponzi to me

[bitkilo]

We don't need a btc bank thats what btc is all about, no 3rd party who controls our money. If you are using bitcoin then welcome to the world of taking your finanical security in your own hands.
I guess coinbase vault is like a bank but you don't get interest or protection if it's stolen, they will just secure your btc on paper wallets in some bank vault, or sock draw who knows.
If any thread might get satoshi to pitch in this is it, he would being saying to himself they don't understand. 

[tupelo]

Yes, bitcoin lets users be their own bank. It is all about circumventing the need for trust. This is what the blockchain does and why we don't need a bank.

[odolvlobo]

We don't need a btc bank thats what btc is all about, no 3rd party who controls our money. If you are using bitcoin then welcome to the world of taking your finanical security in your own hands.
I guess coinbase vault is like a bank but you don't get interest or protection if it's stolen, they will just secure your btc on paper wallets in some bank vault, or sock draw who knows.
If any thread might get satoshi to pitch in this is it, he would being saying to himself they don't understand.  

You want to buy a house or a car, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

[Razick]

You support fractional banking..

GEt out.

I love Bitcoin but rejecting fractional reserve banking wholesale is entirely irrational and, I would argue, impossible for anyone in favor of free markets to advocate. And no, I won't get out.

If Bitcoin is as successful as I hope it will be we will have fractional reserve banking, and yes, it will apply to Bitcoins just as it applied to gold. Some people here claim that it is impossible, but to me that just shows that they don't understand what fractional reserve banking is.

Yes, bitcoin lets users be their own bank. It is all about circumventing the need for trust. This is what the blockchain does and why we don't need a bank.

The blockchain provides only storage, not the other functions of banks. This guy gets it:

You want to buy a house, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

The beauty of blockchain technology is that it allows Bitcoin banks to prove solvency while operating on fractional reserve principle.

so, say that there are several bitcoin banks proving solvency.  one has 100% of reserves, one has 50% , and one has 10%.  Which one will you pick?  

Do see where I am going with this?   Those operating on fractional reserve will be outcompeted.

Not if they pay interest on deposits.

sounds like a Ponzi to me

It's not a Ponzi scheme if the money is being loaned out for productive use. Banking is all about letting someone else use your money productively when you don't need it. As a plus (when the Federal Reserve isn't manipulating interest rates) you get some of the profits in return.

[young3dvard]

It's not a Ponzi scheme if the money is being loaned out for productive use. Banking is all about letting someone else use your money productively when you don't need it. As a plus (when the Federal Reserve isn't manipulating interest rates) you get some of the profits in return.

If you have some money/gold/whatever you can lend it. But banks have the advantage in fractional banking to credit anybody new money out of thin air. If anybody else created new money it would be basically fraud, but banks can do it. Why?

Lending is usefull, but fractional banking is not necessary for this.

[itsAj]

A fractional reserve banking system and a central bank was just the problem that Satoshi had and the reason why Bitcoin was created.  

This is a absolutely terrible idea.

I agree. Avoiding to have to deal with central bankers and having to trust others with your wealth was one of the main reasons that bitcoin was created.

I also don't think it would really be possible to even implement something like this. A central bank would essentially need to be able to print it's local fiat currency which for the most part is very difficult to do. The bitcoin related banking infrastructure is simply not in place for a central bank to be able to properly function.

[jonald_fyookball]

You support fractional banking..

GEt out.

I love Bitcoin but rejecting fractional reserve banking wholesale is entirely irrational and, I would argue, impossible for anyone in favor of free markets to advocate. And no, I won't get out.

If Bitcoin is as successful as I hope it will be we will have fractional reserve banking, and yes, it will apply to Bitcoins just as it applied to gold. Some people here claim that it is impossible, but to me that just shows that they don't understand what fractional reserve banking is.

Yes, bitcoin lets users be their own bank. It is all about circumventing the need for trust. This is what the blockchain does and why we don't need a bank.

The blockchain provides only storage, not the other functions of banks. This guy gets it:

You want to buy a house, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

The beauty of blockchain technology is that it allows Bitcoin banks to prove solvency while operating on fractional reserve principle.

so, say that there are several bitcoin banks proving solvency.  one has 100% of reserves, one has 50% , and one has 10%.  Which one will you pick?  

Do see where I am going with this?   Those operating on fractional reserve will be outcompeted.

Not if they pay interest on deposits.

sounds like a Ponzi to me

It's not a Ponzi scheme if the money is being loaned out for productive use. Banking is all about letting someone else use your money productively when you don't need it. As a plus (when the Federal Reserve isn't manipulating interest rates) you get some of the profits in return.

Fair enough.  I say let the free market decide and let people choose their own risk level.
Provable reserve levels are a great vehicle for this.  maybe we will see something where
80% reserves are acceptable to people but 10% isn't.

[romerun]

so that we can have btc fractional reserve which most of us already hate ? But there are people out there are cool with fractional.

[Soros Shorts]

I think Bitcoin banks and lending are fine, as long as the blockchain remains as the medium for transactions and not some off-chain trading system dealing in paper bitcoins.

[BurtW]

Bitcoin lending will happen (already does).

If Bitcoin goes mainstream then Bitcoin banks will happen.

No amount of cussing and discussing this in a forum in the backwaters of the internet is going to stop it.  No amount of calling it stupid is going to stop it because if someone can make money doing it - they will.

So, when the time comes it will be up to you to personally decide if lending your precious BTC to a bank is worth the risk or not by looking at the various factors:  How much interest are they paying me?  Is the interest in BTC or fiat?  How is their insurance in case of theft or bank failure?  What is their reserves?  Do they periodically prove their reserves.  How much of my BTC do I want to risk and how much do I want to keep as cash, right here in my trusty Trezor?  Etc.

Also, when the time comes it will be up to you to decide if you are going to accept a Bitcoin susbstitute for payment or not.  Will you accept a check from a buddy's Bitcoin account that you can deposit in your Bitcoin account or cash in for actual real live Bitcoins at his bank?  If you do then you are participating in the fractional reserve system and accepting a Bitcoin substitute until you claim the real Bitcoins and during that time you have personally inflated the Bitcoin money supply - you.  What about the place you work?  Would you accept a Bitcoin check from them for your salary?  Or will you insist they pay you in "cash", that is actual Bitcoins from their wallet?  Assume you know the IOU is good. Does it hurt to accept an IOU until you get to their bank and have the bank put the BTC into your wallet?  Again, for that time you have made a personal decision to inflate the Bitcoin money supply.  You bastardo!

Fractional reserve banking of BTC cannot be stopped - it is a free market.

[Soros Shorts]

Assume you know the IOU is good. Does it hurt to accept an IOU until you get to their bank and have the bank put the BTC into your wallet?

No, it does not hurt to accept the IOU ... till one fine day I can no longer change it for real BTC because the bank has run out of them.

[bitkilo]

I think Bitcoin banks and lending are fine, as long as the blockchain remains as the medium for transactions and not some off-chain trading system dealing in paper bitcoins.

Good quote, this would be the only acceptable way of doing it i would think.

[Cortex7]

so that we can have btc fractional reserve which most of us already hate ? But there are people out there are cool with fractional.

Nobody who understands what fractional reserve is are cool with it, except for the bankers of course.

The problem is that very few people understand what fractional reserve is.

And because of this I think it's inevitable that fractional reserve layer will be placed upon bitcoin.

Of course the base protocol will remain pure, it might be a Bretton Woods system on Bitcoin. So we should (at least for some years) be able to continue trading BTC as if we were bullion dealers.

[Cortex7]

...if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand...

Banks all cover each others asses. One bank has a run and the others all chip in to cover it, they all sign in to a mutual insurance scheme, it's an old boys network if you will.

If that fails then the central bank ( a private org employed by gov ) steps in and fires up the presses.

[BurtW]

Assume you know the IOU is good. Does it hurt to accept an IOU until you get to their bank and have the bank put the BTC into your wallet?

No, it does not hurt to accept the IOU ... till one fine day I can no longer change it for real BTC because the bank has run out of them.

That is the risk of the IOU for sure.

If every single person on this forum today vows to never participate in a fractional reserve Bitcoin banking system and Bitcoin goes mainstream our numbers here will be totally swamped by the number of people who do not feel comfortable carrying - and possibly losing - cash.  They will want the nanny bank system to take care of them and protect them from the boogy men both real and imagined.  It is inevitable.

The up side is that those of us that choose to stay in, keep, spend, and receive real actual Bitcoins can.  We can take our paycheck down to the bank and cash it in for something precious and real.

In the current fiat system the IOU is the money so even if you are in "cash" it is just another form of note.  

It is a very useful form of fiat - very handy for buying BTC!

[itsAj]

I think Bitcoin banks and lending are fine, as long as the blockchain remains as the medium for transactions and not some off-chain trading system dealing in paper bitcoins.

I don't think we will ever see any kind of trading in the form of paper bitcoin. This would simply be too risky for the person accepting/receiving the paper bicoin. Even if the merchant were to check the balance associated with the paper bitcoin wallet prior to giving goods to the buyer, the buyer could still transfer the balance out of the address at a later point until there is a confirmed TX out of the address associated with the paper bitcoin.

This concept would only work if you are dealing with someone who is very trusted or if you are giving this as a gift to someone.

[Cortex7]

I don't think we will ever see any kind of trading in the form of paper bitcoin. This would simply be too risky for the person accepting/receiving the paper bicoin. Even if the merchant were to check the balance associated with the paper bitcoin wallet prior to giving goods to the buyer, the buyer could still transfer the balance out of the address at a later point until there is a confirmed TX out of the address associated with the paper bitcoin.

An interesting point.

The same could be said of paper gold certificates yet they make the bulk of the gold trade. But of course it is more difficult to take physical delivery of gold and so that probably explains it.  People trading certainty for convenience.

Wheras Bitcoin can quite easily be held by a user. So yes one would think promisory notes for bitcoin were risky and thus stupid, as do I. (I also think paper gold is risky).

This concept would only work if you are dealing with someone who is very trusted or if you are giving this as a gift to someone.

You obviously trust yourself close to 100%  (as do I), but take my word for it, there are many people out their who would rather trust a besuited "professional" especially when it comes to matters like private key security. Many people will be spooked to have the burden of private key security on their shoulders. Perhaps not for grocery money amounts but for their primary bank account, yes most will prefer to trade convenience for certainty. (IMHO)

[wasserman99]

I don't think we will ever see any kind of trading in the form of paper bitcoin. This would simply be too risky for the person accepting/receiving the paper bicoin. Even if the merchant were to check the balance associated with the paper bitcoin wallet prior to giving goods to the buyer, the buyer could still transfer the balance out of the address at a later point until there is a confirmed TX out of the address associated with the paper bitcoin.

An interesting point.

The same could be said of paper gold certificates yet they make the bulk of the gold trade. But of course it is more difficult to take physical delivery of gold and so that probably explains it.  People trading certainty for convenience.

Wheras Bitcoin can quite easily be held by a user. So yes one would think promisory notes for bitcoin were risky and thus stupid, as do I. (I also think paper gold is risky).

This concept would only work if you are dealing with someone who is very trusted or if you are giving this as a gift to someone.

You obviously trust yourself close to 100%  (as do I), but take my word for it, there are many people out their who would rather trust a besuited "professional" especially when it comes to matters like private key security. Many people will be spooked to have the burden of private key security on their shoulders. Perhaps not for grocery money amounts but for their primary bank account, yes most will prefer to trade convenience for certainty. (IMHO)

I think there is a very big difference between trusting a professional managing/handling your money and trusting some stranger that you recently dealt with from not stealing from you when they have the opportunity after the fact.

[Cortex7]

I don't think we will ever see any kind of trading in the form of paper bitcoin. This would simply be too risky for the person accepting/receiving the paper bicoin. Even if the merchant were to check the balance associated with the paper bitcoin wallet prior to giving goods to the buyer, the buyer could still transfer the balance out of the address at a later point until there is a confirmed TX out of the address associated with the paper bitcoin.

An interesting point.

The same could be said of paper gold certificates yet they make the bulk of the gold trade. But of course it is more difficult to take physical delivery of gold and so that probably explains it.  People trading certainty for convenience.

Wheras Bitcoin can quite easily be held by a user. So yes one would think promisory notes for bitcoin were risky and thus stupid, as do I. (I also think paper gold is risky).

This concept would only work if you are dealing with someone who is very trusted or if you are giving this as a gift to someone.

You obviously trust yourself close to 100%  (as do I), but take my word for it, there are many people out their who would rather trust a besuited "professional" especially when it comes to matters like private key security. Many people will be spooked to have the burden of private key security on their shoulders. Perhaps not for grocery money amounts but for their primary bank account, yes most will prefer to trade convenience for certainty. (IMHO)

I think there is a very big difference between trusting a professional managing/handling your money and trusting some stranger that you recently dealt with from not stealing from you when they have the opportunity after the fact.

My point is that even "proffessionals" are just strangers in suits and can not be fully trusted.

I say I trust myself more than any professional, to expect any stranger to give a shit about you is rather naive, they will only pretend to while they are being paid.

Remember this is after all why bitcoin was created, to keep a public ledger without having to trust anyone.

[montello]

Why create a BTC Central Bank when the whole concept of BTC is to mitigate the fractional reserve banking experienced in normal banking routine.

[BADecker]

What are the things that a central bank does? The good things are, keep a ledger of transactions, hold money in accounts so that people don't have to drag it around with them, allow the money to flow in and out on demand. These are the exact things that the Bitcoin protocol and the blockchain do.

The bad things that the banks do is, use money regulation to rob from the poor and give to the rich, free up other people's money for governments to use to make wars, foreclose on people when they have no right... and if you think about it a little, you can come up with all kinds of other things like these. Bitcoin doesn't do any of these.

So, what do you want? Freedom to keep your own money without financing all kinds of wars and disturbances around the world? Or a little stability in life that the banks might provide so that you can feel comfortable about the value of your bitcoins. Actually, the value of the Dollar hasn't been fluctuating in those wide swings against Bitcoin in recent months like it was there for awhile. So you even have the stability.

[johnyj]

The whole concept of "lending is good for economy" is a scam, it is an excuse for banks to rob people with interests and doing fractional reserve practice to collect more interest

People must first save and then spend to drive a risk free economy, as soon as there is lending, there is always a risk for default, you can not eliminate that risk through any kind of system design. Now government reduce the risk of individual default by introducing insurance system, and then the default has went to national level, and everyone have to pay for it if many people defaults

[Bitcoinpro]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

ill email all the major exchanges for their reserve ratio's and post the replies on here within 2 weeks and whether or not they have replied

[QuestionAuthority]

Sometimes watching this forum is like watching kids grow up. That's not a negative thing. In fact, it's kind of cool to watch especially with someone that has taken a hard line view for a long time. Then some major event happens like Pirates Ponzi and they come to the realization that things work the way they do for a reason. You can almost see them saying in their heads, "now I know why fraud controls exist, now I know why the Fed is there, now I understand the reason for banks and lending, now I understand international trade controls, now I know the reason for legislating financial controls, now I know why the barter system was replaced, now I know why you don't trust strangers.........

[Cortex7]

Sometimes watching this forum is like watching kids grow up. That's not a negative thing. In fact, it's kind of cool to watch especially with someone that has taken a hard line view for a long time. Then some major event happens like Pirates Ponzi and they come to the realization that things work the way they do for a reason. You can almost see them saying in their heads, "now I know why fraud controls exist, now I know why the Fed is there, now I understand the reason for banks and lending, now I understand international trade controls, now I know the reason for legislating financial controls, now I know why the barter system was replaced, now I know why you don't trust strangers.........

In my opinion the FED IS a Ponzi! And financial controls are primarily put in place to benefit a few.

The federal reserve bank is not "federal" it is a private organisation operated by strangers to you and me, when the shit hits the fan they will not come good, to expect otherwise is naive.

Anthropologists speculate that a widely implemented barter system never existed, the majority of debt records were carried in memory, people trusting one another, in effect it was a distributed P2P trust system, self regulating with no central authority. Then the smaller grain structure of society coalesced into larger groups and centralisation of control began, after that the controllers were always fat and well rested.

And here we are today, bitcoin giving us the chance to go full circle and have another true P2P system, only one that does not require trust, after all the central controllers have long since burnt any trust out of us, they like to keep us seperate lest we make plans to overthrow them. A strategically wise and inevitable move on their part, any central controllers that do not adopt such a position quickly get relegated to the history books, and so a process of natural selection is breeding central control systems that oppress more and more as time goes on.

[Cortex7]

The whole concept of "lending is good for economy" is a scam, it is an excuse for banks to rob people with interests and doing fractional reserve practice to collect more interest...

Exactly!

[barbarousrelic]

Banks serve three purposes, the first two of which are unnecessary with Bitcoin:

1. A clearinghouse for transactions

2. Safe storage place for money

3. Connecting lenders with borrowers

The fact that no one needs a Bitcoin bank for purposes 1 and 2 means that any lending entities/banks will have much more difficulty getting people to hold bank credit as payment in lieu of the actual money itself (a Bitcoin transaction on the blockchain)

Fractional reserve lending works for dollars because people tend to keep their money in banks for purposes 1 and 2, and the banks are able to tell people that they have more dollars in their account than actually exist in the bank's posession. It will be far more difficult for fractional reserve lending to take off with Bitcoin because nobody is going to want to have someone else hold their Bitcoin for them, and thus no bank will be able to tell them they have more Bitcoins than actually exist on the blockchain.

[QuestionAuthority]

Sometimes watching this forum is like watching kids grow up. That's not a negative thing. In fact, it's kind of cool to watch especially with someone that has taken a hard line view for a long time. Then some major event happens like Pirates Ponzi and they come to the realization that things work the way they do for a reason. You can almost see them saying in their heads, "now I know why fraud controls exist, now I know why the Fed is there, now I understand the reason for banks and lending, now I understand international trade controls, now I know the reason for legislating financial controls, now I know why the barter system was replaced, now I know why you don't trust strangers.........

In my opinion the FED IS a Ponzi! And financial controls are primarily put in place to benefit a few.

The federal reserve bank is not "federal" it is a private organisation operated by strangers to you and me, when the shit hits the fan they will not come good, to expect otherwise is naive.

Anthropologists speculate that a widely implemented barter system never existed, the majority of debt records were carried in memory, people trusting one another, in effect it was a distributed P2P trust system, self regulating with no central authority. Then the smaller grain structure of society coalesced into larger groups and centralisation of control began, after that the controllers were always fat and well rested.

And here we are today, bitcoin giving us the chance to go full circle and have another true P2P system, only one that does not require trust, after all the central controllers have long since burnt any trust out of us, they like to keep us seperate lest we make plans to overthrow them. A strategically wise and inevitable move on their part, any central controllers that do not adopt such a position quickly get relegated to the history books, and so a process of natural selection is breeding central control systems that oppress more and more as time goes on.

Bitcoin requires a hell of a lot more trust than you think. Organizations and agencies aren't evil, the people controlling them are evil. There are quite a few evil people in Bitcoinland too. Your ideas aren't exactly new and have had limited success.

The only thing that makes a radical hippie into a yuppie is age.



But I'm with you man. Power to the people!

[Cortex7]

Bitcoin requires a hell of a lot more trust than you think.

Really, how so? (please stick to bitcoin protocol)

Organizations and agencies aren't evil, the people controlling them are evil.

Fail: Organizations and agencies ARE the people controlling them.

There are quite a few evil people in Bitcoinland too.

Evil? well that's a word I would reserve for moral crimes. I wouldn't call Pirate evil, a scoundrel, a scammer, yes.

But yes of course there are many people playing strategically in all areas one might care to investigate.

Your ideas aren't exactly new and have had limited success.

Of course, I never proclaimed my ideas were new.

Success? I am just discussing central authority and how it relates to bitcoin.

I wish you a good journey.

[EndlessStory]

Indeed I agree there should be a central bank for bitcoin for reducing price fluctuations, and keeping inflation in control.

Nice idea.

[QuestionAuthority]

Bitcoin requires a hell of a lot more trust than you think.

Really, how so? (please stick to bitcoin protocol) I think the issue with a 51% attack and trusting the huge mining pools that are in control of Bitcoins security is a protocol issue (but I'm sure you'll correct me whether I'm right or wrong).

Organizations and agencies aren't evil, the people controlling them are evil.

Fail: Organizations and agencies ARE the people controlling them. I'm not even sure what that means. Governments become different things all the time depending on who's elected to office.

There are quite a few evil people in Bitcoinland too.

Evil? well that's a word I would reserve for moral crimes. I wouldn't call Pirate evil, a scoundrel, a scammer, yes.

Full Definition of EVIL

a :  morally reprehensible :  sinful, wicked <an evil impulse>
b :  arising from actual or imputed bad character or conduct <a person of evil reputation>

But yes of course there are many people playing strategically in all areas one might care to investigate. Start with the Bitcoin Foundation: http://www.reuters.com/article/2014/05/16/us-bitcoin-foundation-resignations-idUSBREA4F02B20140516

Your ideas aren't exactly new and have had limited success.

Of course, I never proclaimed my ideas were new.

Success? I am just discussing central authority and how it relates to bitcoin. Bitcoin already has plenty of central authority in mining, leadership, development and business leadership. Why not have centralization that can propel it forward.

I wish you a good journey. Thank you, you too.

[boraf]

Having a bitcoin central bank kind of defeat the whole purpose of bitcoin peer-to-peer protocol.

With that being said, there is no reason why people can't build a centralized banking system using bitcoin for those who prefer it. People who do not want to be part of it can still do whatever they want with their bitcoin.

[meadefreling]

There shouldn't be any central bank for bitcoin because it will just inflate the money supply. The blockchain is the central "bank" in the form of a ledger.

Honestly, i concur with every thing you have stated about the blockchain as the central bank considering its functions.

[Heutenamos]

It is always risky to have just Bitcoin IOU, and even too big to fail argument is off, Mt.Gox showed how much your Bitcoin IOU can become worthless in very short time.

[Hasher99]

I agree there should be a central bank for bitcoins but the there are already some people working as bitcoin bank, hoarding thousands of coins, and probably the makers of BTC>

[Cortex7]

I think the issue with a 51% attack and trusting the huge mining pools that are in control of Bitcoins security is a protocol issue (but I'm sure you'll correct me whether I'm right or wrong). [/color]

I stand corrected, that issue should be addressed at protocol level.

I'm not even sure what that means. Governments become different things all the time depending on who's elected to office.

You said "Organizations and agencies aren't evil, the people controlling them are evil.", which to my mind means nothing as I think an organisations simply can't exist without people.

Importnant thing, money and military plans, remain unchanged. A country who changed long term plans each time a "party" was swapped out would quickly become vunerable in the global arena. The democratic voting system is a layer on top of "real" government.

a :  morally reprehensible :  sinful, wicked <an evil impulse>
b :  arising from actual or imputed bad character or conduct <a person of evil reputation>

In my opinion the word "evil" is about as far as one can go and ought to be saved for those comiting moral crimes (a).

(b) is purely subjective and we all have different thresholds on this.

If I had to choose between who to be locked in a log cabin with between pirate and a mass murderer then I know who I would choose, pirate any day! Sure I may leave the cabin with no loose change in my pockets, but I doubt I would have a scratch on me.

Bitcoin already has plenty of central authority in mining, leadership, development and business leadership. Why not have centralization that can propel it forward.

Yes centralisation is inevitable, and with it can come good, but it will always creep toward corruption, natural selection of behaviour will make it so.

[Cortex7]

Indeed I agree there should be a central bank for bitcoin for reducing price fluctuations, and keeping inflation in control

Nice idea.

Reduced price fluctuation will happen as userbase grows.

Bitcoin already controls its own inflation.

[odolvlobo]

I feel like there are many people in this conversation that don't know what a central bank does.

A central bank:

1. Prints money (manages the money supply).
2. Regulates fractional reserve banking.
3. Loans money to banks and facilitates loans between banks.

A Bitcoin central bank can't do #1, but there is no reason why it couldn't do #2 and #3 (unless you believe FRB is impossible with Bitcoin).

[LeMiner]

I feel like there are many people in this conversation that don't know what a central bank does.

A central bank:

1. Prints money (manages the money supply).: 2. Regulates fractional reserve banking.
2. Regulates fractional reserve banking.
3. Loans money to banks and facilitates loans between banks.

