Why There Should Be A Bitcoin Central Bank

[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.

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[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.