Why There Should Be A Bitcoin Central Bank

[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.