A Bitcoin central bank can't do #1, but there is no reason why it couldn't do #2 and #3 (unless you believe FRB is impossible with Bitcoin).

1. Prints money (manages the money supply).:

correction; creates inflation (devaluation of a currency), loans to otherwise insolvent organizations (governments, banks, etc), creates currency to pay off previous unpaid debt

2. Regulates fractional reserve banking.

How are they going to manage fractional reserve banking if they don't have the "bitcoin-printing" capabilities to absorb any bank-runs by immediate lending to the "bitcoin-banks"? The "bitcoin-banks" wont have enough real bitcoins to answer customer demand.

Loans money to banks and facilitates loans between banks.

No printing capacity = no loans, and no devaluation of send lend currency would make paying back the loan extremely expensive


This could only work if people invest in a "bitcoin-central-bank", which would mean the central bank would have to apply fractional reserve themselves.... I guess you can see where this is going. A bitcoin central-central-bank to catch the bitcoin-central-bank as it falls?

[Cortex7]

I feel like there are many people in this conversation that don't know what a central bank does.

A central bank:

1. Prints money (manages the money supply).
2. Regulates fractional reserve banking.
3. Loans money to banks and facilitates loans between banks.

A Bitcoin central bank can't do #1, but there is no reason why it couldn't do #2 and #3 (unless you believe FRB is impossible with Bitcoin).

Of course, FRB sytem is possible with any trusted token.

But realise that FRB does (in effect) print money, that's how it achieves the fractional ratio.

The fractional ratio can be adjusted and hence some control can be gained over money supply as perceived by users.

For every $X deposited by a user, a FRB is able to (though regulatory oversight) create $Y book entry out of thin air, and is then able to lend that newly created $Y to other users at interest. The fractional ratio detemines Y/X.

Initially FRBs can offer large interest to account holders (giving them a cut of loan repayment profits), I remember getting ~10% in a savings account sometime in the 80s.

Lately these interest rates payed to FRB users have dwindled away to nothing, and were just left with the risk of the bank only able to cover on average 10% of our savings (drop the zero) that's pretty shitty!

[itsAj]

Sometimes watching this forum is like watching kids grow up. That's not a negative thing. In fact, it's kind of cool to watch especially with someone that has taken a hard line view for a long time. Then some major event happens like Pirates Ponzi and they come to the realization that things work the way they do for a reason. You can almost see them saying in their heads, "now I know why fraud controls exist, now I know why the Fed is there, now I understand the reason for banks and lending, now I understand international trade controls, now I know the reason for legislating financial controls, now I know why the barter system was replaced, now I know why you don't trust strangers.........

I think a lot of people understand that bitcoin is "trustless" and somehow think that nothing can go wrong with giving someone else your bitcoin to "invest" or by sending money first to someone they don't know, and don't have a reason to trust. They think that "trustless" means they do not need to exercise their judgment in trusting others.

[titulng]

the forbes author seems to have a great deal of research, but I think just need to have a regulatory body rather than banks

[bitcats]

http://www.n-tv.de/ratgeber/Sendungen/Die-beliebteste-Bank-article11309586.html

[R2D221]

http://www.n-tv.de/ratgeber/Sendungen/Die-beliebteste-Bank-article11309586.html

Could you translate for the people who don't speak German?

[bitcats]

https://translate.google.de/translate?hl=de&sl=de&tl=en&u=http%3A%2F%2Fwww.n-tv.de%2Fratgeber%2FSendungen%2FDie-beliebteste-Bank-article11309586.html

[R2D221]

https://translate.google.de/translate?hl=de&sl=de&tl=en&u=http%3A%2F%2Fwww.n-tv.de%2Fratgeber%2FSendungen%2FDie-beliebteste-Bank-article11309586.html

Automatic translations are bad

[arxwn]

Yes create a bitcoin central bank, a bitcoin tax authority a bitcoin government and bitcoin empire.

[wasserman99]

the forbes author seems to have a great deal of research, but I think just need to have a regulatory body rather than banks

I agree. I don't think a central bank would be such of a good idea. The money supply is already controlled by the bitcoin protocol, which is all that a central bank can do.

[zendantom]

So basically hardly anyone understands what the central bank is for. This is what I call clever scam. Fortunatelly Bitcoin is fully transparent, and Bitcoin basically works as most believe it should work, like only being able to spend existing coin, which can be spend later on by someone else.

[Omikifuse]

Unlike money, you can't just print more money to satsfy the growing demand. There are only 21M Bitcoins going to be created, if the fractional stuff goes too far, we might have more than 21M to be given back to the customers, what is impossible to happens no matter what you do.

So I guess better no, thanks

[NikkieBeraj]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

[Ondago]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

Just look at Kashmir Hil https://www.youtube.com/watch?v=gSfFdMeORO0l, a real live reporter for Forbes (as in, not a contributor) who was one of MSMs earliest bitcoin proponents. And the first reporter to live on only what she could buy with bitcoin for a week.
Forbes actually has a very good track record in terms of positive bitcoin articles.

[Jeramom]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

Right, but this Forbes contributer is also a speaker for them e.g. at http://bitcoinexpo2014.com/

[ensurance982]

Well, then go and create an altcoin for that! I guess some governments are already trying and establishing such a currency. But it can't be a decentralized cryptocurrency! If there's one single thing that's centralized, it topples the whole idea of Bitcoin! Not a good idea, we'd introduce a single point of failure!

[Orjaner]

This is just embarrassing... Total ignorance of the problem satoshi was setting out to solve.

[WineAndWhiskey]

This is just embarrassing... Total ignorance of the problem satoshi was setting out to solve.

It's an op-ed piece, i don't think it reflects the views of Forbes...

[minerpumpkin]

Not a good idea at all, I believe! This would destroy all the advantages of Bitcoin. Having a central authority is completely undermining everything Bitcoin has accomplished so far. Please make some Altcoin or something, but not with Bitcoin! (It would cause a hardfork anyways )

[BlockShame]

This is just embarrassing... Total ignorance of the problem satoshi was setting out to solve.

It's an op-ed piece, i don't think it reflects the views of Forbes...

Yeah, but it is still embarrassingly ignorant.

[wallpaperwallet]

This article is not written by "Forbes." It is written by Eric Mu. Eric Mu doesn't get it.

[FloodZone]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

I read all your words carefully and i don't understand why we need a Bitcoin Central Bank.  I mean there is a possibilty that a BCB will be created but talking about me - i don't need any Bitcoin Central Banks. Screw them.

[SanMerryDro]

This is just embarrassing... Total ignorance of the problem satoshi was setting out to solve.

It's an op-ed piece, i don't think it reflects the views of Forbes...

It‘s the opinion of the authors, not Forbes.

[TheMage]

I skipped pages 3-5, so sorry if this has been posted already.

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

Do you know what this is? This is the genesis block. Do you know why that was put in there? To keep pesky banks and fractional reserves and derivatives and other hellish abominations out of crypto's.




This isn't money that mommy and daddy use, this is the new generation that realizes the social and economic impact that our current system has RAPED society with.


https://en.bitcoin.it/wiki/Genesis_block

This was probably intended as proof that the block was created on or after January 3rd, 2009, as well as a comment on the instability caused by fractional-reserve banking.

[yitingyou]

I cant agree with this view.

[cutepuppy]

Not a good idea at all, I believe! This would destroy all the advantages of Bitcoin. Having a central authority is completely undermining everything Bitcoin has accomplished so far. Please make some Altcoin or something, but not with Bitcoin! (It would cause a hardfork anyways )

I am pretty sure that the protocol already does the same functions that a central bank does. A central bank will do nothing more then control the supply of money (usually via interest rates, but sometimes though outright purchases/sales of the currency), however the protocol already does this for us when the difficulty changes due to average block times and when the block subsidy changes.

[Cortex7]

This is just embarrassing... Total ignorance of the problem satoshi was setting out to solve.

It's an op-ed piece, i don't think it reflects the views of Forbes...

Yeah, but it is still embarrassingly ignorant.

It is.

It may not reflect the opinion of Forbes.

But it does reflect badly on Forbes. Certainly to anyone who understands bitcoin and why it was created in the first place.

[master-P]

This is just embarrassing... Total ignorance of the problem satoshi was setting out to solve.

It's an op-ed piece, i don't think it reflects the views of Forbes...

Yeah, but it is still embarrassingly ignorant.

It is.

It may not reflect the opinion of Forbes.

But it does reflect badly on Forbes. Certainly to anyone who understands bitcoin and why it was created in the first place.

Media outlets often will try to find writers to write editorials that are contrary to their own beliefs. This adds some level of balance to the conversation. I certainly do not agree with this writer's opinion however I do think it is healthy to have these kinds of discussions.

[oceans]

Creating a bitcoin central bank would just ruin all what bitcoin is about. With bitcoin it is totally different to the currencies we use now. Creating a central bank for bitcoin is only doing what we already do with GBP, USD and such and it would only be following in suit to that and bitcoin is not the same.

A central bank for bitcoin would not work in my opinion.

[gonnafly]

This article is not written by "Forbes." It is written by Eric Mu. Eric Mu doesn't get it.

True enough. But unfortunately, the vast majority of people will only think: "I read on Forbes about Bitcoin, and they said..."
It seems that Mr. Mu has written several Bitcoin articles for Forbes. Perhaps if Forbes were to get enough complaints about Mr. Mu's obvious ignorance of the fundamentals of Bitcoin, these articles would cease.

[CokeCoin]

This article is not written by "Forbes." It is written by Eric Mu. Eric Mu doesn't get it.

True enough. But unfortunately, the vast majority of people will only think: "I read on Forbes about Bitcoin, and they said..."
It seems that Mr. Mu has written several Bitcoin articles for Forbes. Perhaps if Forbes were to get enough complaints about Mr. Mu's obvious ignorance of the fundamentals of Bitcoin, these articles would cease.

Link to complaint area then?

[GTA]

This article is not written by "Forbes." It is written by Eric Mu. Eric Mu doesn't get it.

True enough. But unfortunately, the vast majority of people will only think: "I read on Forbes about Bitcoin, and they said..."
It seems that Mr. Mu has written several Bitcoin articles for Forbes. Perhaps if Forbes were to get enough complaints about Mr. Mu's obvious ignorance of the fundamentals of Bitcoin, these articles would cease.

Eric Mu doesn't get grammar, either. How could anyone take this article seriously? I'm surprised Forbes let this op-ed run.

[Summer,69]

Not sure if trolling or just really stupid

[X7]

this...  *scratches head*

[MoonTime]

The current bitcoin system works very well. However I do agree. This will prevent some long term inflation like it happened in year 2014.

[BurtW]

There are two possibilities when it comes to Bitcoin banking, fractional reserve and central banking:

1) People in general never accept Bitcoin substitues as money.  In otherwords, people want to have and to hold real Bitcoins in their hot little hands and do not use and accept Bitcoin IOUs as money (notes representing a future claim on an amount of BTC held on an account somewhere).

In this scenario:

     Bitcoin banking is relegated to "Bitcoin warehousing"
     Fractional reserve banking is somewhat limited
     Central banking (central control of the number of Bitcoin notes in circulation) is not really needed

2) People in general do accept Bitcoin substitues as money.  In otherwords, people do not really care if they have and hold real Bitcoins, they accept Bitcoin notes to be as good as or almost as good as the real thing and they accept Bitcoin IOUs as money.

In this scenario:

     Bitcoin banking can develop and grow
     Fractional reserve banking can develop and grow
     Central banking (central control of the number of Bitcoin notes in circulation) would probably be necessary to limit and control the fractional reserve Bitcoin banks - keep them from printing too many Bitcoin notes

Note that even in scenario #2 you personally can decide to not participate in the Bitcoin substitute market and demand and use only the real thing so even if a vast market in Bitcoin substitutes develops you personally do not have to participate in it.

[arxwn]

There are two possibilities when it comes to Bitcoin banking, fractional reserve and central banking:

1) People in general never accept Bitcoin substitues as money.  In otherwords, people want to have and to hold real Bitcoins in their hot little hands and do not use and accept Bitcoin IOUs as money (notes representing a future claim on an amount of BTC held on an account somewhere).

In this scenario:

     Bitcoin banking is relegated to "Bitcoin warehousing"
     Fractional reserve banking is somewhat limited
     Central banking (central control of the number of Bitcoin notes in circulation) is not really needed

2) People in general do accept Bitcoin substitues as money.  In otherwords, people do not really care if they have and hold real Bitcoins, they accept Bitcoin notes to be as good as or almost as good as the real thing and they accept Bitcoin IOUs as money.

In this scenario:

     Bitcoin banking can develop and grow
     Fractional reserve banking can develop and grow
     Central banking (central control of the number of Bitcoin notes in circulation) would probably be necessary to limit and control the fractional reserve Bitcoin banks - keep them from printing too many Bitcoin notes

Note that even in scenario #2 you personally can decide to not participate in the Bitcoin substitute market and demand and use only the real thing so even if a vast market in Bitcoin substitutes develops you personally do not have to participate in it.

Yes being forced to participate in a ponzi and deciding by yourself is the greatest distinction that is being missed in the current system.
I dont know what an informed audience with a choice would do but personally having being subjected to a bail in I would go for the hot bitcoins in my pocket.

[odolvlobo]

...
2) People in general do accept Bitcoin substitues as money.  In otherwords, people do not really care if they have and hold real Bitcoins, they accept Bitcoin notes to be as good as or almost as good as the real thing and they accept Bitcoin IOUs as money.

You don't need "Bitcoin notes" or "Bitcoin IOUs" to have FRB. That seems to be a big misconception. You deposit your bitcoins at Coinbase and they loan them out. That's all it takes.

[countryfree]

I've always been against anything centralized, BTC central bank or BTC country. Neither is needed but more transparency could help. MyGox's failure was a surprise to most onlookers because they had no idea on how that company was managing its daily business. Had they been aware that the company was doing some risky business, they would have moved their bitcoins elsewhere.

Self-regulation can be as effective as a central bank is properly implemented.

[BurtW]

...
2) People in general do accept Bitcoin substitues as money.  In otherwords, people do not really care if they have and hold real Bitcoins, they accept Bitcoin notes to be as good as or almost as good as the real thing and they accept Bitcoin IOUs as money.

You don't need "Bitcoin notes" or "Bitcoin IOUs" to have FRB. That seems to be a big misconception. You deposit your bitcoins at Coinbase and they loan them out. That's all it takes.

I agree that is why I said:

Fractional reserve banking is somewhat limited

It is limited by the population/market demanding the real thing.  If there is not a large market for IOUs including deposits of Bitcoins or only a small market for that sort of thing then Coinbase, Mt.Gox , etc. can only lend out so much of the real thing.  They are physically limited by the general mistrust for Bitcoin IOUs. For the FRB to really take off and get out of control you need the general population to accept and use Bitcoin IOUs as money.

My main point with respect to this thread is that unless/until that happens central control of Bitcoin banking is not needed.

[odolvlobo]

...
2) People in general do accept Bitcoin substitues as money.  In otherwords, people do not really care if they have and hold real Bitcoins, they accept Bitcoin notes to be as good as or almost as good as the real thing and they accept Bitcoin IOUs as money.

You don't need "Bitcoin notes" or "Bitcoin IOUs" to have FRB. That seems to be a big misconception. You deposit your bitcoins at Coinbase and they loan them out. That's all it takes.

I agree that is why I said:

Fractional reserve banking is somewhat limited

It is limited by the population/market demanding the real thing.  If there is not a large market for IOUs including deposits of Bitcoins or only a small market for that sort of thing then Coinbase, Mt.Gox , etc. can only lend out so much of the real thing.  They are physically limited by the general mistrust for Bitcoin IOUs. For the FRB to really take off and get out of control you need the general population to accept and use Bitcoin IOUs as money.
My main point with respect to this thread is that unless/until that happens central control of Bitcoin banking is not needed.

I don't know what you mean by "Bitcoin IOUs", but I believe that Bitcoin FRB is a certainty if Bitcoin becomes widely adopted. People will want loans, and banks will pay interest to depositors, and then loan out their money (assuming it is all legal).

[BurtW]

I don't know what you mean by "Bitcoin IOUs", but I believe that Bitcoin FRB is a certainty if Bitcoin becomes widely adopted. People will want loans, and banks will pay interest to depositors, and then loan out their money (assuming it is all legal).

Any time you do not personally control the private key you are accepting a "Bitcoin IOU" because you have deposited the BTC with someone else and they now owe you the BTC - and they control the private key.

Examples:  Coinbase, Localbitcoins, any Bitcoin bank in the future.

By making a deposit you have accepted a Bitcoin IOU for your Bitcoins.

Now they can lend them out, FRB is born.

For FRB to really get going people need to accept paper bills or checks or wire transfers or deposit acounts as Bitcoins - which they are not.  They are "Bitcoin IOUs" or transfers of "Bitcoin IOUs".

I also agree with you that it is certain to happen because people in general are scared to carry and possibly lose their cash/Bitcoins so they will "leave that to professionals" - certain, just a matter of time and wider adoption.

[LiberyOrDeath]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

......

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

The real essence behind the idea of bitcoin and cryptocurrencies is DECENTRALIZATION. What you are saying about the benefits of fractional reserve banking is pure nonsense. Fractional reserve banking is thievery and slavery. BTC is freedom.

[polunna]

The beauty about Bitcoin is that people could choose something retarded like this, but they don't have to.

[bambino]

The beauty about Bitcoin is that people could choose something retarded like this, but they don't have to.

Agreed. I cannot believe so many "free market" people are against this idea. If this is what consumers want, someone should provide it, for a fee. More to the point, lending is important, especially when buying a house. Fractional reserves allows others to earn interest on their savings. Such a Bitcoin bank could still have proof of reserves, indicating how much money is being lent out vs. in reserve.
With Bitcoin, it is purely optional whether you work with such an institution. This is less easy in our current financial system.
Terminology may be bogging down a valid discussion. Central bank == insurance (as /u/PostOpticon pointed out) seems to be the crux of Mr. Mu's argument. I do agree the usage of "Central Bank" is inaccurate, but should not preclude a valid discussion.

[unexecuted]

Oh noes, we cannot borrow our way to prosperity!

[CoolBliss]

If there was a bitcoin central bank, all other bitcoin holders could have diluted the value of their own bitcoins in order to save a failing exchange. That way we could still have MT Gox. Perfect.

[Meuh6879]

The current bitcoin system works very well. However I do agree. This will prevent some long term inflation like it happened in year 2014.

+1

[arxwn]

I don't know what you mean by "Bitcoin IOUs", but I believe that Bitcoin FRB is a certainty if Bitcoin becomes widely adopted. People will want loans, and banks will pay interest to depositors, and then loan out their money (assuming it is all legal).

Any time you do not personally control the private key you are accepting a "Bitcoin IOU" because you have deposited the BTC with someone else and they now owe you the BTC - and they control the private key.

Examples:  Coinbase, Localbitcoins, any Bitcoin bank in the future.

By making a deposit you have accepted a Bitcoin IOU for your Bitcoins.

Now they can lend them out, FRB is born.

For FRB to really get going people need to accept paper bills or checks or wire transfers or deposit acounts as Bitcoins - which they are not.  They are "Bitcoin IOUs" or transfers of "Bitcoin IOUs".

I also agree with you that it is certain to happen because people in general are scared to carry and possibly lose their cash/Bitcoins so they will "leave that to professionals" - certain, just a matter of time and wider adoption.

True, plus any time you buy credit on any bitcoin store.
Whereas I can understand that you can have better management of your own business you effectively ommit the trustless part.

[arxwn]

The beauty about Bitcoin is that people could choose something retarded like this, but they don't have to.

Agreed. I cannot believe so many "free market" people are against this idea. If this is what consumers want, someone should provide it, for a fee. More to the point, lending is important, especially when buying a house. Fractional reserves allows others to earn interest on their savings. Such a Bitcoin bank could still have proof of reserves, indicating how much money is being lent out vs. in reserve.
With Bitcoin, it is purely optional whether you work with such an institution. This is less easy in our current financial system.
Terminology may be bogging down a valid discussion. Central bank == insurance (as /u/PostOpticon pointed out) seems to be the crux of Mr. Mu's argument. I do agree the usage of "Central Bank" is inaccurate, but should not preclude a valid discussion.

Isn't the runaway ponzi scans kind of fbr without the bells and whistles ?

[leopard2]

Paper bitcoin ... just what the world needs.  

Central banks are the problem not the solution ...

Hey, there was a central bank, called MtGox, they used fractional banking all the time, yay!!  

Hmmm, wasnt the issue just that? That Gox had less than 100% reserves? How can that be a good thing?!? That article must have been written under Crystal Meth. 

[Gleb Gamow]

If a centralized Bitcoin bank ever does come to fruition, I suggest having disinterested Mormons operate it. You'll be surprised as to how many Mormons work in various trusted departments in Las Vegas casinos. Yes, a small handful may have committed fraud, but overall they're an honest lot. The only drawback is that the Bitcoin Bank would probably be located in Utah, perhaps near that other acclaimed entity.



But, that acclaimed entity could always borrow extra power from Bitcoin's bank conveniently located down the road to augment their scat needs.  



As an added bonus, there'll be a nice venue to hold an annual Bitcoin conference in the Beehive State, albeit Bees Brothers products are extra.

[jbreher]

... conveniently located down the road to augment their scat needs.  

I had no idea the Mormons were into that sort of thing.

[jbreher]

I cannot believe so many "free market" people are against this idea. If this is what consumers want, someone should provide it, for a fee. More to the point, lending is important, especially when buying a house. Fractional reserves allows others to earn interest on their savings.

I cannot believe so many people accept this idea.

Here's the issue: by making fractional reserve loans, the banks are creating money out of nothing. Then they lend this newly created out at interest. This money that cost them nothing. The increase in the money supply reduces the purchasing power of every bit of money that existed before the loan was made. This reduction in purchasing power is a very real theft of very real wealth from each and every person that held money at t=0-.

And who benefits from this theft of wealth? Temporarily, the loanee. But by the first payment, the bank is receiving net positive income from this stolen wealth.

Theft is theft. Whether by gunpoint or by fractional reserve banking.

[itsAj]

I cannot believe so many "free market" people are against this idea. If this is what consumers want, someone should provide it, for a fee. More to the point, lending is important, especially when buying a house. Fractional reserves allows others to earn interest on their savings.

I cannot believe so many people accept this idea.

Here's the issue: by making fractional reserve loans, the banks are creating money out of nothing. Then they lend this newly created out at interest. This money that cost them nothing. The increase in the money supply reduces the purchasing power of every bit of money that existed before the loan was made. This reduction in purchasing power is a very real theft of very real wealth from each and every person that held money at t=0-.

And who benefits from this theft of wealth? Temporarily, the loanee. But by the first payment, the bank is receiving net positive income from this stolen wealth.

Theft is theft. Whether by gunpoint or by fractional reserve banking.

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

[jbreher]

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

Bullshit. The fractional part is created out of thin air. That is what makes it fractional. They don't pay any interest on this newly created money.

[odolvlobo]

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

Bullshit. The fractional part is created out of thin air. That is what makes it fractional. They don't pay any interest on this newly created money.

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

[logger]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

[illymoka]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

Right, but this Forbes contributer is also a speaker for them e.g. at http://bitcoinexpo2014.com/

[polunna]

While I agree that a bitcoin central bank is completely against what bitcoin stands for, I think the idea of being able to opt for a full reserve or fractional reserve account at a bitcoin exchange is pretty good. Users could choose to put their coins to work and get some interest in return or just keep them in storage without interest. It could possibly help bitcoins liquidity problem too. This might be irrelevant though if places like btcjam and other ways to loan money become more prevalent.

[LiberyOrDeath]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

But honestly, if this guy was a truly independent and freethinker, do you think Forbes would post his article? If he was the right kind of person and genuine he wouldn't be writing articles for Forbes in the first place. That's more than enough clues for me.

[lovegood]

I fail to even understand his example. So when a central bank exists other companies, investment firms and banks are unable to rob you blind? Eh yes they can. He's mixing up arguments, like so many people. Decide what point you want to make and research that.

[master-P]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

But honestly, if this guy was a truly independent and freethinker, do you think Forbes would post his article? If he was the right kind of person and genuine he wouldn't be writing articles for Forbes in the first place. That's more than enough clues for me.

