Why There Should Be A Bitcoin Central Bank

[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...