Writers, like everyone else need to pay bills. If you are implying that the writer of the article in the OP should write only on his own site, then he would likely end up finding a new career because this would likely not be enough to support himself. Publications like Forbes will hire freelance writers because of their ability to write and draw in readers.

[arxwn]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

But honestly, if this guy was a truly independent and freethinker, do you think Forbes would post his article? If he was the right kind of person and genuine he wouldn't be writing articles for Forbes in the first place. That's more than enough clues for me.

Writers, like everyone else need to pay bills. If you are implying that the writer of the article in the OP should write only on his own site, then he would likely end up finding a new career because this would likely not be enough to support himself. Publications like Forbes will hire freelance writers because of their ability to write and draw in readers.

That is very true, but lets get real what was the main point of the article ?
Is there a chance in a billion that the core developer team would propose such a ridiculous measure ?
Of course not, that was a cry call to the people that bought late to demand something for nothing and put pressure.
But the writer does not understand that bitcoin in its core is not democratic it is anarchic in the way that gravity does not care about your feelings when you step off the ledge.

[The One]

There are two possibilities when it comes to Bitcoin banking, fractional reserve and central banking:

1) People in general never accept Bitcoin substitues as money.  In otherwords, people want to have and to hold real Bitcoins in their hot little hands and do not use and accept Bitcoin IOUs as money (notes representing a future claim on an amount of BTC held on an account somewhere).

In this scenario:

     Bitcoin banking is relegated to "Bitcoin warehousing"
     Fractional reserve banking is somewhat limited
     Central banking (central control of the number of Bitcoin notes in circulation) is not really needed

2) People in general do accept Bitcoin substitues as money.  In otherwords, people do not really care if they have and hold real Bitcoins, they accept Bitcoin notes to be as good as or almost as good as the real thing and they accept Bitcoin IOUs as money.

In this scenario:

     Bitcoin banking can develop and grow
     Fractional reserve banking can develop and grow
     Central banking (central control of the number of Bitcoin notes in circulation) would probably be necessary to limit and control the fractional reserve Bitcoin banks - keep them from printing too many Bitcoin notes

Note that even in scenario #2 you personally can decide to not participate in the Bitcoin substitute market and demand and use only the real thing so even if a vast market in Bitcoin substitutes develops you personally do not have to participate in it.

Bitcoin substitute = altcoin.

[jbreher]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

[knight22]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

Yup, it's all written in here:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf
http://lisgi1.engr.ccny.cuny.edu/~makse/Modern_Money_Mechanics.pdf

banks create money whenever they lend to someone in the economy or buy an asset from consumers.

[arxwn]

Fractional Reserve Banking opens the pandora box of corruption of man's soul , period paragraph.
It is extra evil when done in systemic level or dictated from government.
I mean this is a bitcoin forum right ? This is like the bare minimum we can agree on.

[itsAj]

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

Bullshit. The fractional part is created out of thin air. That is what makes it fractional. They don't pay any interest on this newly created money.

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

This is exactly correct. This is why banks need to keep a certain percentage of their money either on deposit at the federal reserve or in their cash vaults, so when depositors want to withdraw their money to another bank or want to withdraw cash fiat they are able to do so.

Banks must also keep a certain percentage of each new loan on hand as a loan-loss reserve to account for potentially losing money on the loan.

[odolvlobo]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

My mistake is considering the monetary base to be money and the rest to be imaginary. In a way that is true, but if it walks like a duck and it quacks like a duck ...

Bitcoin is simliar in a way. Bitcoins don't exist in the sense that they are tangible or that they are even stored somewhere, but somehow you can still transfer them.

[knight22]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

My mistake is considering the monetary base to be money and the rest to be imaginary. In a way that is true, but if it walks like a duck and it quacks like a duck ...

Bitcoin is simliar in a way. Bitcoins don't exist in the sense that they are tangible or that they are even stored somewhere, but somehow you can still transfer them.

I would say that the main difference between bitcoin and fiat is that fiat fundamentally represents debts while bitcoin represents capital.

[hdbuck]

lmao..  naughty naughty forbes..

[jbreher]

This is exactly correct.

No, this is incorrect. Most of the money that banks loan out (i.e. That above the reserve ratio - the vast bulk of it) is new money created by the very act of making the loan.

This is why banks need to keep a certain percentage of their money either on deposit at the federal reserve or in their cash vaults, so when depositors want to withdraw their money to another bank or want to withdraw cash fiat they are able to do so.

While true, it does little to illuminate the wealth-stealing scam by which most money comes into existence. The germane part that you seems to be glossing over is the 'certain percentage' part. First, this is a vanishingly small percentage. Historically, 10% was a number often used. I don't know what the current reserve ratio is. However, the 10% is misleading. When the bank loans out the $90 of a $100 deposit, what form is it in? Cash? No. It is in the form of a check. This check will most assuredly be deposited upon another account, adding to that bank's reserves. This bank then loans out $81 of the incoming $90, which is deposited in another bank, who then loans out $72, deposited in...

The ugliness is that this creates a situation in which a bank is overleveraged as a matter of course. If a significant number of depositors show up asking for their money, the bank cannot accommodate them. Indeed this is why the FED exists. If there is a run on the bank, the FED steps in and socializes the losses by printing yet more new money. At the very real cost of stealing more wealth -- in the form of purchasing power -- from each and every person holding dollars before the bailout.

[johncarpe64]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

My mistake is considering the monetary base to be money and the rest to be imaginary. In a way that is true, but if it walks like a duck and it quacks like a duck ...

Bitcoin is simliar in a way. Bitcoins don't exist in the sense that they are tangible or that they are even stored somewhere, but somehow you can still transfer them.

Not quite. The banks "create" money by essentially betting that all the people they owe money to will not ask for their money at the same time.

If you control your private key....with bitcoin on the other hand, you will always be able to move around all the bitcoin you want as long as you control it regardless of what everyone else wants to do with their bitcoin.

[arxwn]

This is exactly correct.

No, this is incorrect. Most of the money that banks loan out (i.e. That above the reserve ratio - the vast bulk of it) is new money created by the very act of making the loan.

This is why banks need to keep a certain percentage of their money either on deposit at the federal reserve or in their cash vaults, so when depositors want to withdraw their money to another bank or want to withdraw cash fiat they are able to do so.

While true, it does little to illuminate the wealth-stealing scam by which most money comes into existence. The germane part that you seems to be glossing over is the 'certain percentage' part. First, this is a vanishingly small percentage. Historically, 10% was a number often used. I don't know what the current reserve ratio is. However, the 10% is misleading. When the bank loans out the $90 of a $100 deposit, what form is it in? Cash? No. It is in the form of a check. This check will most assuredly be deposited upon another account, adding to that bank's reserves. This bank then loans out $81 of the incoming $90, which is deposited in another bank, who then loans out $72, deposited in...

The ugliness is that this creates a situation in which a bank is overleveraged as a matter of course. If a significant number of depositors show up asking for their money, the bank cannot accommodate them. Indeed this is why the FED exists. If there is a run on the bank, the FED steps in and socializes the losses by printing yet more new money. At the very real cost of stealing more wealth -- in the form of purchasing power -- from each and every person holding dollars before the bailout.

Excactly, for the establishment banks is heads we overleverage, tails you pay for it with currency debasement.
The end result is that the vast majority of users of the currency is always in a loose loose position.
This is the greatest weapon of the status quo.

[Fog Fence]

My Vote:

No way should there be a BTC central bank. I don't accept any argument for centralised banking. Why should a few hundred people have that much power over 7 billion of us? That's how we got into this mess. Why should some traders in NYC be able to affect grain prices in Asia? Why should gold prices be rigged in London every day?

Bitcoin is like Cayenne. It's good on the side, but you can't make a meal out of it.

I hope we have a massively decentralized economy in the future, with competing currencies, trading systems, and platforms. Diversity is the strongest buffer against manipulation, corruption and stealth takeovers. Decentralization isn't a cute fad, it's the natural direction a free, synarchic economy will take.

Peace

[Fog Fence]

You want to buy a house or a car, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

1) There should be enough free capital floating around the ecosystem that you can crowdfund any money that you need. BTC should be only one of dozens of competing currencies.

2) Once the centralized banking system gets shut down, along with the MIC and govs... the three forces that drain 90 per cent of human capital will be gone, so we'll have trillions more in the planetary economy. It might take decades, but this is where it's going. 90 per cent of our wealth goes to exotic weapons, Cayman bank accounts, overpriced pharmaceuticals and outdated oil technology.  

Where's the bank? I'M THE BANK. And so is anyone else with more than a 1/4 BTC.

Peace on Earth

[Billbags]

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

Bullshit. The fractional part is created out of thin air. That is what makes it fractional. They don't pay any interest on this newly created money.

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

^Yes, that's the way it's supposed to work. Problem is government overspent long ago and took out loans from the banks but they only have enough money through citizen taxes to pay on the interest of the loans but not the loans themselves.( All Corporate taxes are used for the military budget in the US - (Yearly Military Budget = Yearly Corporate Taxes")(Roads and bridges come from fuel tax with help from state and local taxes)

Our countries are BROKE. The "Bankers" - Not the banks are who receives the lucrative profits of this broke system. They bribe, steal and commit crimes any way they want to so it stays that way. The Bankers even had the government create a special Country Club prision and lienit laws called white collar crimes incase one of them would get caught in a public scandal from time to time..

THE BANKS DO NOT HAVE THE ACTUAL MONEY to make these loans. That's what nobody pays attention to. If the entire banking system of Canada has a total of 4 Billion dollars on reserves, how can they loan out 1.5 trillion dollars and keep loaning out more and more every day? It's even worse in the US. The government Canada/USA have been enabling banks to create money LITERALLY OUT OF THIN AIR in the form of loans. That's right, they type a number in and hit enter, poof, they just created money that DID NOT exist until that keystroke. It's really that simple.

PLEASE watch this 6 minute video and u will understand. It is explained in layman's terms by a 12 yo little girl.

http://m.youtube.com/watch?v=_ae7h8FioX0

Update: You do have to be careful about pointing out the truth. I don't talk about this stuff much because people are conditioned from an early age to believe a certain way through the education system, political correctness, propaganda and just the stupid belief not to question everything - especially the government. Two months ago the FBI sent a letter to all police departments stating all people that quote the law quickly and strongly defend their constitutional rights should be considered "Domestic Terrorists". Google it.

Goverment centralized Banking will be forced to work with bitcoin. No government would let you keep the private keys. You would only be allowed to have a view only wallet(or Mycelium type) and would have to access your funds through a federal institution ran by bankers that would keep the keys available to the government at all times.

[knifeedge]

After this early line.
"To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them;"

I don't think the article will be taken seriously.

[MightyStorm]

Omg, this guy got so many things wrong. Bitcoin exchanges are NOT banks. They are not supposed to lend money. They are basically markets where the only comodity is bitcoin. You go there to buy or sell your bitcoins, that's it. It's no deposit account. Not to mention it will be highly illegal for them to operate as banks without the proper licenses. And creating bitcoin out of thin air is not nocessary to meet demand and create liquidy. If the demand is higher than the supply, the price will raise until enough people are ok to sell at that price and then you get the liquidy. It's called free market. I can't believe they let this stupid person to write for forbes...

[littlebeetle]

Doesn't even appear to understand the difference between a bank and an exchange.

[AllYouCanDo]

Ok this article isn't great, I'll give you all that. But the idea isn't awful. Hear me out.
What he is essentially calling for are two things:
- a kind of insurance fund for exchanges, where each exchange voluntarily participates, and membership implies a certain trustworthiness. If you don't live up to expectations you are sanctioned. Fine.
- a voluntary "fractional reserve" system, where you can either have your exchange account 100% backed, or some portion of that (his suggestion 80%), then exchanges could also become bitcoin lending institutions, with your approval.

These would be voluntary systems.

What he's not proposing, is a system of "bitcoin printing" or QE or any such nonsense.
Leaving some of his pro-state intervention rhetoric aside, it's not a bad idea.

[QuestionAuthority]

You want to buy a house or a car, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

1) There should be enough free capital floating around the ecosystem that you can crowdfund any money that you need. BTC should be only one of dozens of competing currencies.

2) Once the centralized banking system gets shut down, along with the MIC and govs... the three forces that drain 90 per cent of human capital will be gone, so we'll have trillions more in the planetary economy. It might take decades, but this is where it's going. 90 per cent of our wealth goes to exotic weapons, Cayman bank accounts, overpriced pharmaceuticals and outdated oil technology.  

Where's the bank? I'M THE BANK. And so is anyone else with more than a 1/4 BTC.

Peace on Earth

Oh good, I've been looking all over for the bank. I need you to loan me $500,000 so I can buy a new house. Do you have a branch office where can I fill out the application?

[Jamacn]

Sometimes watching this forum is like watching kids grow up. That's not a negative thing. In fact, it's kind of cool to watch especially with someone that has taken a hard line view for a long time. Then some major event happens like Pirates Ponzi and they come to the realization that things work the way they do for a reason. You can almost see them saying in their heads, "now I know why fraud controls exist, now I know why the Fed is there, now I understand the reason for banks and lending, now I understand international trade controls, now I know the reason for legislating financial controls, now I know why the barter system was replaced, now I know why you don't trust strangers.........

I think you don't really need a central bank, but also need a credible third party to protect our interests.

[Bejkn]

Sometimes watching this forum is like watching kids grow up. That's not a negative thing. In fact, it's kind of cool to watch especially with someone that has taken a hard line view for a long time. Then some major event happens like Pirates Ponzi and they come to the realization that things work the way they do for a reason. You can almost see them saying in their heads, "now I know why fraud controls exist, now I know why the Fed is there, now I understand the reason for banks and lending, now I understand international trade controls, now I know the reason for legislating financial controls, now I know why the barter system was replaced, now I know why you don't trust strangers.........

I think you don't really need a central bank, but also need a credible third party to protect our interests.

No,
fortunately Bitcoin is fully transparent, and Bitcoin basically works as most believe it should work, like only being able to spend existing coin, which can be spend later on by someone else.

[QuestionAuthority]

You want to buy a house or a car, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

1) There should be enough free capital floating around the ecosystem that you can crowdfund any money that you need. BTC should be only one of dozens of competing currencies.

2) Once the centralized banking system gets shut down, along with the MIC and govs... the three forces that drain 90 per cent of human capital will be gone, so we'll have trillions more in the planetary economy. It might take decades, but this is where it's going. 90 per cent of our wealth goes to exotic weapons, Cayman bank accounts, overpriced pharmaceuticals and outdated oil technology.  

Where's the bank? I'M THE BANK. And so is anyone else with more than a 1/4 BTC.

Peace on Earth

Oh good, I've been looking all over for the bank. I need you to loan me $500,000 so I can buy a new house. Do you have a branch office where can I fill out the application?

I still haven't been answered. Which one of you geniuses is loaning me a half million dollars in btc?

[jyakulis]

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest.

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

I stopped reading there.

Let me sum up what you really said. The positive aspect of fractional reserve banking is that it let's bank create money they do not have to extend credit to 3rd world countries at unpayable interest rates to later confiscate hard assets when loans created with money that they did not have are defaulted on. And additionally, will create "insurance" companies to back said money that does not exist to cover up their fraud.

If they wanted to help people why don't they give them the loan interest free. They created the money from money they did not have. All the benefit is on them in that they possess the hard asset if the loan defaults. Why the interest? They say they want to help people. Well, do it or shut up.

[odolvlobo]

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest.

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

I stopped reading there.

Ignorance is not an acceptable excuse.

[odolvlobo]

You want to buy a house or a car, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

1) There should be enough free capital floating around the ecosystem that you can crowdfund any money that you need. BTC should be only one of dozens of competing currencies.

2) Once the centralized banking system gets shut down, along with the MIC and govs... the three forces that drain 90 per cent of human capital will be gone, so we'll have trillions more in the planetary economy. It might take decades, but this is where it's going. 90 per cent of our wealth goes to exotic weapons, Cayman bank accounts, overpriced pharmaceuticals and outdated oil technology.  

Where's the bank? I'M THE BANK. And so is anyone else with more than a 1/4 BTC.

Peace on Earth

Oh good, I've been looking all over for the bank. I need you to loan me $500,000 so I can buy a new house. Do you have a branch office where can I fill out the application?

I still haven't been answered. Which one of you geniuses is loaning me a half million dollars in btc?

The capability may not exist now, but it will exist in the future. P2P lending is growing.

[BurtW]

You want to buy a house or a car, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

1) There should be enough free capital floating around the ecosystem that you can crowdfund any money that you need. BTC should be only one of dozens of competing currencies.

2) Once the centralized banking system gets shut down, along with the MIC and govs... the three forces that drain 90 per cent of human capital will be gone, so we'll have trillions more in the planetary economy. It might take decades, but this is where it's going. 90 per cent of our wealth goes to exotic weapons, Cayman bank accounts, overpriced pharmaceuticals and outdated oil technology.  

Where's the bank? I'M THE BANK. And so is anyone else with more than a 1/4 BTC.

Peace on Earth

Oh good, I've been looking all over for the bank. I need you to loan me $500,000 so I can buy a new house. Do you have a branch office where can I fill out the application?

I still haven't been answered. Which one of you geniuses is loaning me a half million dollars in btc?

The capability may not exist now, but it will exist in the future. P2P lending is growing.

Just go to BTCjam and post a loan request for the $500,000.  Good luck!

[BurtW]

Quit your belly aching about evil loaning, banking and fractional reserve.  These things cannot be stopped so deal with it.  Make personal choices that make sense to you.

Bitcoin lending will happen (already does).

If Bitcoin goes mainstream then Bitcoin banks will happen.

No amount of cussing and discussing this in a forum in the backwaters of the internet is going to stop it.  No amount of calling it stupid is going to stop it because if someone can make money doing it - they will.

So, when the time comes it will be up to you to personally decide if lending your precious BTC to a bank is worth the risk or not by looking at the various factors:  How much interest are they paying me?  Is the interest in BTC or fiat?  How is their insurance in case of theft or bank failure?  What is their reserves?  Do they periodically prove their reserves.  How much of my BTC do I want to risk and how much do I want to keep as cash, right here in my trusty Trezor?  Etc.

Also, when the time comes it will be up to you to decide if you are going to accept a Bitcoin susbstitute for payment or not.  Will you accept a check from a buddy's Bitcoin account that you can deposit in your Bitcoin account or cash in for actual real live Bitcoins at his bank?  If you do then you are participating in the fractional reserve system and accepting a Bitcoin substitute until you claim the real Bitcoins and during that time you have personally inflated the Bitcoin money supply - you.  What about the place you work?  Would you accept a Bitcoin check from them for your salary?  Or will you insist they pay you in "cash", that is actual Bitcoins from their wallet?  Assume you know the IOU is good. Does it hurt to accept an IOU until you get to their bank and have the bank put the BTC into your wallet?  Again, for that time you have made a personal decision to inflate the Bitcoin money supply.  You bastardo!

Fractional reserve banking of BTC cannot be stopped but you can choose how much you want to participate in it.

[jyakulis]

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest.

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

I stopped reading there.

Ignorance is not an acceptable excuse.

You are talking about a currency in its infancy stages vs. world wide and national currencies rammed down peoples throats through force. How can you even make this argument or comparison at this stage of the game? Who is to say loans will not exist in a crypto economy? If the market demands loans from bitcoin will it not spontaneously arise from the bitcoin economy like so many other necessary instruments have already emerged?

You are thinking in terms of the current system and trying to apply the current system to a new system that is in no way similar. You are applying an inherently inflationary system to an inherently deflationary one. The term loan as you apply it to a deflationary system has no credibility. The interest will come from the inherent deflationary nature of the currency. IE interest will come from the steadily increasing value caused by gradual adoption and usage of the currency. Conversely, in an inflationary system the hope is that interest rates payed back outpace inflation. In an inflationary system longer loan periods are encourage and paying back the loans in a timely manner is foolish. Why pay a loan back in a timely fashion when 10 years down the road it can be payed back with inflated money. In a deflationary system it is prudent to pay the loan back in a timely manner as the longer the loan is sat on the higher amount of actual value it would take to pay down the loan.

You're way creates bubbles, booms, and busts. Like I said I heard enough after you got into your argument about the merits of fractional reserve banking.

[BurtW]

You can sit here and discuss the evils of FRB all you want but the fact is that it will happen if profitable, and I see no reason that it would not be profitable - perhaps you can prove it would not be?  So once it does happen what are you going to do?

[icet208]

Simply NO.
This thread should be deleted!

[jyakulis]

You can sit here and discuss the evils of FRB all you want but the fact is that it will happen if profitable, and I see no reason that it would not be profitable - perhaps you can prove it would not be?  So once it does happen what are you going to do?

Would not they need to create a legal framework for FRB or otherwise it would be treated under fraud laws as it should be?

[BurtW]

You can sit here and discuss the evils of FRB all you want but the fact is that it will happen if profitable, and I see no reason that it would not be profitable - perhaps you can prove it would not be?  So once it does happen what are you going to do?

Would not they need to create a legal framework for FRB or otherwise it would be treated under fraud laws as it should be?

I don't think it is fraud to borrow and lend BTC.  Why would that be fraud?  Are you going to pass a law to make it illegal to borrow or lend BTC?  If a Bitcoin bank tells you up front that they will accept your BTC on deposit and that they will keep 50% of all BTC on deposit as reserve and they weekly publish their liabilities and assets, proving their reserve and you accept this contract to loan them your BTC - where is the fraud?

[QuestionAuthority]

You want to buy a house or a car, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

1) There should be enough free capital floating around the ecosystem that you can crowdfund any money that you need. BTC should be only one of dozens of competing currencies.

2) Once the centralized banking system gets shut down, along with the MIC and govs... the three forces that drain 90 per cent of human capital will be gone, so we'll have trillions more in the planetary economy. It might take decades, but this is where it's going. 90 per cent of our wealth goes to exotic weapons, Cayman bank accounts, overpriced pharmaceuticals and outdated oil technology.  

Where's the bank? I'M THE BANK. And so is anyone else with more than a 1/4 BTC.

Peace on Earth

Oh good, I've been looking all over for the bank. I need you to loan me $500,000 so I can buy a new house. Do you have a branch office where can I fill out the application?

I still haven't been answered. Which one of you geniuses is loaning me a half million dollars in btc?

The capability may not exist now, but it will exist in the future. P2P lending is growing.

Just go to BTCjam and post a loan request for the $500,000.  Good luck!

And what system will they be using to verify my creditworthiness? Equifax, Experian or TransUnion?

[jyakulis]

You can sit here and discuss the evils of FRB all you want but the fact is that it will happen if profitable, and I see no reason that it would not be profitable - perhaps you can prove it would not be?  So once it does happen what are you going to do?

Would not they need to create a legal framework for FRB or otherwise it would be treated under fraud laws as it should be?

I don't think it is fraud to borrow and lend BTC.  Why would that be fraud?  Are you going to pass a law to make it illegal to borrow or lend BTC?  If a Bitcoin bank tells you up front that they will accept your BTC on deposit and that they will keep 50% of all BTC on deposit as reserve and they weekly publish their liabilities and assets, proving their reserve and you accept this contract to loan them your BTC - where is the fraud?

You call me ignorant (or someone did) yet you have not one iota of an idea about the principals of fractional reserve lending.

Yes you can have loans without fractional reserve lending. It's called loaning money that is actually yours.

Why don't you explain to me the necessity of why we need people to lend money that does not exist vs. making loans with money they actually possess?

And stop calling it a "libertarian idea" that most oppose it. It is out of a humanitarian concern for all individuals and the value of the money they earn that I oppose it.

[QuestionAuthority]

You can sit here and discuss the evils of FRB all you want but the fact is that it will happen if profitable, and I see no reason that it would not be profitable - perhaps you can prove it would not be?  So once it does happen what are you going to do?

Would not they need to create a legal framework for FRB or otherwise it would be treated under fraud laws as it should be?

I don't think it is fraud to borrow and lend BTC.  Why would that be fraud?  Are you going to pass a law to make it illegal to borrow or lend BTC?  If a Bitcoin bank tells you up front that they will accept your BTC on deposit and that they will keep 50% of all BTC on deposit as reserve and they weekly publish their liabilities and assets, proving their reserve and you accept this contract to loan them your BTC - where is the fraud?

You call me ignorant (or someone did) yet you have not one iota of an idea about the principals of fractional reserve lending.

Yes you can have loans without fractional reserve lending. It's called loaning money that is actually yours.

Why don't you explain to me the necessity of why we need people to lend money that does not exist vs. making loans with money they actually possess?

And stop calling it a "libertarian idea" that most oppose it. It is out of a humanitarian concern for all individuals and the value of the money they earn that I oppose it.

What would motivate an individual to lend the equivalent of $500k to someone at a monthly compounded interest rate of 4.19% for 30 years? That is conceivably about the worst thing you could possibly do with your money.

[odolvlobo]

You want to buy a house or a car, but you don't have the bitcoins so you need to borrow them. Where are you going to borrow them from if there are no banks?

1) There should be enough free capital floating around the ecosystem that you can crowdfund any money that you need. BTC should be only one of dozens of competing currencies.
2) Once the centralized banking system gets shut down, along with the MIC and govs... the three forces that drain 90 per cent of human capital will be gone, so we'll have trillions more in the planetary economy. It might take decades, but this is where it's going. 90 per cent of our wealth goes to exotic weapons, Cayman bank accounts, overpriced pharmaceuticals and outdated oil technology.  
Where's the bank? I'M THE BANK. And so is anyone else with more than a 1/4 BTC.

Oh good, I've been looking all over for the bank. I need you to loan me $500,000 so I can buy a new house. Do you have a branch office where can I fill out the application?

I still haven't been answered. Which one of you geniuses is loaning me a half million dollars in btc?

The capability may not exist now, but it will exist in the future. P2P lending is growing.

Just go to BTCjam and post a loan request for the $500,000.  Good luck!

The capability may not exist now, but it will exist in the future. P2P lending is growing.

[BurtW]

You can sit here and discuss the evils of FRB all you want but the fact is that it will happen if profitable, and I see no reason that it would not be profitable - perhaps you can prove it would not be?  So once it does happen what are you going to do?

Would not they need to create a legal framework for FRB or otherwise it would be treated under fraud laws as it should be?

I don't think it is fraud to borrow and lend BTC.  Why would that be fraud?  Are you going to pass a law to make it illegal to borrow or lend BTC?  If a Bitcoin bank tells you up front that they will accept your BTC on deposit and that they will keep 50% of all BTC on deposit as reserve and they weekly publish their liabilities and assets, proving their reserve and you accept this contract to loan them your BTC - where is the fraud?

You call me ignorant (or someone did) yet you have not one iota of an idea about the principals of fractional reserve lending.

Yes you can have loans without fractional reserve lending. It's called loaning money that is actually yours.

Why don't you explain to me the necessity of why we need people to lend money that does not exist vs. making loans with money they actually possess?

And stop calling it a "libertarian idea" that most oppose it. It is out of a humanitarian concern for all individuals and the value of the money they earn that I oppose it.

I am not going to argue for or against the necessity of FRB.  I am only arguing that it will happen and it will be up to you to decide if you want to participate in it or not.

[hikedoon]

 How would Fractional Reserve Bitcoin Lending work in practice? How would the Blockchain recognise any of the made up Bitcoins?
 Wouldn't that be like trying to double-spend the same Bitcoin?
 This sounds like it just wouldn't work to me. 

[Skavenger]

How would a central bank print magic bitcoins? thats what central banks do.

[bigasic]

I don't think that there should be a "Bitcoin central Bank" but like BurtW said, when  bitcoin goes mainstream, a btc type bank is going to be inevitable. I believe they will be independent but a banking type system will be around. maybe it will take years for it to happen, but it will. I will have to wait and see how that bank operates, Most people will stay away from it, but some will flock to it.. Bitcoin created a brand new industry. Businesses and people will do anything to try to capitalize on it. If there is a demand for a bitcoin bank, there will be one..

[BurtW]

How would Fractional Reserve Bitcoin Lending work in practice? How would the Blockchain recognise any of the made up Bitcoins?
 Wouldn't that be like trying to double-spend the same Bitcoin?
 This sounds like it just wouldn't work to me.  

Just like it does today.

1) People deposit their BTC into the bank for the same reasons they do today:  security/insurance and earnings/interest
2) These people have accepted an IOU for their Bitcoins, the bank can now lend out some but not all of them - just in case someone wants some of them back.  This is called their reserve.  They can also, in order to stabilize a portion of their resserve, sell certificates of deposit that will cause people to deposit the BTC with them for an agreed to extended time frame, etc.  All the same things they do today.
3) The bank lends out let's say 50% of the coins on deposit and keeps 50% in their Trezor ( yes, banks will use Trezor hardware wallets )
4) Assume the people that borrow the Bitcoins spend them all out into the economy
5) Some of the people who get the spent loaned out Bitcoins, let's say 50% of them, deposit the Bitcoins into the same bank
6) The bank now has more Bitcoins on deposit so it can lend out half of them again (!)
7) Rinse, repeat.  Every time the loaned out Bitcoins come back as deposits into the bank they get to loan 1/2 of them out again.

Cool, eh?  Profitable?  Probably.  Inevitable?  Yes.  Inherently evil?  I do not think so but some here do.

To a certain extent what is causing our monetary issues is the fact that the banks don't have to wait for the customer deposits in order to make loans.  The can borrow money from the central bank, keep some of it and loan out the rest.  

Central banking evil?  Probably.  At least some of the founding fathers of the US thought so.

[BurtW]

How would a central bank print magic bitcoins? thats what central banks do.

To the extent that people accept Bitcoin substitute instruments to be as good as the real thing (Bitcoin paper, checks, notes, deposits, etc.) the Bitcoin Central Bank could inflate the money supply with these pseudo Bitcoins.

People "in the know" like you and me will accept no substitutes and demand payment in the real thing.

So it all depends on how gullible the general public is.  In other words without a lot of education we are doomed to repeat history.

However on the bright side, everyone I have taught about Bitcoin has "got it" and does understand, once explained, the difference between holding your own cash/value/Bitcoins and accepting a depository IOUs for them.

[jbreher]

People "in the know" like you and me will accept no substitutes and demand payment in the real thing.

Anecdotal evidence suggests that the very founding of the institution of fractional reserve banking was predicated upon lies and chicanery, upon fraud and deceit.

Unlike the scenario where gold depositories violated their core oath to safely store their client's metals -- by loaning these assets out to others -- transacting in Bitcoin IOUs carries no advantage whatsoever from transacting in actual Bitcoins.

In contrast, transacting in depository-issued certificates or notes rather than the metal itself has very real advantages, in terms of the convenience of portability, divisibility, etc. (Ignoring for the moment the very real risk disadvantage)

With Bitcoin IOUs conveying no advantage to the user whatsoever as compared to transacting in actual Bitcoins, knowledgeable people will have no incentive to prefer them. With the very real negative of possible loss of value, people have every incentive not to accept Bitcoin IOUs in lieu of Bitcoins.

With no advantage, and a very real disadvantage, knowledgable people will not accept Bitcoin IOUs in lieu of Bitcoins.

If we can get the populace informed of the attributes of Bitcoin -- and more importantly the attributes of the fiat money system -- we can stave off any embryonic move towards fractional reserve bitcoining before it has a chance to take root.

[QuestionAuthority]

People "in the know" like you and me will accept no substitutes and demand payment in the real thing.

Anecdotal evidence suggests that the very founding of the institution of fractional reserve banking was predicated upon lies and chicanery, upon fraud and deceit.

Unlike the scenario where gold depositories violated their core oath to safely store their client's metals -- by loaning these assets out to others -- transacting in Bitcoin IOUs carries no advantage whatsoever from transacting in actual Bitcoins.

In contrast, transacting in depository-issued certificates or notes rather than the metal itself has very real advantages, in terms of the convenience of portability, divisibility, etc. (Ignoring for the moment the very real risk disadvantage)

With Bitcoin IOUs conveying no advantage to the user whatsoever as compared to transacting in actual Bitcoins, knowledgeable people will have no incentive to prefer them. With the very real negative of possible loss of value, people have every incentive not to accept Bitcoin IOUs in lieu of Bitcoins.

With no advantage, and a very real disadvantage, knowledgable people will not accept Bitcoin IOUs in lieu of Bitcoins.

If we can get the populace informed of the attributes of Bitcoin -- and more importantly the attributes of the fiat money system -- we can stave off any embryonic move towards fractional reserve bitcoining before it has a chance to take root.

But people are really, really stupid though and will want it despite any problems. If you substitute the word dollar for the word Bitcoin in your statement how is it different? 

Anecdotal evidence suggests that the very founding of Bitcoin was predicated upon lies and chicanery, upon fraud and deceit. When I first came to this forum looking at mining Bitcoin many of the pools were ripping people off. I donated the very first Bitcoin to organofcorti when he came up with Neighborhood Pool Watch. Meni Rosenfeld and organofcorti would engage in long debates about the mathematics behind how the pools are cheating people. Bitcoin was only the currency of drug dealers when I first came here and about half of the threads were about SR. Scammers abound in Bitcoinland so much so that outside authorities needed to be brought in to capture the worst offenders.

Just because people have infiltrated a system and used it fraudulently for their own gain doesn't make the system at fault or you would have to blame Bitcoin too. Many people I talk to are having that issue with Bitcoin. They don't want to even let me talk to them about it because of all the problems at the start.

[odolvlobo]

With no advantage, and a very real disadvantage, knowledgable people will not accept Bitcoin IOUs in lieu of Bitcoins.

It is not clear you mean by "Bitcoin IOUs". When you write "people will not accept Bitcoin IOUs in lieu of Bitcoins", it appears that you are referring to some kind of currency. But obviously you don't mean that because there would be no such currency in the Bitcoin case.

[tzortz]

For the same reason fiat needs banks.

[wasserman99]

How would Fractional Reserve Bitcoin Lending work in practice? How would the Blockchain recognise any of the made up Bitcoins?
 Wouldn't that be like trying to double-spend the same Bitcoin?
 This sounds like it just wouldn't work to me. 

Just like it does today.

1) People deposit their BTC into the bank for the same reasons they do today:  security/insurance and earnings/interest
2) These people have accepted an IOU for their Bitcoins, the bank can now lend out some but not all of them - just in case someone wants some of them back.  This is called their reserve.  They can also, in order to stabilize a portion of their resserve, sell certificates of deposit that will cause people to deposit the BTC with them for an agreed to extended time frame, etc.  All the same things they do today.
3) The bank lends out let's say 50% of the coins on deposit and keeps 50% in their Trezor ( yes, banks will use Trezor hardware wallets )
4) Assume the people that borrow the Bitcoins spend them all out into the economy
5) Some of the people who get the spent loaned out Bitcoins, let's say 50% of them, deposit the Bitcoins into the same bank
6) The bank now has more Bitcoins on deposit so it can lend out half of them again (!)
7) Rinse, repeat.  Every time the loaned out Bitcoins come back as deposits into the bank they get to loan 1/2 of them out again.

Cool, eh?  Profitable?  Probably.  Inevitable?  Yes.  Inherently evil?  I do not think so but some here do.

To a certain extent what is causing our monetary issues is the fact that the banks don't have to wait for the customer deposits in order to make loans.  The can borrow money from the central bank, keep some of it and loan out the rest. 

Central banking evil?  Probably.  At least some of the founding fathers of the US thought so.

This is somewhat how coinlenders worked, and is how bitfinex works, except that the loans are made for a very specific purpose. The loans are much more diversified when a bank is involved verses how coinlenders worked or how an exchange works. Bitfinex has been generally successful in managing their risk, and banks are much better at managing risks.

None of this however has anything to do with having a central bank. What a central bank does is regulate the supply of money. A central bank will make it more difficult to borrow money if too much money is being released into the economy and causing too much inflation. Say for example if it is the central bank's goal to only have $50,400 released into the economy every two weeks, if more money is released into the economy over two weeks then the central bank will make it more difficult to borrow, if less then as much money is released into the economy in as much time then it will make it easier to borrow.

[gogxmagog]

There will be a btc central bank sooner or later. Given the chance to break away from old paradigms people seem to resist new waves in favour of the familiar, even when the familiar is broken, corrupt, poisonous. fools.

there will be a btc central bank, but it is unneccessary. It will flourish however because most of the population does not want to know how it works, easier to let someone else do it.

I feel that it will be the next big wave in btc development and implementation that could go awry with manipulation, ineptitude and hubris. It will just wind up being one more season of fiascos in bitcoinland for all the FUD media to harp on about. "BTC; greatest thing for terrorists, drug dealers, child exploiters and now millenials with the same lack of ethics as the fat cat banksters they seek to replace"

It will be bad for btc, ultimately. If you arm yourself with knowledge such entities are rendered useless. avoid.

[jbreher]

If you substitute the word dollar for the word Bitcoin in your statement how is it different? 

It is completely different. True, at one point in time, what we called the dollar was a fixed weight of silver. Back then, fractional reserve banking was not pervasive - at least not at a federally-sanctioned, pervasive level. However, after the founding of the FED, there was a program unfolded over decades that got us off of that definition of the dollar and onto its current definition. It is now not a fixed weight of silver, but rather a federal reserve note of no fixed measure. These federal reserve note 'dollars' for which we grub are already nothing more than an IOU. There is no discernible difference between the IOU in paper form, and the IOU in terms of transferable bank balance. In either case, the backstop for the paper IOU and the bank balance IOU is the FED.

In the case of Bitcoin, OTOH, there is a distinct difference between the Bitcoin itself (i.e. you and you alone have the private key that enables transferring the associated value) and a Bitcoin IOU (i.e. the bank has the private key {unless they have loaned it out}, and you merely have the bank's word that they'll give you the associated Bitcoin when you ask for it).

I really don't see how this distinction is hard to grasp.

You'll need to expound upon your point before I agree with you that 'if the pervasive central banking system is a scam, then so is Bitcoin'. I really don't see it that way at all. Indeed I see no correlation whatsoever. Sure you can point to various scams in Bitcoin-land - but these are each single failures. They are not institutional. They are not endemic to Bitcoin. In contrast, the wealth-stealing nature of each and every central banking edifice is systemic in nature, and an integral foundational concept upon which the system is predicated.

[jbreher]

With no advantage, and a very real disadvantage, knowledgable people will not accept Bitcoin IOUs in lieu of Bitcoins.

It is not clear you mean by "Bitcoin IOUs". When you write "people will not accept Bitcoin IOUs in lieu of Bitcoins", it appears that you are referring to some kind of currency. But obviously you don't mean that because there would be no such currency in the Bitcoin case.

Examples of Bitcoin IOUs would include: Bitcoin-denominated savings on deposit; and off-chain transactions.

[QuestionAuthority]

If you substitute the word dollar for the word Bitcoin in your statement how is it different? 

It is completely different. True, at one point in time, what we called the dollar was a fixed weight of silver. Back then, fractional reserve banking was not pervasive - at least not at a federally-sanctioned, pervasive level. However, after the founding of the FED, there was a program unfolded over decades that got us off of that definition of the dollar and onto its current definition. It is now not a fixed weight of silver, but rather a federal reserve note of no fixed measure. These federal reserve note 'dollars' for which we grub are already nothing more than an IOU. There is no discernible difference between the IOU in paper form, and the IOU in terms of transferable bank balance. In either case, the backstop for the paper IOU and the bank balance IOU is the FED.

In the case of Bitcoin, OTOH, there is a distinct difference between the Bitcoin itself (i.e. you and you alone have the private key that enables transferring the associated value) and a Bitcoin IOU (i.e. the bank has the private key {unless they have loaned it out}, and you merely have the bank's word that they'll give you the associated Bitcoin when you ask for it).

I really don't see how this distinction is hard to grasp.

You'll need to expound upon your point before I agree with you that 'if the pervasive central banking system is a scam, then so is Bitcoin'. I really don't see it that way at all. Indeed I see no correlation whatsoever. Sure you can point to various scams in Bitcoin-land - but these are each single failures. They are not institutional. They are not endemic to Bitcoin. In contrast, the wealth-stealing nature of each and every central banking edifice is systemic in nature, and an integral foundational concept upon which the system is predicated.

With Bitcoin you need to be able to use it for it to have value. You only have the word of any company or exchange that they will honor any agreement. Many Most of the Bitcoin exchanges and business have ripped people off since day one. The "banks" surrounding Bitcoin will happen regardless of our desire and they will thieve us too. They can also be quite useful and to operate a country as complex as the U.S. they're mandatory. Each one of the changes to the FED over decades happened because someone was trying to solve a problem because that's the job of the FED. Sure they screwed it up many times and made it worse at times but Nixon didn't just wake up one morning and decide to go off the gold standard and devalue the dollar. The status of the economy and international markets made the Gold standard unnecessary and impractical. People today love to preach about saving up gold for when the shit hits the fan. That's a new thing that happened in my lifetime. When I was young you couldn't buy gold because it was illegal and there was no place to buy it from. Only after we went off the gold standard were private citizens able to buy gold.

A Bitcoin FED will never exist. Governments have to be in control of their money. Bitcoin doesn't fit that bill. All the FED really does anyway is protect consumer credit rights, oversee national payments systems, manipulate money and credit conditions to attempt to provide full employment and stable prices. If anything the FED is a clean up crew that tries to keep private companies from taking down the entire country (banks, savings & loans, mortgage companies, other miscellaneous scumbags with lots of money).

Bitcoin banks, on the other hand, will happen. One of the very first things I saw naturally evolve on this forum was loans and lending. The lenders will end up centralized because they will have all the money to loan. They will get richer because they will charge interest. If the people or person controlling the central bank is honest then all is well. They will stay rich and we will get to buy things on credit. Let's say, Satoshi comes back from the grave. He has lots o' Bitcoin. He could easily act as the central bank and everyone would trust him and want him to do it judging from all the threads here because he's somewhere between Mahatma Gandhi and Jesus Christ. Most likely Satoshi won't be the bank. Remember most of the Bitcoin exchanges and business have ripped people off since day one. I expect our banks to follow the trend of the rest of written history and do it to - but we need them.
 
 

[richardramirez9]

Would satoshi agree with this? nope..

[zolace]

Why do we need to call it a Central Bank, why not call them a safehouse instead of a bank.   Banks got a bad name already.

[QuestionAuthority]

Why do we need to call it a Central Bank, why not call them a safehouse instead of a bank.   Banks got a bad name already.

You can call it whatever you want but it will still be fractional reserve banking. Delta Financial Offers Interest-Bearing Bitcoin Accounts:

Customers can store bitcoins and US dollars in separate accounts, each of which can earn interest, says Delta Financial’s co-founder, Euwyn Poon. There are separate interest rates for each currency, he explained, adding:

“Interest rates are dynamically adjusted based on supply and demand. They’re adjusted nightly to account for the amount of bitcoins and US dollars in the account.”

In addition, the firm guarantees a 5% minimum effective interest rate.

In traditional banking, accounts generate interest because banks loan your money to other people at a slightly higher interest rate than they pay you, enabling them to profit from your deposit while guaranteeing you a safe return.

Delta Financial does something similar, lending money from interest-bearing accounts to other customers. Those other customers use the loan for trading bitcoins against US dollars on the company’s own margin trading platform.

There are a few dangers here. The most common one is that the market moves quickly against a trader, and that the trading platform isn’t able to close out its position automatically by selling the coins or dollars it needs to recover its funds. After all, bitcoin is becoming a more liquid market, but it isn’t as liquid as many more established markets. To cover this eventuality, the firm will cover deposited funds with its own reserves in the event that the market moves so quickly that a margin deposit is lost.

Source: http://www.coindesk.com/delta-financial-offers-interest-bearing-bitcoin-accounts/

Here's another one.

http://www.bitsavings.org

[BurtW]

Of course you can do the same thing (lend your BTC, LTC, USD, etc. to traders) at Binfinex.

[jbreher]

If you substitute the word dollar for the word Bitcoin in your statement how is it different? 

It is completely different. True, at one point in time, what we called the dollar was a fixed weight of silver. Back then, fractional reserve banking was not pervasive - at least not at a federally-sanctioned, pervasive level. However, after the founding of the FED, there was a program unfolded over decades that got us off of that definition of the dollar and onto its current definition. It is now not a fixed weight of silver, but rather a federal reserve note of no fixed measure. These federal reserve note 'dollars' for which we grub are already nothing more than an IOU. There is no discernible difference between the IOU in paper form, and the IOU in terms of transferable bank balance. In either case, the backstop for the paper IOU and the bank balance IOU is the FED.

In the case of Bitcoin, OTOH, there is a distinct difference between the Bitcoin itself (i.e. you and you alone have the private key that enables transferring the associated value) and a Bitcoin IOU (i.e. the bank has the private key {unless they have loaned it out}, and you merely have the bank's word that they'll give you the associated Bitcoin when you ask for it).

I really don't see how this distinction is hard to grasp.

You'll need to expound upon your point before I agree with you that 'if the pervasive central banking system is a scam, then so is Bitcoin'. I really don't see it that way at all. Indeed I see no correlation whatsoever. Sure you can point to various scams in Bitcoin-land - but these are each single failures. They are not institutional. They are not endemic to Bitcoin. In contrast, the wealth-stealing nature of each and every central banking edifice is systemic in nature, and an integral foundational concept upon which the system is predicated.

Ayayayie... where to start? It seems we have a philosophical gap that may never be bridged. But let us try.

First, I see nothing in your reply that speaks to the difference between: fiat in hand vs. fiat in the bank; and Bitcoin IOUs vs. Bitcoin in your possession (i.e. "If you substitute the word dollar for the word Bitcoin in your statement how is it different?"). Can I take this as agreement that there is indeed a difference?

With Bitcoin you need to be able to use it for it to have value. You only have the word of any company or exchange that they will honor any agreement.

Well, yes. That is kind of the very definition of money - as a token used to represent value.

Many Most of the Bitcoin exchanges and business have ripped people off since day one. The "banks" surrounding Bitcoin will happen regardless of our desire and they will thieve us too.

With dismay, I will agree that Bitcoin banks will likely rise up. And indeed, they will thieve. Some through outright theft of assets. However others will simply thieve in the same manner that fiat banks thieve us through partial reserve schemes. This is also theft of a very real nature.

However, these Bitcoin banks will not thieve from me in any significant amount. Neither will they significantly thieve from any others who limit their exposure to them. Put simply, we don't need them.

They can also be quite useful and to operate a country as complex as the U.S. they're mandatory.

Unsupported assertion is unsupported. This may be at the heart of our philosophical difference.

Each one of the changes to the FED over decades happened because someone was trying to solve a problem because that's the job of the FED.

Most of the problems that the FED has 'tried to solve' was a direct result of the endemic structure of central banking and the fiat monetary system.

Sure they screwed it up many times and made it worse at times but Nixon didn't just wake up one morning and decide to go off the gold standard and devalue the dollar. The status of the economy and international markets made the Gold standard unnecessary and impractical.

Unnecessary? Perhaps. Impractical? More like inconvenient to those fat cat banksters that desired a better means of stealing the entire wealth of the populace.

People today love to preach about saving up gold for when the shit hits the fan. That's a new thing that happened in my lifetime. When I was young you couldn't buy gold because it was illegal and there was no place to buy it from. Only after we went off the gold standard were private citizens able to buy gold.

Stuff and nonsense. It was not until the actions of the FED caused the great depression that FDR stole all the citizens' gold. Up until that time, it was perfectly legal.

Bear in mind that 'going off the gold standard' was a phased event. America adopted fiat money in 1913, forced the citizens off gold in 1933, forced the citizens off hard money completely in 1964, and completely repudiated its gold debts in 1971.

A Bitcoin FED will never exist.

Praise be to the FSM! I think you are correct here. At least I certainly hope so. However, the ingenuity of a cabal with almost unlimited resources can be awfully crafty (see e.g. the Federal Reserve Act of 1913).

Governments have to be in control of their money.

_Their_ money!? What makes it theirs? Who should own and control the wealth? Who creates wealth? The government? That amorphous entity that pretends authority over the actual humans? Certainly not!

The government can have fiat, if they want it. After all, it is a creation of government. Bit Bitcoin belongs to the people. Actual people.

Bitcoin doesn't fit that bill. All the FED really does anyway is protect consumer credit rights, oversee national payments systems, manipulate money and credit conditions to attempt to provide full employment and stable prices. If anything the FED is a clean up crew that tries to keep private companies from taking down the entire country (banks, savings & loans, mortgage companies, other miscellaneous scumbags with lots of money).

Well yes - the FED does these things too. But its central mission is to steal the wealth of the populace through the hidden tax called inflation, and put it into the pockets of a cabal of international financiers.

Let us not forget that, without the evils of fiat, there would be no need to "keep private companies from taking down the entire country"
 

Bitcoin banks, on the other hand, will happen. One of the very first things I saw naturally evolve on this forum was loans and lending. The lenders will end up centralized because they will have all the money to loan. They will get richer because they will charge interest. If the people or person controlling the central bank is honest then all is well. They will stay rich and we will get to buy things on credit. Let's say, Satoshi comes back from the grave. He has lots o' Bitcoin. He could easily act as the central bank and everyone would trust him and want him to do it judging from all the threads here because he's somewhere between Mahatma Gandhi and Jesus Christ. Most likely Satoshi won't be the bank. Remember most of the Bitcoin exchanges and business have ripped people off since day one. I expect our banks to follow the trend of the rest of written history and do it to - but we need them.

For what purpose, exactly, do we need these Bitcoin banks?

And after all that wall of text, I still don't see any support for your assertion that 'if the pervasive central banking system is a scam, then so is Bitcoin'.

[counter]

This is like going to a central bank forum and arguing to them why they need to adapt a Bitcoin bank, no?  It at best would need to be completely transparent for it to work in my opinion and even then I don't think it would get very much traction within the community. 

[QuestionAuthority]

For what purpose, exactly, do we need these Bitcoin banks?

And after all that wall of text, I still don't see any support for your assertion that 'if the pervasive central banking system is a scam, then so is Bitcoin'.

We need banks to loan people money to buy houses, cars and other expensive items.

It's going to be impossible for me to convince you that the concept of the FED is not a bad one because you seem to think the FED is controlled by a cabal of international financiers. Even if it were controlled by evil forces that would not make the idea or the system bad just like all the scammers and fat latte drinking exchange owners don't make Bitcoin a bad idea or system.

[zorke]

Why do we need to call it a Central Bank, why not call them a safehouse instead of a bank.   Banks got a bad name already.

You can call it whatever you want but it will still be fractional reserve banking. Delta Financial Offers Interest-Bearing Bitcoin Accounts:

Customers can store bitcoins and US dollars in separate accounts, each of which can earn interest, says Delta Financial’s co-founder, Euwyn Poon. There are separate interest rates for each currency, he explained, adding:

“Interest rates are dynamically adjusted based on supply and demand. They’re adjusted nightly to account for the amount of bitcoins and US dollars in the account.”

In addition, the firm guarantees a 5% minimum effective interest rate.

In traditional banking, accounts generate interest because banks loan your money to other people at a slightly higher interest rate than they pay you, enabling them to profit from your deposit while guaranteeing you a safe return.

Delta Financial does something similar, lending money from interest-bearing accounts to other customers. Those other customers use the loan for trading bitcoins against US dollars on the company’s own margin trading platform.

There are a few dangers here. The most common one is that the market moves quickly against a trader, and that the trading platform isn’t able to close out its position automatically by selling the coins or dollars it needs to recover its funds. After all, bitcoin is becoming a more liquid market, but it isn’t as liquid as many more established markets. To cover this eventuality, the firm will cover deposited funds with its own reserves in the event that the market moves so quickly that a margin deposit is lost.

Source: http://www.coindesk.com/delta-financial-offers-interest-bearing-bitcoin-accounts/

Here's another one.

http://www.bitsavings.org

I think the real danger with bitcoin banks is that it will be difficult to tell the difference between a legit bank that is paying a reasonable interest rate from someone who is scamming. Take for example cryptominers (who recently reportedly ran away with ~70 BTC of customer money) who was paying 4.5% daily interest on "deposits"/"investments". To someone with the proper amount of common sense this is clearly a ponzi, however not everyone has this level of common sense.

Another issue is that a bitcoin bank will present a central place for attackers to try to hack. Just look at the TF "hack" - there were over 4k BTC at the site and instead of someone trying to hack thousands of people's wallets/private keys, they only needed to hack the one site to get millions (assuming it was actually hacked).   

[jbreher]

For what purpose, exactly, do we need these Bitcoin banks?

And after all that wall of text, I still don't see any support for your assertion that 'if the pervasive central banking system is a scam, then so is Bitcoin'.

We need banks to loan people money to buy houses, cars and other expensive items.

It's going to be impossible for me to convince you that the concept of the FED is not a bad one because you seem to think the FED is controlled by a cabal of international financiers.

Yes, I do. But not only that - it was _designed_ by a cabal of international financiers. _Owned_ by a cabal of international financiers. It is _an_organ_of_ a cabal of international financiers.

Even if it were controlled by evil forces that would not make the idea or the system bad

It would, if the system was literally designed to extract the wealth of the entire populace, through the hidden tax called inflation, and transfer that wealth to the very same cabal of international financiers. Which it was.

just like all the scammers and fat latte drinking exchange owners don't make Bitcoin a bad idea or system.

Again - you're comparing lone incidents to a systemic, fundamental, structural evil. As you tacitly agreed to by twice refusing to refute that point (once in the form of a direct question to you).

[cdog]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

This is one of the all time dumbest posts on Bitcointalk.org, and Im not saying that lightly or trying to insult the original poster, so please no offense.

OP Im sure you are are great, wonderful person, and probably intelligent as well. You just had a giant, seeping, stinking brainfart of an idea. We all have these - just keep them to yourself.

[arxwn]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

This is one of the all time dumbest posts on Bitcointalk.org, and Im not saying that lightly or trying to insult the original poster, so please no offense.

OP Im sure you are are great, wonderful person, and probably intelligent as well. You just had a giant, seeping, stinking brainfart of an idea. We all have these - just keep them to yourself.

Do you believe this kind of vitriol propaganda pieces are written by accident or as brainfart one of instance ?
My question is who are they targetting and my guess is the vendors using bitcoin services simply as forex.

[zorke]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

This is one of the all time dumbest posts on Bitcointalk.org, and Im not saying that lightly or trying to insult the original poster, so please no offense.

OP Im sure you are are great, wonderful person, and probably intelligent as well. You just had a giant, seeping, stinking brainfart of an idea. We all have these - just keep them to yourself.

I would say that the OP was potentially written to create discussion on this topic or to potentially play devils advocate on the topic of creating a central bank.

[barbarousrelic]

Aside from the issue of whether there should be a Bitcoin central bank, OP puts the cart before the horse.

There can't be a Bitcoin central bank unless and until a large portion of Bitcoin transactions are done through Bitcoin banks.  I would estimate that portion is currently close to zero percent.

If we don't have widespread use of Bitcoin banks, a central bank can't regulate Bitcoin banks, it can't control Bitcoin bank lending or reserve ratios, it can't act as a lender of last resort to Bitcoin banks that don't exist.

[Fog Fence]

Suitcases full of dollars have been the default currency of drug dealers and scammers for decades. Don't blame Bitcoin if the sharks hop on the bandwagon.

[YanTheMan]

That's not what Bitcoin is about though.  If Satoshi created design principles for his Bitcoin, your idea would inevitably be in direct violation of them.   Bitcoin is ultimately about the decentralized peer to peer trade network, not about stable prices.  MT Gox was pretty much destined to happen.  When you have a middle man for trades, a large centralized exchange, nothing stops them from simply taking the coins and running. 

[okae]

old threads grow up again...


btw about this thread: the own satoshi will break his anonymity just to come back and delete this post.

seriously guys, thats one of the reason that BTC is so big, because havent those things...

[corebob]

Bitcoin is the central bank, and the asset, and the currency, all at once. Thats why libertarians like it, finally they have something they can understand.

[philiveyjr]

I think it would be useless having a Bank for BTC.!! All the transactions that a bank does r done by many BTC users already..!

[lucasjkr]

Long post, so I'll do the TL/DR first:


TL/DR: 1) Fractional reserve banking isn't evil; 2) there is most certainly a role for banks in the future bitcoin economy; 2b) right now, those functions can be done in a P2P environment, but if the bitcoin grows exponentially, the economies of scale will give banks/centralized lending pools huge advantages over the p2p lending marketplace; 3) should all of those happen, then a bitcoin Central Bank should be a welcome addition to the bitcoin economy. All of this depends on what you view the functions of banks and central banks are though, you'll have to read the rest of this to see how i describe it though.

----
Now for the lengthy post
---


PART ONE:

P2P direct lending and such works in the bitcoin community right now because it is so small. Should bitcoin denominated economy really take off to the extent that it's marketshare against the big boy currencies (USD, EUR, etc) is sizable, peer to peer won't work so well anymore. Someone wants a loan and submits their request to this forum, for instance, which could trigger 1,000 potential lenders each having to perform their own due diligence. Just doesn't work.

So, if at some point in the future, people decide they're ok putting some of their wealth "at risk" (though ideally, the "at risk" shouldn't be any more risky than a dollar deposit in a bank), they could transfer funds to a company who's business is specifically lending funds at interest, performing due diligence before making such loans, etc.  People could even specify their liquidity requirements with that company - some funds they want to be able to transfer to their own wallet on demand; since those funds can be requested at any time, the company would be very constrained about what they could do with those funds; other customers might be comfortable taking, say, 5% of their funds and loaning it out for longer; they can earn a greater return, but would be constrained with their liquidity slightly. Maybe they can't access their funds at all for the time period, or maybe they can redeem their funds, they just need to pay a penalty of sorts for making the company find someone else to take out their position or, if no one can be found, using their own capital to cover the position of the exiting lender.

Sound like a reasonable business model?

Guess what? That's a bank, offering savings and money market accounts in the first instance and CD's in the second instance.

PART TWO:

People around here act as if the fractional reserve system is a crime, I just don't get it. Yes, it's true, if 100% of a banks depositors showed up at the door demanding to withdraw their funds in full on the same exact day, no modern bank would be able to accommodate that request. The fact is, though, that these events just don't happen anymore. And even if they did, such an event wouldn't necessarily mean the immediate insolvency of a bank - in their customer agreements the small print generally states that they can limit withdrawals in some instances - one instance would be depositors demanding all of their funds at once - so long as capital markets are functioning normally (like, we're not in a 2007/2008/2009 scenario), the bank might just need a couple of days to sell off assets that those deposits were invested in - loans, mortgages, credit card balances, those are all marketable securities. So, as long as every bank isn't trying to sell the same exact asset at the same exact time, a modern bank should be able to accommodate full customer withdrawals in a surprisingly short amount of time, without needing to declare insolvency.

Take JP Morgan for instance.

Balance sheet shows $1.287 trillion in "Other Current Liabilities"; those are customer deposits.

They also show $405 billion in long term debt; those are likely bonds and certificates of deposit - things that customers are either dissuaded from redeeming immediately (via a Certificate of Deposits' early withdrawal penalty), or simply CAN'T demand redemption on demand (in the case of corporate bonds).
 
To offset those two sets of liabilities, they have $604 billion in cash and equivalents, so they could accommodate almost 50% of their customer withdrawals from can on hand. I might take a day or two to shift the funds to the appropriate branches, though.

An on top of that, they have $1.5 trillion in long-term investments; these can be letters of credit, credit lines, mortgages, and the like; all of those are marketable securities which can be sold to other banks, to institutional investors (pensions, hedge funds), etc.

What am I saying?

Fractional reserve is not a crime or a fraud. If the business of banks was to hold customers cash and to keep it as cash, then what would be the point of banks? No, their business model has always been to take customer deposits and lend those monies to others of the banks customers. That's a completely valid business model, not fraudulent, not criminal or any of the other terms that get thrown about when they get whipped into a foaming at the mouth type frenzy.

Banks have found they can do business while only having a small fraction of their customers deposits on hand as actual cash, because even when many customers are requesting to withdraw funds, others are depositing new monies which offset those flows. No different than Coinbase determining that they can satisfy the day to day business demands of their customer while keeping 97% of their customer funds in cold storage.


PART THREE: Role of the Central Bank.

One of the most important things that the Central Bank does is establish reserve requirements that banks must abide by; they can do this because they have tremendous insight into the economy - insight that almost no one else has. They have this by being able to discuss, in complete confidentiality, current business environments of hundreds if not thousands of companies across a variety of industries. Information that wouldn't be disclosed to shareholders until it's time to make quarterly filings is disclosed to the Fed freely, so that it can have it's thumb on the pulse of the economy at all times. When they see that the economy is expanding, they lower reserve requirements, letting banks make more loans into the market and have less cash on hand, and when they see the economy is stagnant or contracting they raise reserve requirements, making banks remove loans from the market (that could be calling in debt, closing credit card accounts, lowering lines of credit, etc), in order to have greater amounts of cash on hand.

Sometimes they mess up. 2008 is a perfect example. But even in the face of that, it doesn't invalidate their role in the economy.

Circling back to the first point; fractional reserve banking is not an evil invention, despite all the hype to the contrary; and more importantly, as the bitcoin denominated economy grows, such services will not only spring up, but will likely be in demand; they will be able to provide services that just aren't viable in a peer-to-peer manner; why should hundreds of lenders do the same amount of due diligence on a potential borrower, when they could transfer funds that they're willing to lend to a separate company, where each of those other hundreds of potential lenders have also transferred funds, and rely on that one company to do the due diligence on their loans for them? The second scenario is far more efficient, and that, my fiends, is a bank.

And should these bitcoin denominated banks have a central bank?

To me, the answer would be "ideally", but only if that central bank was able to get equivalent or near-equivalent visibly into the economy as the true Central Banks do. There's no point in having an organization making rules the bitcoin denominated banks to abide by, if they aren't in a position of having more insight than each of those banks do. So initially, there's not really going to be a place for a bitcoin central bank in bitcoins earliest days. Until the bitcoin economy gets big enough, and more importantly, creditable enough that, upon formation of a "central bank" or its equivalent, which can actually glean more information about the economy than the bankers themselves, there's no point in having an outside organization make rules for those banks. But once bitcoin gets big enough that large companies are comfortable being candid with bitcoins' Central Bankers, those Central Bankers will be in a position, knowing more about the economy than the banks themselves, to be able to hand down general decrees to the bitcoin banks that had opted to operate under their umbrella.

That's about it. Sorry about the ramble.

[Cortex7]

Fractional reserve banking is not needed.

Many laud the benefits of fractional reserve "it gives banks a way to control monetary base within a regulated environment".

But those regulations are just limits on the fractional ratio, and throughout history those limits always creep up and inevitably give way to fiat, which inevitably fails leaving the rich with all the gold.... EVERY TIME!   (how dumb can the peasants be to do the same over and over lol)

From the perspective of us (the general public) it's a step down the slippery slope of money debasement. The myth that it is needed is propogated by folk wanting to funnel everyone elses wealth into their own coffers, and that's perfectly understandable selfish behaviour.

This need for monetary base control is a myth, the free market will do it without intervention. Global trade would work just fine with infinitely divisible gold coins (which is what bitcoin is very much like ). It wouldn't work fine however for fat asses who prefer to outsource their labor and pay for it with paper promises.

Money is just memory of debts between parties, bitcoin holds those debts in a ledger that can't be fucked with.

Why on earth would someone want to give some central body the ability to fuck with that ledger? It totally shits on what bitcoin IS!

[Cortex7]

Bitcoin is the central bank, and the asset, and the currency, all at once. Thats why libertarians like it, finally they have something they can understand.

I like it because it prevents dumb lazy jerk parasites stealing my wealth while sitting on their fat asses doing NOTHING!

[51percemt]

Bitcoin is the central bank, and the asset, and the currency, all at once. Thats why libertarians like it, finally they have something they can understand.

The protocol Bitcoin (with a capital b) essentially acts as a central bank as it regulates how much bitcoin is "released" into the economy per time period. It cannot however react to economic factors that may, economically, warrant a higher or lower amount of money being injected into the economy.

The asset bitcoin (with a lower case b) is somewhat of a currency (it is getting to be more so like one over time). Any currency will always be an asset, as this is just what a currency is

[corebob]

The asset bitcoin (with a lower case b) is somewhat of a currency (it is getting to be more so like one over time). Any currency will always be an asset, as this is just what a currency is

When I call it an asset I mean that it holds value in itself because of its scarcity, similar to gold and art. A piece of paper with a dollar sign on it does not, it only represents something that supposedly holds value.

People needs to forget about all the economic mumbo jumbo. It doesn't apply to Bitcoin.

Backing up bitcoins with dollar bills doesn't make sense because it doesn't solve a problem. Thats where Bitcoin stands on its own.

[Cortex7]

The asset bitcoin (with a lower case b) is somewhat of a currency (it is getting to be more so like one over time). Any currency will always be an asset, as this is just what a currency is

When I call it an asset I mean that it holds value in itself because of its scarcity, similar to gold and art. A piece of paper with a dollar sign on it does not, it only represents something that supposedly holds value.

People needs to forget about all the economic mumbo jumbo. It doesn't apply to Bitcoin.

Backing up bitcoins with dollar bills doesn't make sense because it doesn't solve a problem. Thats where Bitcoin stands on its own.

Yes bitcoin is the first time in recorded history of having a virtual token of finite issuance.

[SW725]

There shouldnt be.. It affects the brilliant concept of bitcoin.

[moriartybitcoin]

a central bank goes against everything Bitcoin stands for. The OP is out of his mind!

[botany]

Bitcoin banks will come first, central banks will come later. 

[Eotnak]

I would do business with an online service (wallet, exchange,bank) if they did 80% reserve and had bonds with multiple bitcoin holders who would make up for the 20% fake coins if there was a "run on the bank"

Do we need a central bank?  Hell no.  We need educated market participants.

[lucasjkr]

When I call it an asset I mean that it holds value in itself because of its scarcity, similar to gold and art. A piece of paper with a dollar sign on it does not, it only represents something that supposedly holds value.

Lots of "scarce" items don't hold their value.

Baseball cards were once routed (in the 1980's to early 90's) as great investments, alternatives to stocks, and, more familiarly, as "inflation hedges". Same for comic books.

Gold itself hit highs in the early 80's that took decades to reclaim.

And a LOT of people are now underwater with their bitcoin investment, having bought in at prices well exceeding where they're at today.

So, I'd be especially weary of assuming that ANYTHING can hold its value.

People needs to forget about all the economic mumbo jumbo. It doesn't apply to Bitcoin.

Those were the famous last words of the dotcom boom. People running around saying that the fundamentals that had been used to measure the worths of businesses didn't apply to the new era brought about by the dotcom age. Not long after that, the boom was over, and so many of those highly touted companies with such poor fundamentals that their investors were driven to believe that line went on to vaporize. So, no, economics matter to bitcoin. There might need to be a slight change in paradigm, considering it is an asset of strictly limited supply and speed of creation while the fiats don't have those characteristics, but to say hundreds of years of economic research don't matter to bitcoin, that strikes me as short sighted....

[Connor936]

The asset bitcoin (with a lower case b) is somewhat of a currency (it is getting to be more so like one over time). Any currency will always be an asset, as this is just what a currency is

When I call it an asset I mean that it holds value in itself because of its scarcity, similar to gold and art. A piece of paper with a dollar sign on it does not, it only represents something that supposedly holds value.

People needs to forget about all the economic mumbo jumbo. It doesn't apply to Bitcoin.

Backing up bitcoins with dollar bills doesn't make sense because it doesn't solve a problem. Thats where Bitcoin stands on its own.

The only reason bitcoin has any value is because the market gives it value. The same is true for any other asset, including art, gold, and yes dollars.

[ketos]

no

[BrunesBTC45]

There shouldnt be.. It affects the brilliant concept of bitcoin.

Yeah... banker might have a bad thing planned. Scamming everyone will always be in his mind.

[jbreher]

Geeze - where to start? I'll just hit a couple of the high points.

Guess what? That's a bank, offering savings and money market accounts in the first instance and CD's in the second instance.

No. Just plain wrong. That is not the way it works. Your assertion is a false oversimplification of the way fractional reserve banking actually works. The overwhelming majority that banks loan out is not the money of their depositors. It is new money, created by the bank itself, that is whisked into existence at the moment the loan is made. And every dollar of this newly created money gains its value by stealing wealth from everyone - in the form of reducing the purchasing power of every dollar that was in existence at the moment immediately before the loan was made. It is this theft of purchasing power which makes FRB evil. Well, one of the leading reasons why FRB is evil.

People around here act as if the fractional reserve system is a crime, I just don't get it. Yes, it's true, if 100% of a banks depositors showed up at the door demanding to withdraw their funds in full on the same exact day, no modern bank would be able to accommodate that request.

That's not what makes them evil (see above). That's merely what necessitates an entity like the FED, which backstops the whole unsustainable system, with a promise to step in and steal from every American citizen as much as is required in order to make sure that the system doesn't topple. Oh wait - that's evil too!

Fractional reserve is not a crime or a fraud. If the business of banks was to hold customers cash and to keep it as cash, then what would be the point of banks? No, their business model has always been to take customer deposits and lend those monies to others of the banks customers.

Except that's not what they do (again, see above).

No different than Coinbase determining that they can satisfy the day to day business demands of their customer while keeping 97% of their customer funds in cold storage.

You don't see a difference between Coinbase having limited access to the bulk of the funds in an immediate manner; and having a charter to print currency, then loan it out at interest, then collect not only the interest, but also the currency you whisked into existence in the first place? You are either ignorant is to how the system _actually_ operates, or you are evil too.

One of the most important things that the Central Bank does is establish reserve requirements that banks must abide by;

Which wouldn't be necessary if it were not for FRB.

Sometimes they mess up. 2008 is a perfect example.

2008 isn't just that they 'messed up'. The system is unsustainable by design.

That's about it.

Indeed.

[ebliever]

The OP makes me feel like I've just read a post insisting that it would be a really good idea to hitch up horses to those new-fangled automobiles, because, well, you know, just because...

With the rise of crowdfunding along with cryptocurrency, it's hard to see why we really need banks at all in the long run.

[knight22]

Fractional reserve is legalized theft. Period.

[LiberyOrDeath]

Fractional reserve is legalized theft. Period.

True words of wisdom here. Everybody: you should listen to this guy - he is telling it the way it is , in a straightforward manner and he's not mincing words.

[jjacob]

Fractional reserve is legalized theft. Period.

Fractional reserve levels (mandated by the government) prevent thieves from getting greedy.

[hdbuck]

banks are bad.

[QuestionAuthority]

banks are bad.

[santaClause]

Fractional reserve is legalized theft. Period.

I assume that you are implying that banks are the ones stealing. But who are they stealing from? The deposit-holders can withdraw their money anytime they wish so they do not lose out. If you are saying that it is stealing because of inflation, then the interest that banks pay traditionally is higher then the inflation rate and the rate that can generally be earned via investing is greater then inflation.

[jbreher]

Fractional reserve levels (mandated by the government) prevent thieves from getting greedy.

Prevents them from being _as_ greedy as they otherwise would. But still institutionalizes their theft. And still allows them -- through the evil mechanics of FRB -- to incrementally steal the entire wealth of the populace.

[jbreher]

Fractional reserve is legalized theft. Period.
[

But who are they stealing from?

Everyone. Quite literally.

If you do not understand this, then you do not understand how fractional reserve banking works. Read the rest of this thread for the briefest of introductions to the topic.

[HELP.org]

Fractional reserve is legalized theft. Period.
[

But who are they stealing from?

Everyone. Quite literally.

If you do not understand this, then you do not understand how fractional reserve banking works. Read the rest of this thread for the briefest of introductions to the topic.

Are they stealing from BFL customers and people who had funds in Mt. Gox too?  I am glad we have Bitcoin to solve this stealing problem.  Man, I was worried.  I thought Bitcoin was only good for ending wars and replacing law enforcement with Roger Ver's Bounty system.  I learn something new here every day.

[santaClause]

Fractional reserve is legalized theft. Period.
[

But who are they stealing from?

Everyone. Quite literally.

If you do not understand this, then you do not understand how fractional reserve banking works. Read the rest of this thread for the briefest of introductions to the topic.

Fractional reserves allow banks to "create" money and essentially devalues money however the amount that money is devalued is less then what can be earned by investing your money so fractional reserve banking actually facilitates people to increase their wealth and standard of living.

The only people who are negatively affected are people who have cash 'under the mattress' literately

[iwillwin]

Even I feel that there should be some kind of central and governing body over Bitcoins to prevent theft and make the necessary rules.

[jbreher]

Fractional reserve is legalized theft. Period.
[

But who are they stealing from?

Everyone. Quite literally.

If you do not understand this, then you do not understand how fractional reserve banking works. Read the rest of this thread for the briefest of introductions to the topic.

Are they stealing from BFL customers and people who had funds in Mt. Gox too? 

Yes. The new money created by lending in fractional reserve banking drives its purchasing power from the theft of purchasing power held by everyone at the instant before the new money was created.

Glad to have helped you by increasing your level of knowledge.

[jbreher]

Fractional reserves allow banks to "create" money and essentially devalues money

Yes

however the amount that money is devalued is less then what can be earned by investing your money

No

so fractional reserve banking actually facilitates people to increase their wealth and standard of living.

Double no.

The only people who are negatively affected are people who have cash 'under the mattress' literately

False. Literally everyone is affected. The money that is created by FRB eventually ends up in the banks' coffers. Through this mechanism, if allowed to continue indefinitely, literally every tangible thing will end up the property of the banks.

Of course it won't continue indefinitely. Eventually, enough of the people will  overcome their indoctrination, and finally understand how thisevil scheme operates. And put an end to this travesty.

[jbreher]

Even I feel that there should be some kind of central and governing body over Bitcoins to prevent theft and make the necessary rules.

Someday, you will understand that the central and governing bodies are the greatest thieves of all.

[CryptoCarmen]

Even I feel that there should be some kind of central and governing body over Bitcoins to prevent theft and make the necessary rules.

Someday, you will understand that the central and governing bodies are the greatest thieves of all.

I thought Robin Hood was the best. Hmm.

[HELP.org]

Fractional reserve is legalized theft. Period.
[

But who are they stealing from?

Everyone. Quite literally.

If you do not understand this, then you do not understand how fractional reserve banking works. Read the rest of this thread for the briefest of introductions to the topic.

Are they stealing from BFL customers and people who had funds in Mt. Gox too? 

Yes. The new money created by lending in fractional reserve banking drives its purchasing power from the theft of purchasing power held by everyone at the instant before the new money was created.

Glad to have helped you by increasing your level of knowledge.

Except you not have the same economy to begin with so you don't know how much money would have in the first place.  You are comparing apples and oranges.  You have no idea how an economy would operate in practice if everything were Bitcoin.  That is why this is experiments.  You still have criminals, fractional reserve banking, wars, etc.  Bitcoin is just one more tool that may influence things to certain extent.  Other discussions such as the world completely switching over to Bitcoin is just a though experiment.  people who think these are real goals and tie Bitcoin to their agenda are the ones that are distorting Bitcoin to the public.

With all the problems central authorities have the majority of people want them.  People naturally choose security over freedom all the time, up to certain limits and all the Internet protocols in the world are not going to change that.  It happens with Bitcoiners too, look at the commotion around the centralized Foundation and complaints to central authorities like the FTC and SEC.  people want alternatives to some of the things central authorities do so they can be pressured but at the end of the day they still want them for security.

[mnmShadyBTC]

Fractional reserve is legalized theft. Period.
[

But who are they stealing from?

Everyone. Quite literally.

If you do not understand this, then you do not understand how fractional reserve banking works. Read the rest of this thread for the briefest of introductions to the topic.

Are they stealing from BFL customers and people who had funds in Mt. Gox too? 

Yes. The new money created by lending in fractional reserve banking drives its purchasing power from the theft of purchasing power held by everyone at the instant before the new money was created.

Glad to have helped you by increasing your level of knowledge.

False. Money created by fractional reserve banking only increases the supply of money, it does not necessarily increase the rate of inflation (although there is a generally coloration). Inflation will occur when the rate of increase for the demand for goods and services exceeds the rate of increase of the supply of goods and services. 

[Soros Shorts]

Fractional reserve is legalized theft. Period.
[

But who are they stealing from?

Everyone. Quite literally.

If you do not understand this, then you do not understand how fractional reserve banking works. Read the rest of this thread for the briefest of introductions to the topic.

Are they stealing from BFL customers and people who had funds in Mt. Gox too? 

Yes. The new money created by lending in fractional reserve banking drives its purchasing power from the theft of purchasing power held by everyone at the instant before the new money was created.

Glad to have helped you by increasing your level of knowledge.

False. Money created by fractional reserve banking only increases the supply of money, it does not necessarily increase the rate of inflation (although there is a generally coloration). Inflation will occur when the rate of increase for the demand for goods and services exceeds the rate of increase of the supply of goods and services. 

Ah ... the ever expanding Keynesian economy! 

[Cortex7]

Ah ... the ever expanding Keynesian economy! 

Yes, untenable in a finite world.

[mnmShadyBTC]

Ah ... the ever expanding Keynesian economy! 

Yes, untenable in a finite world.

Price of the DJIA in 1975 - ~690 (call it 700)
Price of DJIA today ~17,100 (call it 17,000)

Return: ~24.7x in ~40 years.

Your chart has the CPI being at somewhere between one and three in 1910 (call it 1.1) and is at roughly 27 now (call it 28). That means the CPI has gone up by 25.45x in 102 years.

If someone had taken one dollar in 1910 when the fed was created, kept it in a mattress, then invested it in the stock market in 1975, they would have come close to beating 102 years of inflation in just 40 years and this does not count dividends which would be substantial (several percentage points per year).

[none]

I'm not sure if it's mentioned before.


FRB is not necessary for lending.

A borrower can just issue bonds or the similar like time deposits for raising the fund.
And the bonds are not used as the accounting units or medium of exchange like a currency.

Am I correct?

[Cortex7]

...
Price of DJIA today ~17,100 (call it 17,000)

Return: ~24.7x in ~40 years.

Your chart has the CPI being at somewhere between one and three in 1910 (call it 1.1) and is at roughly 27 now (call it 28). That means the CPI has gone up by 25.45x in 102 years.

If someone had taken one dollar in 1910 when the fed was created, kept it in a mattress, then invested it in the stock market in 1975, they would have come close to beating 102 years of inflation in just 40 years and this does not count dividends which would be substantial (several percentage points per year).

Yes you could have beaten inflation over 100 years by investing a dollar from 1910 in 1975, because the ponzi scheme only started in 71 and we all know if you get in early in a Ponzi scheme it's great ... But get in after the peak and it's not so great

Thanks to central banks the current global money system is like musical chairs, yes the musics still playing and the players are still dancing around, but there's only one chair left, and there's a loaded gun on it, the game wont end well.

The most brittle aspect at the moment are the derivatives markets where all the book excesses have been pushed into.

There are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.  Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable.  And unlike stocks and bonds, these derivatives do not represent "investments" in anything.  They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future.  The truth is that derivatives trading is not too different from betting on baseball or football games.  Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet.  When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.

SOURCE: http://theeconomiccollapseblog.com/archives/tag/derivatives-crisis

[Cortex7]

I'm not sure if it's mentioned before.


FRB is not necessary for lending.

A borrower can just issue bonds or the similar like time deposits for raising the fund.
And the bonds are not used as the accounting units or medium of exchange like a currency.

Am I correct?

You are correct, FRB is not necessary for lending (but the banks love it).
Crowdfunding or borrowing from a mate enables one to obtain a loan without a bank in the loop, let alone a FRB.



You probably already know this but I'll write it here for others also...



Every form of currency, be it gold, bitcoin or fiat notes is simply a token, a promise from one party to another to make good on a debt.

All money is simply a record of debt:

If I work for you then you can give me a token that promises I will receive that work back off you, if you give me a widely accepted token (money) then I can get the work off someone else in the future.

In the good old days it was done with a handshake, eye contact and honor. All debts were carried in the brain as a memory, and we still do it today to a certain extent (one good turn deserves another and all).

The debt is not really settled until the worker has been worked for in some way or received food or some other desirable goods or pleasures, the worker is not really "paid" when they receive a wage, they are given a promise that someone will work for them in the future or they may receive some goods in the future.

FRB allows banks to create promisory notes for work not rendered yet. It's ridiculous that any citizen would condone it because this essentially dilutes the promisory notes that they worked so hard to aquire. The net effect is that laborers do more work than they should to obtain their promises.

A bitcoin centric analogy... Running a FRB is equivalent to joining the mining network and spoofing your hashrate to be 10X what it really is. The other miners would not like it, not one bit!

Central banks suck, anyone who says otherwise is a central banker or a dunce.

[jbreher]

Are they stealing from BFL customers and people who had funds in Mt. Gox too? 

Yes. The new money created by lending in fractional reserve banking derives its purchasing power from the theft of purchasing power held by everyone at the instant before the new money was created.

Except you not have the same economy to begin with so you don't know how much money would have in the first place.  You are comparing apples and oranges.  [ a buncha completely unrelated stuff elided ]

I don't know why you started with the word "Except". I'm not comparing apples and oranges - I am making no comparison whatsoever. I am simply making a factual statement about the nature of fractional reserve banking.

[jbreher]

Yes. The new money created by lending in fractional reserve banking drives its purchasing power from the theft of purchasing power held by everyone at the instant before the new money was created.

False. Money created by fractional reserve banking only increases the supply of money,

Yes - it most certainly increases the supply of money. As I previously stated. Question to you: The sum total of all goods and services is not changed by the act of zapping this new money into existence. Yet this newly-created money has a value, in that it can purchase these goods and services. So from whence does this value come?

it does not necessarily increase the rate of inflation...

I didn't say anything about inflation. I don't know why you are 'rebutting' me upon it. Let us settle the above discrepancy first, then we can circle around to this newly-introduced topic?

[hdbuck]

lock this thread? anyone?

[QuestionAuthority]

lock this thread? anyone?

Receive motion and second. It has been moved and seconded the meeting be adjourned. All in favor say 'Aye..

[Cortex7]

lock this thread? anyone?

Receive motion and second. It has been moved and seconded the meeting be adjourned. All in favor say 'Aye..

Aye.

[HELP.org]

I run the Bitcoin Central Bank:

http://BitcoinCentralBank.com

if you have any questions let me know.

[Guido]

The elimination of a central bank is one of the key factors in the creation and the beauty of BTC.   A central bank would just be to apply old school banking procedures to crypto-currencies.   Not to mention a central bank would quickly become the target of more cyber attacks than probably anything on the planet.

agreed +1

[HELP.org]

The elimination of a central bank is one of the key factors in the creation and the beauty of BTC.   A central bank would just be to apply old school banking procedures to crypto-currencies.   Not to mention a central bank would quickly become the target of more cyber attacks than probably anything on the planet.

agreed +1

You mean like Mt. Gox, Bitfloor, myBitcoin, ...?  Looks like Bitcoin didn't solve the problems.   

[FattyMcButterpants]

...
Price of DJIA today ~17,100 (call it 17,000)

Return: ~24.7x in ~40 years.

Your chart has the CPI being at somewhere between one and three in 1910 (call it 1.1) and is at roughly 27 now (call it 28). That means the CPI has gone up by 25.45x in 102 years.

If someone had taken one dollar in 1910 when the fed was created, kept it in a mattress, then invested it in the stock market in 1975, they would have come close to beating 102 years of inflation in just 40 years and this does not count dividends which would be substantial (several percentage points per year).

Yes you could have beaten inflation over 100 years by investing a dollar from 1910 in 1975, because the ponzi scheme only started in 71 and we all know if you get in early in a Ponzi scheme it's great ... But get in after the peak and it's not so great

Thanks to central banks the current global money system is like musical chairs, yes the musics still playing and the players are still dancing around, but there's only one chair left, and there's a loaded gun on it, the game wont end well.

The most brittle aspect at the moment are the derivatives markets where all the book excesses have been pushed into.

There are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.  Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable.  And unlike stocks and bonds, these derivatives do not represent "investments" in anything.  They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future.  The truth is that derivatives trading is not too different from betting on baseball or football games.  Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet.  When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.

SOURCE: http://theeconomiccollapseblog.com/archives/tag/derivatives-crisis

I think the point is that you could beat 100 years of inflation by investing for only 40 years even after having 60 years of inflation eating away at the value of your money. Historically speaking investments in the stock market have outperformed the rate of inflation by ~7% per year.

To suggest that investing in the stock market is investing in a ponzi is just crazy. Companies create actual value by producing goods and offering services which results in earnings (and potential cash flow) that are available to their shareholders.

Much of the derivative risk that large banks "have" is not actually risk because many of the derivatives cancel each other out and is hedged. To say that banks could potentially lose $40 trillion is really not accurate.

[Cortex7]

...
Price of DJIA today ~17,100 (call it 17,000)

Return: ~24.7x in ~40 years.

Your chart has the CPI being at somewhere between one and three in 1910 (call it 1.1) and is at roughly 27 now (call it 28). That means the CPI has gone up by 25.45x in 102 years.

If someone had taken one dollar in 1910 when the fed was created, kept it in a mattress, then invested it in the stock market in 1975, they would have come close to beating 102 years of inflation in just 40 years and this does not count dividends which would be substantial (several percentage points per year).

Yes you could have beaten inflation over 100 years by investing a dollar from 1910 in 1975, because the ponzi scheme only started in 71 and we all know if you get in early in a Ponzi scheme it's great ... But get in after the peak and it's not so great

Thanks to central banks the current global money system is like musical chairs, yes the musics still playing and the players are still dancing around, but there's only one chair left, and there's a loaded gun on it, the game wont end well.

The most brittle aspect at the moment are the derivatives markets where all the book excesses have been pushed into.

There are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.  Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable.  And unlike stocks and bonds, these derivatives do not represent "investments" in anything.  They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future.  The truth is that derivatives trading is not too different from betting on baseball or football games.  Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet.  When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.

SOURCE: http://theeconomiccollapseblog.com/archives/tag/derivatives-crisis

I think the point is that you could beat 100 years of inflation by investing for only 40 years even after having 60 years of inflation eating away at the value of your money. Historically speaking investments in the stock market have outperformed the rate of inflation by ~7% per year.

To suggest that investing in the stock market is investing in a ponzi is just crazy. Companies create actual value by producing goods and offering services which results in earnings (and potential cash flow) that are available to their shareholders.

Much of the derivative risk that large banks "have" is not actually risk because many of the derivatives cancel each other out and is hedged. To say that banks could potentially lose $40 trillion is really not accurate.

I'm not suggesting that the companies are Ponzis, only a few like MLM marketing sites etc.

I'm saying the base layer, the fiat money is a Ponzi. The companies are fine, the money isn't.

Understand what money is: a ledger of debt for a real world asset or work rendered. To issue money before that real world thing has occured is not possible, a fiat token is not real money, the give-away is in the Latin name itself.

I wonder what advantages you see in bitcoin other than "there's an app for that"?

I agree that the total derivatives market value could not be lost entirely, the books would balance to some degree if it were all unwound, but I think they would be a long way from fully balanced. The derivatives market is a magical construct that allows accelerating future liabilities to be swept under a seemingly infinite rug.

[bitok.com]

The elimination of a central bank is one of the key factors in the creation and the beauty of BTC.   A central bank would just be to apply old school banking procedures to crypto-currencies.   Not to mention a central bank would quickly become the target of more cyber attacks than probably anything on the planet.

agreed +1

It'll also ruin the anonymity which Bitcoin system is based on.

[Q7]

After having followed closely on this subject, i must say the more we try to provide a solution and using different approaches to solve the core issue, the more problem we will end up creating. In fact for me, the word 'central' bank itself already defeats the decentralization concept of bitcoin we are trying to achieve here. Alas...

[jerelimZ]

The beauty of cryptocurrency is decentralization, any centralization like exchanges adding potential risks shaddy operations are performed because you just have trust central services without full transparency they are and stay honest. Look at the MtGox fail, so any centralized shaddy service (not fully transparent) is going to fail sonner or later is my theory.

[jbreher]

I run the Bitcoin Central Bank:

http://BitcoinCentralBank.com

if you have any questions let me know.

Plus two points for cleverness.

Minus two points for truth-in-naming. Or rather, lack thereof.

Good luck to your endeavor.

[Argwai96]

...
Price of DJIA today ~17,100 (call it 17,000)

Return: ~24.7x in ~40 years.

Your chart has the CPI being at somewhere between one and three in 1910 (call it 1.1) and is at roughly 27 now (call it 28). That means the CPI has gone up by 25.45x in 102 years.

If someone had taken one dollar in 1910 when the fed was created, kept it in a mattress, then invested it in the stock market in 1975, they would have come close to beating 102 years of inflation in just 40 years and this does not count dividends which would be substantial (several percentage points per year).

Yes you could have beaten inflation over 100 years by investing a dollar from 1910 in 1975, because the ponzi scheme only started in 71 and we all know if you get in early in a Ponzi scheme it's great ... But get in after the peak and it's not so great

Thanks to central banks the current global money system is like musical chairs, yes the musics still playing and the players are still dancing around, but there's only one chair left, and there's a loaded gun on it, the game wont end well.

The most brittle aspect at the moment are the derivatives markets where all the book excesses have been pushed into.

There are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.  Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable.  And unlike stocks and bonds, these derivatives do not represent "investments" in anything.  They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future.  The truth is that derivatives trading is not too different from betting on baseball or football games.  Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet.  When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.

SOURCE: http://theeconomiccollapseblog.com/archives/tag/derivatives-crisis

I think the point is that you could beat 100 years of inflation by investing for only 40 years even after having 60 years of inflation eating away at the value of your money. Historically speaking investments in the stock market have outperformed the rate of inflation by ~7% per year.

To suggest that investing in the stock market is investing in a ponzi is just crazy. Companies create actual value by producing goods and offering services which results in earnings (and potential cash flow) that are available to their shareholders.

Much of the derivative risk that large banks "have" is not actually risk because many of the derivatives cancel each other out and is hedged. To say that banks could potentially lose $40 trillion is really not accurate.

I'm not suggesting that the companies are Ponzis, only a few like MLM marketing sites etc.

I'm saying the base layer, the fiat money is a Ponzi. The companies are fine, the money isn't.

Understand what money is: a ledger of debt for a real world asset or work rendered. To issue money before that real world thing has occured is not possible, a fiat token is not real money, the give-away is in the Latin name itself.

I wonder what advantages you see in bitcoin other than "there's an app for that"?

I agree that the total derivatives market value could not be lost entirely, the books would balance to some degree if it were all unwound, but I think they would be a long way from fully balanced. The derivatives market is a magical construct that allows accelerating future liabilities to be swept under a seemingly infinite rug.

The work that the bitcoin central bank does (aka the miners) is not useful to anyone unless they hold bitcoin (and need to keep their money secure). The use for bitcoin that satashi gave in his white paper is the only "real" use - a p2p method of payment that does not rely on a central authority to keep track of your balance.

The work that fiat money can be converted into however is work that is necessary for the purchaser of such work and is diverse

[odolvlobo]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

[Cortex7]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

Varying the fractional ratio from 1:1 to 10:1 gives a full magnitude of inflationary/deflationary control, which isn't needed by the way for a stable economy.

Of course unlike the gold backed bretton woods system, a bitcoin backed system would be transparent and auditable, well at least the reserves could be audited, but it would be difficult to audit the issuance, you would have to trust some be-suited "expert" who flew around on private jets, yeah like he's gonna give a shit about joe public .

[odolvlobo]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

That's not how FRB works.

[Cortex7]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

That's not how FRB works.

Yes it is.

FRB creates new money out of thin air every time a new loan is created.

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

The term "run on the bank" means everyone goes to redeem the certificates at once. That would be a problem because 90% of those certificates are just printed bullshit.

The fraudulent activity is said to be "needed" as a way to control inflation/deflation, but that excuse is a crock of shit, it's only needed to financially rape the citizens.

[Cortex7]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

That's not how FRB works.

First paragraph from wiki:

Fractional-reserve banking is the practice whereby a bank holds reserves (to satisfy demands for withdrawals) that are less than the amount of its customers' deposits. Reserves are held at the bank as currency, or as deposits in the bank's accounts at the central bank. Because bank deposits are usually considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying reserves of base money originally created by the central bank.[1][2]

[R2D221]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

That's not how FRB works.

Yes it is.

FRB creates new money out of thin air every time a new loan is created.

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

The term "run on the bank" means everyone goes to redeem the certificates at once. That would be a problem because 90% of those certificates are just printed bullshit.

The fraudulent activity is said to be "needed" as a way to control inflation/deflation, but that excuse is a crock of shit, it's only needed to financially rape the citizens.

Yes, but your definition does not match your previous scenario. You can give FRB money without printing a single cent: you just say you have all people's money and have everybody believe you. This can be done with Bitcoin in theory, but I hope we don't fall there.

[Cortex7]

Regardless of your feelings on the evil of fractional reserve banking and central banks, FRB will be implemented with Bitcoin, as long as it is legal. When Bitcoin FRB is put into place, a central bank will be necessary. The central bank will not be able to print money, but it will control Bitcoin bank reserves, and so it will have some limited power to manipulate inflation/deflation.

You can whine about how it goes against the spirit of Bitcoin or how it violates the wishes of our Lord Satoshi, but I feel that it is a certainty unless laws are enacted to prevent it.

If a central bank was not able to print money then how on earth do you think it could create a fractional reserve currency?

The only way to create a fractional reserve on top of bitcoin is to create a new token layer atop bitcoin, these tokens are issued (printed) or withdrawn (destroyed) by the central bank. Giving it lots of power to control inflation/deflation.

That's not how FRB works.

Yes it is.

FRB creates new money out of thin air every time a new loan is created.

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

The term "run on the bank" means everyone goes to redeem the certificates at once. That would be a problem because 90% of those certificates are just printed bullshit.

The fraudulent activity is said to be "needed" as a way to control inflation/deflation, but that excuse is a crock of shit, it's only needed to financially rape the citizens.

Yes, but your definition does not match your previous scenario. You can give FRB money without printing a single cent: you just say you have all people's money and have everybody believe you. This can be done with Bitcoin in theory, but I hope we don't fall there.

What do you mean? I never said anything about FRB allowing issuance without asset reserves?

I've known exactly what FRB is for over 20 years now. Seems many here are just learning now, or not.

[Lauda]

How about this answer: discussing this is stupid, and the idea is wrong on so many levels.
The whole financial system is fucked up, end of story.

[Cortex7]

How about this answer: discussing this is stupid, and the idea is wrong on so many levels.
The whole financial system is fucked up, end of story.

It's best we all understand WHY it's fucked up, otherwise you're just having "faith" that it's fucked up.

If everyone understands WHY it's fucked up then it will be good for bitcoin adoption and bad for any thief that aspires to start a bitcoin FRB.

Knowledge is power, OBTAIN IT!

FRB is an easy concept to understand:

So you want to start a bitcoin FRB?

Get yourself 100 bitcoins.

Start up your FRB with a reserve ratio of 1:1....

1:1 token:bitcoin ratio

in 1:1 mode of operation you are just a central bank.
Put bitcoins in a cold wallet with public address.
Create 100 altcoin tokens that represent the deposited bitcoins.
Users can swap (redeem) these tokens for bitcoin at any time.
Bank can loan 1 token out to someone for a year and collect say 10% interest on the loan.
You can share this interest with your depositors, (give them 8%, you keep 2%).
And so your central bank will grow.
Cold wallet will grow as people deposit their bitcoins and gain guaranteed 8% interest returns.
Let this run for a year or so, treat your depositors like gods, LET IT GROW!

IT'S ALL GOOD


> 1:1 token:bitcoin ratio

Having established your bank you can now increase the token:bitcoin ratio.
To do this you simply create new tokens out of thin air any time someone takes a loan.
Users can still swap (redeem) these tokens for bitcoin at any time.
But most users keep their bitcoins in the bank because they like the 8% per year interest.
You will need more borrowers to keep the growth.
You will have to reduce loan interest rates to encourage poeple to borrow instead of save.
You increase your token:bitcoin ratio as you grow.

You better hope all users don't want to withdraw at once or you're screwed (well they are).
If you feel it's about to collapse then you can just take the cold wallet and run...

ITS FUCKED UP  



So any central bank will start with 1:1 ratio, then after it becomes trusted it will take advantage of that trust and slowly increase token:bitcoin ratio.



ITS A SCAM!

Simple as that!

[michaelb87]

Answer to your initial question. There should NOT

[odolvlobo]

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

FRB doesn't have to involve tokens or certificates. In simplest form with a single bank, it works like this (with a 10% reserve ratio):

Customer A deposits 100 BTC. Total deposits: 100 BTC, with 90 available for loans
Bank loans 90 BTC to customer B. Customer B deposits 90 BTC. Total deposits: 190 BTC, with 81 available for loans
Bank loans 81 BTC to customer C. Customer C deposits 81 BTC. Total deposits: 271 BTC, with 73 available for loans
Bank loans 73 BTC to customer D. Customer D deposits 73 BTC. Total deposits: 344 BTC, with 66 available for loans
...
Bank loans 1 satoshi to customer X. Customer X deposits 1 satoshi. Total deposits: 1000 BTC, with 0 available for loans

Customers think they have 1000 BTC in the bank, but there is really only 100 BTC. There is no problem until customers want to withdraw more than 100 BTC. Then, the bank will fail unless it can borrow from another bank (or a central bank).

[Cortex7]

In asset backed FRB: If FRB bank has 100 real units of assets to back the FRB then it is "allowed" to issue up to 1000 certificates for unit assets.

FRB doesn't have to involve tokens or certificates. In simplest form with a single bank, it works like this (with a 10% reserve ratio):

Customer A deposits 100 BTC. Total deposits: 100 BTC, with 90 available for loans
Bank loans 90 BTC to customer B. Customer B deposits 90 BTC. Total deposits: 190 BTC, with 81 available for loans
Bank loans 81 BTC to customer C. Customer C deposits 81 BTC. Total deposits: 271 BTC, with 73 available for loans
Bank loans 73 BTC to customer D. Customer D deposits 73 BTC. Total deposits: 344 BTC, with 66 available for loans
...
Bank loans 1 satoshi to customer X. Customer X deposits 1 satoshi. Total deposits: 1000 BTC, with 0 available for loans

Customers think they have 1000 BTC in the bank, but there is really only 100 BTC. There is no problem until customers want to withdraw more than 100 BTC. Then, the bank will fail unless it can borrow from another bank (or a central bank).

Yes, that's EXACTLY how it runs.

But it does have to have tokens that abstract the reserve asset, in the Bretton Woods system those tokens were fractional reserve notes representing real gold reserves, in a bitcoin central FRB when you logged in to see your balance, you would be looking at a token value (labelled with btc).

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Make no mistake... the bank does NOT go and buy 90 btc to add to its reserves when the loan is made to customer B.

The bank just creates a new token representing those 90 btc.

You realize this and you agree with me, because your example of how it runs is perfect.

But you may misunderstand what the word "token" means, it is simply an abstraction of something that is real, a make believe thing that represents the existence of a real thing.

Tokens ARE required to run FRB, and what's worse multiple tokens represent the same real thing, hence a "run on the bank" is possible.

FRB is legal counterfeiting of tokens that represent real money. If we were to attempt the same things and get caught we would get hard time in the slammer.

But you are in agreement :

!!! ALERT: FRACTIONAL RESERVE BANKING IS A SCAM !!!

[odolvlobo]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

[Cortex7]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

If that were the case then the banks reserve would fall to 10 BTC after the loan were issued, and it would be a vanilla central bank, AKA a FRB in idle mode running 1:1 reserves.

In FRB, as per your example, the banks 100BTC reserve remains mostly untouched, only a token of account is lent out.

This is where they hide the scam, the token issuance happens at the time the loan is created. Just sufficiently obfuscated enough to bamboozle many folk.

In FRB as you know, with a 10:1 ratio then the bank is fucked if >10% of account holders want to withdraw their asset holdings. When they withdraw they are swapping their tokens for real assets. >10% try and swap at once and the bank is revealed to be a giant scam just like the Pirate40 fiasco. In reality it will be fucked if >~7% try and withdraw because the bank managers already spent coins on ho's and shit.

The balance you see in your bank account is a token value, divide it by 10, that's how much "real" cash the bank is holding for us all. And that cash nowadays is fiat money, that's shittiness to the power of 2!

[ytr8]

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

[/quote]

the thing that Collapse of Mt. Gox has great implications on the Bitcoin world,not only  a bad thing,but also a positive thing,It told us the importance of  safety  about BITCOIN.

[BTCmoons]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

It doesn't need to lend out a token. The banks rely on the fact that loans are eventually redeposited into the banking system. This fact allows banks to lend out as much money as they do.

The banks should have enough assets (both cash and money owed to them - loans) to cover all their liabilities (deposits) at any given time

[Cortex7]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

It doesn't need to lend out a token. The banks rely on the fact that loans are eventually redeposited into the banking system. This fact allows banks to lend out as much money as they do.

The banks should have enough assets (both cash and money owed to them - loans) to cover all their liabilities (deposits) at any given time

I like that you wrote "should"... you know the score deep down

The account balance you see in your bank account IS a token amount, it isn't real money yet, because 90% of that money exists in the form of unpaid debts, most of this 90% new money does not even exist as deposits in said bank, most account holders have it out in the real world paying for real stuff.

If everyone at Bank_X logs into their account and queries their "available balance" then that value presented on screen IS a token, because it's NOT available to everyone viewing the balance, this is a fact.

As an example: If every user of Bank_X wanted to withdraw at the same time then they many would realize that the number representing their bank balance was a token, representing money that may (or may not) be deposited into the bank in the future.

If only ~10% tried to withdraw at once then the remaining ~90% would have to wait until the future loan repayments hopefully trickled in.

Of course in reality all banks club together to cover each others asses to prevent a "run on the bank".

The recent spate of banking bailouts have proven just how brittle and fragile some FRB banks are becoming, even the buddy system mentioned above failed. It needed government to step in and order the printing of new money at the expense of every holder of said money. If you held said money at the time or expect it as a wage in the future then YOU paid for the fuck up!

If you can climb a ladder faster than the platform to which it is attached is falling then you will appear to make headway, but the final result is inevitable. A money and banking system with no fixed base is exactly this, the foundation for the dollar was destroyed in 1971, history has shown that EVERY money system that goes fiat ALWAYS fails. We are witnessing the end times here, most of the liabilities are being pushed into the future, into the derivatives market.

The final crash will be blamed on some "natural" disaster, but remember it was planned all along, bankers aren't stupid or incompetent, they KNOW their game make no mistake, been playing it for MANY generations.

P.S. don't worry, it's not the end of the world, it's happened many times before.

[Cortex7]

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

the thing that Collapse of Mt. Gox has great implications on the Bitcoin world,not only  a bad thing,but also a positive thing,It told us the importance of  safety  about BITCOIN.

I agree, and also the good ship Bitcoin has sailed through a severe storm, if it can make it through that then it can make it through anything!

[jsgayo]

Anyway, I do not like Bitcoin Central Bank.This is the paradox.

[santaClause]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

It doesn't need to lend out a token. The banks rely on the fact that loans are eventually redeposited into the banking system. This fact allows banks to lend out as much money as they do.

The banks should have enough assets (both cash and money owed to them - loans) to cover all their liabilities (deposits) at any given time

I like that you wrote "should"... you know the score deep down

The account balance you see in your bank account IS a token amount, it isn't real money yet, because 90% of that money exists in the form of unpaid debts, most of this 90% new money does not even exist as deposits in said bank, most account holders have it out in the real world paying for real stuff.

If everyone at Bank_X logs into their account and queries their "available balance" then that value presented on screen IS a token, because it's NOT available to everyone viewing the balance, this is a fact.

As an example: If every user of Bank_X wanted to withdraw at the same time then they many would realize that the number representing their bank balance was a token, representing money that may (or may not) be deposited into the bank in the future.

If only ~10% tried to withdraw at once then the remaining ~90% would have to wait until the future loan repayments hopefully trickled in.

Of course in reality all banks club together to cover each others asses to prevent a "run on the bank".

The recent spate of banking bailouts have proven just how brittle and fragile some FRB banks are becoming, even the buddy system mentioned above failed. It needed government to step in and order the printing of new money at the expense of every holder of said money. If you held said money at the time or expect it as a wage in the future then YOU paid for the fuck up!

If you can climb a ladder faster than the platform to which it is attached is falling then you will appear to make headway, but the final result is inevitable. A money and banking system with no fixed base is exactly this, the foundation for the dollar was destroyed in 1971, history has shown that EVERY money system that goes fiat ALWAYS fails. We are witnessing the end times here, most of the liabilities are being pushed into the future, into the derivatives market.

The final crash will be blamed on some "natural" disaster, but remember it was planned all along, bankers aren't stupid or incompetent, they KNOW their game make no mistake, been playing it for MANY generations.

P.S. don't worry, it's not the end of the world, it's happened many times before.

The money does exist in the form of an asset (accounts receivable - loans). If the bank was prudent in underwriting their loans and took on an appropriate amount of risk then the NPV of the assets held in addition to cash will be positive (meaning the value of the loan is more then the amount lent - meaning if the bank had to sell the loan they would realize a profit).

The reason that banks are able to lend out ~90% of their deposits (they actually lend out much less today due to lack of demand for quality loans) is because depositors do not need to spend their money at any given time.

[Cortex7]

In your example: When "bank loans 90 BTC to customer B" those can only be tokens representing BTC.

Why must an token be loaned? The bank has 100 BTC. It loans 90 of it.

It doesn't need to lend out a token. The banks rely on the fact that loans are eventually redeposited into the banking system. This fact allows banks to lend out as much money as they do.

The banks should have enough assets (both cash and money owed to them - loans) to cover all their liabilities (deposits) at any given time

I like that you wrote "should"... you know the score deep down

The account balance you see in your bank account IS a token amount, it isn't real money yet, because 90% of that money exists in the form of unpaid debts, most of this 90% new money does not even exist as deposits in said bank, most account holders have it out in the real world paying for real stuff.

If everyone at Bank_X logs into their account and queries their "available balance" then that value presented on screen IS a token, because it's NOT available to everyone viewing the balance, this is a fact.

As an example: If every user of Bank_X wanted to withdraw at the same time then they many would realize that the number representing their bank balance was a token, representing money that may (or may not) be deposited into the bank in the future.

If only ~10% tried to withdraw at once then the remaining ~90% would have to wait until the future loan repayments hopefully trickled in.

Of course in reality all banks club together to cover each others asses to prevent a "run on the bank".

The recent spate of banking bailouts have proven just how brittle and fragile some FRB banks are becoming, even the buddy system mentioned above failed. It needed government to step in and order the printing of new money at the expense of every holder of said money. If you held said money at the time or expect it as a wage in the future then YOU paid for the fuck up!

If you can climb a ladder faster than the platform to which it is attached is falling then you will appear to make headway, but the final result is inevitable. A money and banking system with no fixed base is exactly this, the foundation for the dollar was destroyed in 1971, history has shown that EVERY money system that goes fiat ALWAYS fails. We are witnessing the end times here, most of the liabilities are being pushed into the future, into the derivatives market.

The final crash will be blamed on some "natural" disaster, but remember it was planned all along, bankers aren't stupid or incompetent, they KNOW their game make no mistake, been playing it for MANY generations.

P.S. don't worry, it's not the end of the world, it's happened many times before.

The money does exist in the form of an asset (accounts receivable - loans). If the bank was prudent in underwriting their loans and took on an appropriate amount of risk then the NPV of the assets held in addition to cash will be positive (meaning the value of the loan is more then the amount lent - meaning if the bank had to sell the loan they would realize a profit).

The reason that banks are able to lend out ~90% of their deposits (they actually lend out much less today due to lack of demand for quality loans) is because depositors do not need to spend their money at any given time.

The bold part is a statistical assumption and is correct (for the majority of the time). The probability of it being correct is dropping over time ( are you aware of the recent bank bail-outs? ).

FRB turns that assumption into the fact:

More than 10% of depositors can NOT spend their money at any given time.

The last safety net is government intervention (bail outs) which entails everybody else (holders of fiat) picking up the tab (inflation).

Myself, I don't think a pyramid scheme makes for a fair and sound banking system, but to each their own.

EDIT: Banks use all spare reserves above requirement to play the markets, all money above reserve requirements is tied up.

[Cortex7]

The money does exist in the form of an asset (accounts receivable - loans).

No, you are incorrect, when a bank issues a loan that money does NOT exist until it has been repaid. The debtor will have to sell his labor or other assets to raise the money for repayment. There is no guarantee that it will be repaid, it is a gamble.

What does exist is an abstract token of the real money, this is the loan itself.

I realise that the interest on the loan should cover associated risks when things are running well, but when things don't run so well you can end up with an avalanche of failure and a hell of a lot of bag holders, history has shown this to be so.

over $16 trillion was allocated to corporations and banks internationally, purportedly for “financial assistance” during and after the 2008 fiscal crisis.

Talk of QE Tapering, means next time the safety net may not be quite as resilient, if present at all.

[magic ice]

If there is a bitcoin central bank, then there should be a Bitcoin Central Bank governing body, which I dont like.

[Cortex7]

If there is a bitcoin central bank, then there should be a Bitcoin Central Bank governing body, which I dont like.

Exactly, you can't have one without the other.

Bitcoin central bank is a terrible idea.

Bitcoin already is the perfect bank, distributed amongst the people.

If one person wants to lend to another at interest that's cool, but we don't need a central bank.

[Aemon]

Why would we need a central bank?  I don't understand the purpose of trying to get a bank involved into Bitcoin.  I think Bitcoin was purely created for the opposite purpose. 

[Cortex7]

Why would we need a central bank?  I don't understand the purpose of trying to get a bank involved into Bitcoin.  I think Bitcoin was purely created for the opposite purpose. 

The purpose would be:

Enrich the group of people running the bank.

It's a stupid idea (unless you're the schmuck running it).

[odolvlobo]

Why would we need a central bank?  I don't understand the purpose of trying to get a bank involved into Bitcoin.  I think Bitcoin was purely created for the opposite purpose.  

The logic is simple:

1. There will be Bitcoin banks because many people like to have someone else hold their money (for example, all the people with money in their Coinbase accounts and on exchanges).

2. These banks will loan out their deposits (because they can and it generates a profit). That means fractional reserve banking for Bitcoin.

3. A Bitcoin central bank facilitating inter-bank lending of reserves will lower the occurrence of Bitcoin bank defaults.

There should be a Bitcoin central bank.

[Aemon]

The logic is simple:

1. There will be Bitcoin banks because many people like to have someone else hold their money (for example, all the people with money in their Coinbase accounts and on exchanges).

2. These banks will loan out their deposits (because they can and it generates a profit). That means fractional reserve banking for Bitcoin.

3. A Bitcoin central bank facilitating inter-bank lending of reserves will lower the occurrence of Bitcoin bank defaults.

There should be a Bitcoin central bank.

1.  So you are saying that Coinbase is a bank, and therefore this post is not needed?

If you have a bitcoin central  bank it will need to be monitored by someone, therefore you are throwing the government in so that they can tax the bitcoin bank, and it would be then have to be backed up by something physical, thus destroying the idea of a bitcoin bank.  My personal opinion anyway

[btc-facebook]

Why would we need a central bank?  I don't understand the purpose of trying to get a bank involved into Bitcoin.  I think Bitcoin was purely created for the opposite purpose.  

The logic is simple:

1. There will be Bitcoin banks because many people like to have someone else hold their money (for example, all the people with money in their Coinbase accounts and on exchanges).

2. These banks will loan out their deposits (because they can and it generates a profit). That means fractional reserve banking for Bitcoin.

3. A Bitcoin central bank facilitating inter-bank lending of reserves will lower the occurrence of Bitcoin bank defaults.

There should be a Bitcoin central bank.

The proposed NY regulations would actually prevent 2 from happening as the regulations would require that any exchange hold an amount of bitcoin equal to or greater then the amount of bitcoin owed to their customers via deposits

EDIT: I would also prevent 3 as well as there would be no point for 3 if 2 cannot happen

[Aemon]

If Coinbase (already holding peoples coins) is one of the reasons because people like other people to hold their money, then why do you think we need another bank?

[SanMerryDro]

If Coinbase (already holding peoples coins) is one of the reasons because people like other people to hold their money, then why do you think we need another bank?

you mean coinbase is a bitcoinbank?

[odolvlobo]

If Coinbase (already holding peoples coins) is one of the reasons because people like other people to hold their money, then why do you think we need another bank?

We need another bank to compete with Coinbase, of course.

[Eisenhower34]

If Coinbase (already holding peoples coins) is one of the reasons because people like other people to hold their money, then why do you think we need another bank?

We need another bank to compete with Coinbase, of course.

We have circle and we have many exchanges that work in very similar ways that coinbase works.

While I personally think that if you want to allow a third party to control the private keys that hold your bitcoin, that coinbase is likely the safest service to use, this is generally a very bad idea, especially for larger amounts

[Gine.Unnta]

If Coinbase (already holding peoples coins) is one of the reasons because people like other people to hold their money, then why do you think we need another bank?

you mean coinbase is a bitcoinbank?

Although coinbase is not a bank, but it already has a savings function of banks. So many Bitcoin exchanges are too.

[LiberyOrDeath]

The notion of a Bitcoin central bank is going against all the principles that BTC and crypto stand for, it sounds repulsive to me and to many others who share libertarian philosophy.

[mullerdan]

Bitcoin central bank ? very bad idea ! each bitcoin's owner is his own bank that all !

[odolvlobo]

Bitcoin central bank ? very bad idea ! each bitcoin's owner is his own bank that all !

Oh, you are a bank? I'd like to see you loan someone money to buy a house.

[Argwai96]

Bitcoin central bank ? very bad idea ! each bitcoin's owner is his own bank that all !

Oh, you are a bank? I'd like to see you loan someone money to buy a house.

Well people should not act as every function of a bank (generally individuals are not very good at being able to measure the risk of a particular loan, and as such should not be lending - even in a p2p fashion). What they should be doing is protecting their money in a similar way that a bank will protect their depositor's money

[Q7]

Just let bitcoin free and decentralized. No can claim the right to own the network

[Jamie_Boulder]

There are two sides of this argument that both make very good points.

For:
As the article points out we would have a central authority with the ability to audit these exchanges and penalize them for any wrong doing, we would also have a public ledger of trusted Bitcoin exchanges for people to use which makes things a lot easier on newbies entering the market.

Against:
Sounds like we're trying to rebuild a system we already have and that's failing us everyday, with corruption allegations and convictions related to these central authorities in the fiat world how do we make sure we don't make the same mistakes again? is it even possible? greed exists everywhere I'm afraid - even in the virtual currency world.

[bitnanigans]

I thought one of the key factors of Bitcoin was decentralisation. A central bank would be going against this core tenet.

[jbreher]

For:
As the article points out we would have a central authority with the ability to audit these exchanges and penalize them for any wrong doing,

Against: this function does not require a central bank. As half of the exchanges' business is fiat, there are already mechanisms in place to police this activity.

[odolvlobo]

For:
As the article points out we would have a central authority with the ability to audit these exchanges and penalize them for any wrong doing,

Against: this function does not require a central bank. As half of the exchanges' business is fiat, there are already mechanisms in place to police this activity.

The function of a Bitcoin central bank would be to protect member banks against bank runs. Because member banks would be at risk from each other, they would agree to follow certain rules and submit to regular audits.

[ninjaskip]

For:
As the article points out we would have a central authority with the ability to audit these exchanges and penalize them for any wrong doing,

Against: this function does not require a central bank. As half of the exchanges' business is fiat, there are already mechanisms in place to police this activity.

The function of a Bitcoin central bank would be to protect member banks against bank runs. Because member banks would be at risk from each other, they would agree to follow certain rules and submit to regular audits.

The hobbit Satoshi would be sad.

[Gleb Goodston]

Central bank for Bitcoin? Do you even know what Bitcoin is as a symbol & concept?

[FattyMcButterpants]

For:
As the article points out we would have a central authority with the ability to audit these exchanges and penalize them for any wrong doing,

Against: this function does not require a central bank. As half of the exchanges' business is fiat, there are already mechanisms in place to police this activity.

The function of a Bitcoin central bank would be to protect member banks against bank runs. Because member banks would be at risk from each other, they would agree to follow certain rules and submit to regular audits.

The primary function of a central bank is actually to regulate the supply of currency into the economy. Most central banks will increase the amount of currency when inflation is lower then it wants (usually via lower interest rates but they have other tools as well) and will decrease the amount of currency when inflation is higher then it wants (usually via higher interest rates).

I would argue that the Bitcoin protocol already serves this function for us via changes to the difficulty every ~2 weeks.

[jbreher]

For:
As the article points out we would have a central authority with the ability to audit these exchanges and penalize them for any wrong doing,

Against: this function does not require a central bank. As half of the exchanges' business is fiat, there are already mechanisms in place to police this activity.

The function of a Bitcoin central bank would be to protect member banks against bank runs. Because member banks would be at risk from each other, they would agree to follow certain rules and submit to regular audits.

You are making a new and different claim. I'm more than happy to let anyone foolish enough to employ fractional reserve Bitcoin banking to lose all their Bitcoin in the inevitable implosion.

[waser12]

Bitcoin is decentralized, its for this reason that we like the bitcoin, we are the masters of our own money.

[Some1else0]

One of the main attractions for Bitcoin is it's decentralization. I'd rather we not have a central bank.

[odolvlobo]

One of the main attractions for Bitcoin is it's decentralization. I'd rather we not have a central bank.

If a bunch of people want to get together and form a Bitcoin central bank, there is nothing you can do about it, except refuse to participate and convince others to refuse also. Unfortunately, fractional reserve banking affects the value of all bitcoins, so they will affect you whether you participate or not.

[Cortex7]

One of the main attractions for Bitcoin is it's decentralization. I'd rather we not have a central bank.

If a bunch of people want to get together and form a Bitcoin central bank, there is nothing you can do about it, except refuse to participate and convince others to refuse also. Unfortunately, fractional reserve banking affects the value of all bitcoins, so they will affect you whether you participate or not.

The bold part sucks and you should agree, why should non participants take a hit on their wealth.

I agree there is nothing individuals could do other than jump ship onto another coin, should we applaud that? I think not.

In the olden days before fractional reserve banking a man could afford a house with 2 years of wages. Loans were often arranged within families or the person rented and saved.

Fractional reserve robs all people of their time and labor by continually pushing debt into the future in a compounding manner.

Globally it will be difficult to reverse the situation, much like withdrawing off a serious drug.

Large loans could be arranged using a P2P mechanism, 1 large loan consisting of many micro loans, like crowd funding in a way. I agree this would NOT transpose onto the current situation where debt levels are large relative to GDP. To rectify the current situation will be painful or may require collapse and "reset".

Realize that there is not enough labor and resources on the planet to balance the books as they stand thanks to fractional reserve which has continually pushed more and more liabilities into the derivatives market, there is only the possibility that the books may be balanced in the future, but the longer a fractional reserve system runs the less probable that becomes, throughout history they have always ended in defaulting leaving peasant bag holders.

Fractional reserve is an irresponsible idea for the financial security of the people, the people should see the long game instead of looking no further than the TV screen.

[jbreher]

One of the main attractions for Bitcoin is it's decentralization. I'd rather we not have a central bank.

If a bunch of people want to get together and form a Bitcoin central bank, there is nothing you can do about it, except refuse to participate and convince others to refuse also.

indeed... indeed...

So 'splain me: When it all comes crashing down, how is your vaunted 'central bank' going to make the end users 'whole'? Unlike the FED, it has no ability to create monetary units out of thin air.

Unfortunately, fractional reserve banking affects the value of all bitcoins, so they will affect you whether you participate or not.

No, FRB will affect the value of Bitcoin-denominated-IOUs. It will not affect the value of Bitcoins. Bitcoin user unaffected.

[Cortex7]

...
No, FRB will affect the value of Bitcoin-denominated-IOUs. It will not affect the value of Bitcoins. Bitcoin user unaffected.

Actually he is correct, the global market price for the base reserve asset is raped by fractional reserve.

The problem lies with the fact that most users perceive the IOU to have the same value as the base asset. ( although as we quite rightly know... MATHEMATICALLY  IT DOES NOT! )

FRB schemes use promisory notes. Those IOUs promise to pay the bearer the equivalent in reserve asset, prior to 1971 if you walked into a US bank you could demand gold for the note.

The best way to start the scheme if you have zero good will is with a full reserve central bank and promisory notes (basically like an old goldsmith), and then slightly lower the reserve requirement for "inflationary control measures" aka profit skimming.

The ignorance of the users allows the FRB to increase fractional ratio slowly and never get a "run on the bank" until the jig is up and the base assets have long left the safe. Then the LLC closes shop and leaves crying bag holders.

[jbreher]

...
No, FRB will affect the value of Bitcoin-denominated-IOUs. It will not affect the value of Bitcoins. Bitcoin user unaffected.

Actually he is correct, the global market price for the base reserve asset is raped by fractional reserve.

the problem lies with the fact that most users perceive the IOU to have the same value as the base asset.

Throughout history FRB schemes are always started with promisory notes. Those IOUs promise to pay the bearer the equivalent in reserve asset.

The ignorance of the users allows the FRB to increase fractional ratio slowly and never get a "run on the bank".

I don't think so. In contrast to a Bitcoin, a Federal Reserve Note (colloquially and quaintly referred to as the 'dollar') is already nothing more than an IOU. Its nature is unaffected by FRB.

A Bitcoin, OTOH, is its own thing - it stands apart, inviolate. It is of a completely different nature than a Bitcoin-denominated-IOU.

The powers that be, when they get ramped up on the matter, will have a big megaphone. They will advertise far and wide whatever illusory 'benefits' (i.e. lies) they can get away with. But we have a window open to spread the message that a Bitcoin-denominated-IOU is a mere shadow of a Bitcoin. _I_ will certainly never accept a Bitcoin-denominated-IOU in lieu of a Bitcoin. Will you? Will odolvlobo? Who, once made aware of the difference, will not discount the value of the Bitcoin-denominated-IOU? Only the ignorant or the stupid.

And even if the masses get hoodwinked, it only delays the inevitable tears. When the entire sham of Bitcoin-denominated-IOUs comes crashing down, those that clung to the difference between Bitcoin-denominated-IOUs and actual Bitcoins will still have their Bitcoin. They will prosper when those that ate from the golden apple of FRB are rewarded with financial amoebic dysentery. And the balance returns.

Long term - Bitcoin user unaffected.

[Cortex7]

...
No, FRB will affect the value of Bitcoin-denominated-IOUs. It will not affect the value of Bitcoins. Bitcoin user unaffected.

Actually he is correct, the global market price for the base reserve asset is raped by fractional reserve.

the problem lies with the fact that most users perceive the IOU to have the same value as the base asset.

Throughout history FRB schemes are always started with promisory notes. Those IOUs promise to pay the bearer the equivalent in reserve asset.

The ignorance of the users allows the FRB to increase fractional ratio slowly and never get a "run on the bank".

I don't think so. In contrast to a Bitcoin, a Federal Reserve Note (colloquially and quaintly referred to as the 'dollar') is already nothing more than an IOU. Its nature is unaffected by FRB.

A Bitcoin, OTOH, is its own thing - it stands apart, inviolate. It is of a completely different nature than a Bitcoin-denominated-IOU.

The powers that be, when they get ramped up on the matter, will have a big megaphone. They will advertise far and wide whatever illusory 'benefits' (i.e. lies) they can get away with. But we have a window open to spread the message that a Bitcoin-denominated-IOU is a mere shadow of a Bitcoin. _I_ will certainly never accept a Bitcoin-denominated-IOU in lieu of a Bitcoin. Will you? Will odolvlobo? Who, once made aware of the difference, will not discount the value of the Bitcoin-denominated-IOU? Only the ignorant or the stupid.

And even if the masses get hoodwinked, it only delays the inevitable tears. When the entire sham of Bitcoin-denominated-IOUs comes crashing down, those that clung to the difference between Bitcoin-denominated-IOUs and actual Bitcoins will still have their Bitcoin. They will prosper when those that ate from the golden apple of FRB are rewarded with financial amoebic dysentery. And the balance returns.

Long term - Bitcoin user unaffected.

No, you're thinking of US dollar in its current full fiat form, I agree, that is tied to NOTHING.

I am talking about FRB promisory note. Fractional Reseve Banking... the first stepping stone to full fiat. You can't boil the frogs too quickly or they jump out the pot. FRB will happen before fiat.

Prior to 1971 you could take $1 US dollar bill into a bank and collect the gold in hand.

[Cortex7]

To clarify, no I would never take an IOU in lieu of the real thing.

But as odolvlobo says those with no choice will (those looking for large loans)

[wunkbone]

One of the main attractions for Bitcoin is it's decentralization. I'd rather we not have a central bank.

If a bunch of people want to get together and form a Bitcoin central bank, there is nothing you can do about it, except refuse to participate and convince others to refuse also. Unfortunately, fractional reserve banking affects the value of all bitcoins, so they will affect you whether you participate or not.

I would disagree. The reason why fractional reserve banking works is because the government backs the banks (in the form of deposit insurance up to $250,000 per depositor) and the reason why the government is able to do this is because it can literally print an unlimited number of additional dollars by actually printing dollars (it generally will not need to actually resort to doing this but this is the ultimate reason why it can guarantee deposits).

With bitcoin on the other hand it is not possible to guarantee deposits in the same manor. There is no entity that is able to print unlimited amounts of bitcoin

[jbreher]

No, you're thinking of US dollar in its current full fiat form, I agree, that is tied to NOTHING.

I am talking about FRB promisory note. Fractional Reseve Banking... the first stepping stone to full fiat.

I think we may agree on the mechanisms, but have different projected outlooks.

Prior to 1971 you could take $1 US dollar bill into a bank and collect the gold in hand.

Well, no. Since 1934, (give or take a year), that option was not available to any US citizen, nor any non-governmental actor.

<tinfoil alert>
Kennedy was working on that problem, but then someone killed him. Seems quite clear that Oswald's Carcano magic bullet was not the only projectile that made impact, but that's another discussion for another day.

[Cortex7]

No, you're thinking of US dollar in its current full fiat form, I agree, that is tied to NOTHING.

I am talking about FRB promisory note. Fractional Reseve Banking... the first stepping stone to full fiat.

I think we may agree on the mechanisms, but have different projected outlooks.

Prior to 1971 you could take $1 US dollar bill into a bank and collect the gold in hand.

Well, no. Since 1934, (give or take a year), that option was not available to any US citizen, nor any non-governmental actor.

<tinfoil alert>
Kennedy was working on that problem, but then someone killed him. Seems quite clear that Oswald's Carcano magic bullet was not the only projectile that made impact, but that's another discussion for another day.

I was just pointing out that fractional reserve banking WILL debase the market price of the underlying reserve asset, and if it were to happen atop bitcoin then we would all have our coins debased even if we did not use the FRB.

Sorry I forgot about gold prohibition in USA, guess that was step 2 of 3 to full fiat. I am more familiar with UK history. Am I correct in thinking USA still printed "promise to pay the bearer" on the notes prior to 71?

EDIT: My projected outlook is economic systemic collapse and reset. Mathematically it is not a question of if but when. It was planned and will be repeated, just as it has in the past. Standard usury practiced for milenia already. Of course anything standing in the way of it risks being destroyed, including people.

[odolvlobo]

One of the main attractions for Bitcoin is it's decentralization. I'd rather we not have a central bank.

If a bunch of people want to get together and form a Bitcoin central bank, there is nothing you can do about it, except refuse to participate and convince others to refuse also. Unfortunately, fractional reserve banking affects the value of all bitcoins, so it will affect you whether you participate or not.

I would disagree. The reason why fractional reserve banking works is because the government backs the banks (in the form of deposit insurance up to $250,000 per depositor) and the reason why the government is able to do this is because it can literally print an unlimited number of additional dollars by actually printing dollars (it generally will not need to actually resort to doing this but this is the ultimate reason why it can guarantee deposits).

With bitcoin on the other hand it is not possible to guarantee deposits in the same manor. There is no entity that is able to print unlimited amounts of bitcoin

FRB existed long before the FDIC and long before U.S. left the gold standard. If there is a run on a bank, the central bank has the assets to back it. The danger is that the run could be too big for the central bank to handle. I imagine something like that is what triggered the Great Depression.

[wunkbone]

One of the main attractions for Bitcoin is it's decentralization. I'd rather we not have a central bank.

If a bunch of people want to get together and form a Bitcoin central bank, there is nothing you can do about it, except refuse to participate and convince others to refuse also. Unfortunately, fractional reserve banking affects the value of all bitcoins, so it will affect you whether you participate or not.

I would disagree. The reason why fractional reserve banking works is because the government backs the banks (in the form of deposit insurance up to $250,000 per depositor) and the reason why the government is able to do this is because it can literally print an unlimited number of additional dollars by actually printing dollars (it generally will not need to actually resort to doing this but this is the ultimate reason why it can guarantee deposits).

With bitcoin on the other hand it is not possible to guarantee deposits in the same manor. There is no entity that is able to print unlimited amounts of bitcoin

FRB existed long before the FDIC and long before U.S. left the gold standard. If there is a run on a bank, the central bank has the assets to back it. The danger is that the run could be too big for the central bank to handle. I imagine something like that is what triggered the Great Depression.

Bank insurance became a concept that was used in the US banking system after many banks failed after the (stock market) crash of 1929. At this point the fed was not something that would back banks, it was something that would facilitate transfers between various banks.

[Brmaster]

Does LakeBTC ready to do any audit if there is a true Bitcoin Central Bank

[BitmoreCoin]

Central bank for Bitcoin? Do you even know what Bitcoin is as a symbol & concept?

I think that is just a collection of banks to insure the BTC deposit.

[lightningmccoin]

There shouldnt be any central bank. Bitcoin is Decentralized right?

[QuestionAuthority]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

[themys]

The bitcoin doesn't need that, its decentralized! Are we talk about the same thing?

[darkangel11]

The bitcoin doesn't need that, its decentralized! Are we talk about the same thing?

I thought decentralization was a myth. Same as internet anonymity.

[RobertDJ]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

It is very decentralized. If you are implying that it is not decentralized because there are so few pools, then I would say that it takes very little to start a new pool and it takes very little (even less) to a miner to pull their hashpower from a pool that is acting in an untrustwrothy manor

[Mieehayii]

Fractional reserve is legalized theft. Period.
[

But who are they stealing from?

Everyone. Quite literally.

If you do not understand this, then you do not understand how fractional reserve banking works. Read the rest of this thread for the briefest of introductions to the topic.

Fractional reserves allow banks to "create" money and essentially devalues money however the amount that money is devalued is less then what can be earned by investing your money so fractional reserve banking actually facilitates people to increase their wealth and standard of living.

The only people who are negatively affected are people who have cash 'under the mattress' literately

there are no second gox, I believe.

[hdbuck]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

there you go: https://blockchain.info/fr/pools
decentralized.

[QuestionAuthority]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

there you go: https://blockchain.info/fr/pools
decentralized.

There you go: https://bitcoinfoundation.org
Leadership and development is not

[hdbuck]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

there you go: https://blockchain.info/fr/pools
decentralized.

There you go: https://bitcoinfoundation.org
Leadership and development is not

touché but they represent themselves. They seek a "business plan" as they said. But they wont do anything without the support of them miners.

[QuestionAuthority]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

there you go: https://blockchain.info/fr/pools
decentralized.

There you go: https://bitcoinfoundation.org
Leadership and development is not

touché but they represent themselves. They seek a "business plan" as they said. But they wont do anything without the support of them miners.

That's what they say but I'd be happier if they just went away. 

[hdbuck]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

there you go: https://blockchain.info/fr/pools
decentralized.

There you go: https://bitcoinfoundation.org
Leadership and development is not

touché but they represent themselves. They seek a "business plan" as they said. But they wont do anything without the support of them miners.

That's what they say but I'd be happier if they just went away. 

hehe, but i feel they are running out of bitcoins tho.. soon they'll fade away. like they never happened

[QuestionAuthority]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

there you go: https://blockchain.info/fr/pools
decentralized.

There you go: https://bitcoinfoundation.org
Leadership and development is not

touché but they represent themselves. They seek a "business plan" as they said. But they wont do anything without the support of them miners.

That's what they say but I'd be happier if they just went away. 

hehe, but i feel they are running out of bitcoins tho.. soon they'll fade away. like they never happened

Keep a happy thought! lol

[exoton]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

there you go: https://blockchain.info/fr/pools
decentralized.

There you go: https://bitcoinfoundation.org
Leadership and development is not

TBF does not actually speak for "Bitcoin" nor are they any kind of an official bitcoin foundation (despite their misleading name.

It is an invalid argument to say that Bitcoin is centralized because of TBF

[Eric Mu]

Wow, didn't expect my article got so much attention.
Much has changed and now I am working for HaoBTC, a BTC "bank" based on the fractional reserve model. I still think having a central bank would be good for a business like ours - it increases trust and minimize chance of malpractice.

[bitcollins85]

I suspect in the future you will pay a service fee to store your btc in a large regulated and insured third party. This fee will be proportional to the risk you take when you allow the bank risk your btc as loans.

[irfan01]

there must be a bitcoin central bank because it can facilitate users in using bitcoin bitcoin

[maku]

There shouldnt be any central bank. Bitcoin is Decentralized right?

Bitcoin is decentralized? Who told you that lie?

there you go: https://blockchain.info/fr/pools
decentralized.

There you go: https://bitcoinfoundation.org
Leadership and development is not

touché but they represent themselves. They seek a "business plan" as they said. But they wont do anything without the support of them miners.

That's what they say but I'd be happier if they just went away. 

Haha, you know that Bitcoin Foundation is a laughingstock right now? The bitcoin foundation is too scandalous to be considered legit.
Founded in 2011, the Bitcoin Foundation's initial goal was to provide advocacy to the cryptocurrency but since that time they failed many times with their questionable decisions and poor judgement.
So I feel we don't need another failing central force of bitcoin like BF.

[extrabyte]

I would prefer to keep my own Bitcoin in my own wallet be my own banker and I control what I want when I want not to be in control of someone else like the Banks

[BitProdigy]

lol what's the job of a Central Banker of Bitcoin? Print Bitcoin out of thin air? Can't happen sorry, Central Banks are now obsolete. Good riddance to all Banks and the Fractional Reserve Lending Ponzi Scheme that has scorched this earth for far too long. Say hello to sound money that cannot be manipulated and cannot be controlled you fucking scum.

[Possum577]

Who do I quote the subject of this thread?

There's no point in even reading the OP. If bitcoin ends up mimicking the fiat system it will disappear. A blockchain type system to increase transaction speed, lower fees, and ensure validity can be easily generated by most governments to support their fiat currency. Creating a central bank for Bitcoin defeats a major purpose of Bitcoin.

Now I have to go back and reinforce my current thinking by reading the OP's crazy rationale.

Ok, read the OP. I see a few themes getting woven together, here's my take:

1) Fractional Reserve Lending: It's bad for fiat, it'll be bad for Bitcoin. It'll encourage inflation. Instead of having a central bank owning bitcoin to then lend it out to lenders (and encouraging the lending of money that really doesn't exist), organizations that want to do lending for Bitcoin should do so on their own and let their own reputation and reserves cover it, don't link the lenders to a central system...there MUST be the threat of failure, otherwise organizations will take more risk than is prudent.

2) Confidence in Bitcoin: A central bank doesn't provide confidence in the currency it deals in. Look at the Dollar, look at the Euro, need I continue? People will have confidence in Bitcoin due to the blockchain and the community that supports it.

[master sato]

The problem with creating bitcoin banks is that people will increasingly ask what the point of bitcoin is supposed to be.

[givemefive]

There should be, but there isn't.   

[maokoto]

I think it is better to just see where can Bitcoin get without any bank ...

If a bank is needed, then it would be better for the actual fiat currencies to just be converted to e-coins.

[VCLChief]

This whole movement is about decentralization. DECENTRALIZE EVERYTHING.  It just needs refining, thats all.

[odolvlobo]

The problem with creating bitcoin banks is that people will increasingly ask what the point of bitcoin is supposed to be.

That's more a problem with people than with banks.

[bitgolden]

The problem with creating bitcoin banks is that people will increasingly ask what the point of bitcoin is supposed to be.

That's more a problem with people than with banks.

In bitcoin, no one can freeze your funds. but in bank they always do it. Unless we face real problem of tax paying people, we will would say a governing bank is needed for bitcoin. Then bitcoin slides from decentralization. That bank will take decisions to community. In decentralized environment community take decisions.

[BitProdigy]

A bitcoin central bank is the absolute worst, most insidious, toxic, profane, sick, poisonous, ruinous, pernicious, pestilent, virose, lethiferous, pernicious idea that has ever been posited in the history of mankind.

[BitProdigy]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

The solution to this problem is PROOF OF SOLVENCY used by Vault of Satoshi and other exchanges, not a central bank. The only effects fractional reserve banking has is transferring wealth from ordinary citizens into the pockets of bankers and creating the boom/bust business cycle that we all know and love. Fractional reserve banking is legalized embezzlement and the result is malinvestment, over extended credit/debt, and a bubble based economy that pops over and over again..

Bitcoin does not allow for fractional reserve banking, there is no need for banks, and even if you do keep your money with a "bank" or exchange, bitcoin allows for PROOF OF SOLVENCY which insures the company is not practicing fractional reserve banking like Mt. Gox did.

If you want a better future and better economy that bitcoin promises, you don't want central banks and fractional reserve banking. The OP is ignorant.

[Miss Fortune]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

As I can see this, I think the main purpose to it is to be fair to the other traders and all.

[edric]

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

However, without a central bank system, a fractional reserve system can be risky. This is illustrated by the many failed banks in history and most recently, the spectacular fall of Mt. Gox. Before it became clear that the Bitcoin exchange was insolvent, users traded under the false assumption that they were trading their own bitcoins, when the reality is they were just trading in “Goxcoins”, which is just thin air. Later it is discovered that the exchange had lost tens of thousands of its customers’ coins; the cause remains a mystery to this day.

The collapse of Mt. Gox has great implications on the Bitcoin world. It shakes many people’s confidence in exchanges and security of the digital currency. Inevitably this has been factored into the price levels and employed by many Bitcoin critics – it is arguable that the psychological cost is even higher than the lost bitcoins.

In the aftermath, there was increasing demand for the exchanges to have 100% reserve ratio. In response, a cryptographic proof of reserve system was introduced to enable exchanges to prove that they can handle a Bitcoin version of run on the bank. Last week, OKCoin, a China-based Bitcoin exchange announced that they had passed a proof of reserve audit with its reserve ration of 104.86%. This means that the exchange has 4.86% in excess of the amount it owes its customers. While this is ensuring for OKCoin customers, it may not be a good thing for Bitcoin if you treat it as an economy system.

The benefit of fractional reserve banking is that it has positive effect on the economy by allowing banks to extend credit to people who are in need of it, provided the borrowers agree to pay back with an interest. In the Bitcoin world, such activities are rather discouraged. On one hand, the exchanges, which serve like banks in the sense that they are both custodians under obligation to safekeep customers’ assets, have to let all the coins sleeping in wallets in order to stay 100% solvent; on the other hand, market demand for coins in the market goes unmet.

A good solution for the problem at hand would be for the entire industry to agree to a certain reserve ratio, say 80%. This would cap the maximum risk, while giving the exchanges certain flexibility to engage in lending activity – one obvious benefit will be speeding up the circulation and increasing liquidity. Given that not all users have the same risk tolerance, they should be allowed to either opt for a zero-interest but full reserve account, or a fractional reserve but interest bearing one.

....

http://www.forbes.com/sites/ericxlmu/2014/08/24/why-there-should-be-a-bitcoin-central-bank/

I think this would devalue bitcoin dramatically.  Part of the appeal of bitcoin to many people is the deflationary nature.  If you suddenly remove the finite cap on the supply of bitcoins, a lot of people will dump and the currency will lose much of its appeal.  You do touch on something interesting though.  A digital currency allows for negative interest rates.  Right now, central banks are facing deflation even though they have set interest rates near 0.  You can't set interest rates less than 0 because people will take cash out of the bank.  With a digital currency, you can tax people for not investing their money, and therefor spur economic growth.  Some would argue that a cashless currency would be advantageous to central banks for this reason. 

[S4VV4S]

A bitcoin central bank is the absolute worst, most insidious, toxic, profane, sick, poisonous, ruinous, pernicious, pestilent, virose, lethiferous, pernicious idea that has ever been posited in the history of mankind.

Yeah, but a Bitcoin central bank will need other Bitcoin banks in order to name itself the "central".....   

[neoneros]

Saying Bitcoin needs a central bank, is like saying people need a central government. It will never work, people are to diverse to be governed by a central entity, you can make global concessions, but you cannot force every individual into the same straightjacket. People will revolt, flee, and try to convince you otherwise.

Bitcoin is set loose and cannot be contained, only maintained and be the source of the new world economy that is a decentralised, trustless network, it will never ever be contained by a central institution. If tried the Bitcoin will die, for it is the decentralised characteristics that define what it is. Take that away and it ceases to exits. It loses its purpose.

[hdbuck]

Saying Bitcoin needs a central bank, is like saying people need a central government. It will never work, people are to diverse to be governed by a central entity, you can make global concessions, but you cannot force every individual into the same straightjacket. People will revolt, flee, and try to convince you otherwise.

Bitcoin is set loose and cannot be contained, only maintained and be the source of the new world economy that is a decentralised, trustless network, it will never ever be contained by a central institution. If tried the Bitcoin will die, for it is the decentralised characteristics that define what it is. Take that away and it ceases to exits. It loses its purpose.

+1

bitcoin is the index on trust.

[n2004al]

It will be problems if there it will be a Central bank for bitcoin. First bitcoin must be an unification in the behavior versus it worldwide. There is no sense have a Central Bank the currency of whom is banned by some country, is not accepted totally by some others, it is regulated and limited by some others and is deregulated totally by some others. Second is there not sense have a Central Bank which don't have full control of its currency. As everyone know bitcoin is produced by everyone (if he/she) want and in every part of world. This Central Bank can produce its part of bitcoin but this will be to much limited. So this Central Bank will not have the rights of this this currency. And third there is not possible to make economic policy with bitcoin. Its amount in circulation is very limited (even more because of non control of all amount from this Central bank) and for more produced like a clock in a fixed amount. If in one moment the market needed bitcoin for one reason the Bank cannot "print" bitcoin. So the effect will not arrive and the role of Central bank will be violated.

[vero]

People who want banks should just to safe their money in fiat, it's different with bitcoin you can safe your money included invest

[afriezalie]

Central bank system won't work in bitcoin. It's only work for FIAT system. It's hard to build a central bank for bitcoin because bitcoin is banned from many countries, so it's hard to choose where a central bank should be built.
If a central bank was built, Bitcoin price would jump down quickly because many investors would withdraw their bitcoin into FIAT. There are many reasons why investors invest their money into bitcoin. One of them is because bitcoin is different from FIAT. Build a central bank for bitcoin would make bitcoin same with FIAT.

[Denker]

A central bank in Bitcoin space would mean we're going backwards. This makes no sence at all. Central banks belong to the old financial system but not to the new decentralized characteristics of crypto currencies which will disrupt the entire industry.

[erik777]

Bitcoin IS a central bank.  It is one huge bank within its currency that is so big, it needs no others.  

Think about the value of a bank was when it was first created.

As fiat banks have increasingly forgotten their original purpose, a new bank arises.  

[odolvlobo]

People have forgotten why central banks were created. When the U.S. was on the gold standard, the Federal Reserve was created to strengthen the banking system by supporting banks with liquidity problems, which were symptoms of fractional reserve banking. When fractional reserve banking comes to Bitcoin, there will be a need for a Bitcoin central bank.

[worhiper_-_]

People have forgotten why central banks were created. When the U.S. was on the gold standard, the Federal Reserve was created to strengthen the banking system by supporting banks with liquidity problems, which were symptoms of fractional reserve banking. When fractional reserve banking comes to Bitcoin, there will need to be a Bitcoin central bank.

Like it or not, many people are already using bank-like services with bitcoin. Take Jua.com for example, with e free currency like bitcoin you can't control where people send their money and what for. The beauty of bitcoin is that it can be used for any application as long as there's demand and someone to create a platform. The ugly side of this shows up when people are scammed though.

[jbreher]

People have forgotten why central banks were created. When the U.S. was on the gold standard, the Federal Reserve was created to strengthen the banking system by supporting banks with liquidity problems,

No, the Federal Reserve was created to provide a legalized mechanism for a cabal of international financiers to steal the wealth of the American people through the invisible tax called inflation.

Without banks being already given the power to create money out of nothing, there would have been no liquidity problems.