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Author Topic: If Banks started to accept bitcoins, would you trust them with yours?  (Read 3036 times)
hazek
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May 03, 2012, 06:22:29 PM
#21

I would imagine if Bitcoin continues to expand in 20 years very few users will be running a "satoshi style" wallet and connecting directly to the blockchain.

Agreed!  Thought hopefully there will be more net users running the client than today, but it will be a small fraction of overall userbase. Personally, I'll always run the client forever on every computer I own.

But isn't this a problem? Doesn't this remove the decentralized resilience of Bitcoin we often claim is comparable to bittorrent?  Doesn't this make it a lot easier to change the rules by someone?

I've asked this question in a couple of other threads and I don't think I received a satisfying answer yet. I'm not trying to spread FUD, I'm obviously very bullish about Bitcoin's future but still it's something that I think we should ask ourselves and find the right answers in order to avoid potential bad future outcomes.

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DeathAndTaxes
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May 03, 2012, 06:26:01 PM
#22

You can't force people not to use a service.
The point is the option will always exist.

Forcing users to use the satoshi client and only the satoshi client from now till the end of time is hardly decentralization either.

If it is possible for higher level services to be built on top of the Bitcoin network then they will.  If providers of those services break the public trust then users will move to other services or back down the "blockchain level".
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May 03, 2012, 06:50:29 PM
#23

I would imagine if Bitcoin continues to expand in 20 years very few users will be running a "satoshi style" wallet and connecting directly to the blockchain.

Agreed!  Thought hopefully there will be more net users running the client than today, but it will be a small fraction of overall userbase. Personally, I'll always run the client forever on every computer I own.

But isn't this a problem? Doesn't this remove the decentralized resilience of Bitcoin we often claim is comparable to bittorrent?  Doesn't this make it a lot easier to change the rules by someone?

I've asked this question in a couple of other threads and I don't think I received a satisfying answer yet. I'm not trying to spread FUD, I'm obviously very bullish about Bitcoin's future but still it's something that I think we should ask ourselves and find the right answers in order to avoid potential bad future outcomes.

Well, I guess you're asking a few questions:

1) Is a world where many users use ewallets/ebanks more centralized than a world where everyone uses their own client software?  Answer: yes.

2) Isn't that increased centralization a problem? Answer: not necessarily.

People need to distinguish between coercive centralization and voluntarily centralization. Centralization of government power, for example, is bad, because people are being coerced into doing what they'd otherwise not do - this is problematic morally, but also can lead to harmful real-world consequences. BUT, this is wholly different than voluntary centralization.

Take the example of Walmart (huge mega-retailer here in the US). Walmart has centralized the distribution of products, and you can find anything you want inside the store. So is this harmful in the same way that coercive government centralization is harmful? I don't think so. If centralization is occurring, but it's occurring voluntarily based on market signals, then that should be taken as a sign that efficiencies and value are being created by that centralization. When the centralization is forced, however, it is unlikely that efficiencies and value are being created (if they were, then the centralization would have occured voluntarily anyway), and thus such coercion should be fought against and resisted.

Bitcoiners are happy to fight against the coercive centralization in the realm of money (vis-a-vis central banks and fiat currency), but sometimes that justified antagonism spills over into also fighting against voluntary centralization, which is problematic.

Centralization can be good or bad, and it typically depends on whether it's occurring under coercion or by choice. If Bitcoiners in the future tend to centralize funds held via ebanks, then so be it. A) there's nothing you can morally do to stop it (other than pleading with people) and B) it likely represents efficiency and value gains which ought not be interfered with anyway.  

Does this make Bitcoin less "safe" or less "secure" with voluntary centralization? I'm not sure... it's possible that if safety/security is handled largely by professional private institutions, we'd see a safer and happier blockchain than if it could not be centralized in such a way. Admittedly, some degree of decentralization is lost in this process, but security gains from other dynamics may compensate for this. Also, perfect security is only achievable by spending infinite funds... thus there is always a tradeoff between security and efficiency. The marketplace might discover that the optimal balance means most funds are held by ebanks (but again, you always have a choice to hold your own!)

If all Bitcoins were held at a handful of large US banks, then I'd be worried. But that will never happen, and thus I am not bothered by some marginal or even significant voluntary centralization short of that occurrence.

hazek
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May 03, 2012, 07:05:16 PM
#24

Ty to the both of you for your time writing up those answers. I kind sorta already had the feeling what the answers to my questions were I just wasn't sure but I agree with both of you.

I think one thing we should think about is making sure the blockchain is always freely available to be downloaded by anyone, meaning if the voluntary centralization reaches so far that there are only a few nodes with the entire blockchain, we should make sure those few nodes after they're the only ones with the entire blockchain can't make it private and inaccessible to everyone

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May 03, 2012, 08:09:22 PM
#25

excuse me for sharing a personal history:

I was flash-kidnapped once. I stayed on the car with 2 burglars while another went through ATM machines to pick my money. I had to give them the PIN codes of my cards. I had a old card that I didn't have the PIN and it was tough to convince the thief that I really didn't have the PIN for that old card*. I stayed with them for 2-3 hours and they released me after spending roughly U$ 500,00 in fiat and U$ 1000,00 in credit card purchases (refunded later). I can't imagine how long I would stay with them if they were able to take all my money.

That's why I'm looking for a deterrence model to protect my BTC's. A model that keep the burglars away from even trying to assault me, and keeping my BTC's in a bank maybe is one of the possible solutions.

* I don't want to trying to convince someone with a gun again that I don't have access to my money (hidden-volume or brainwallet). Maybe it won't work all the times. I'm looking for deterrence. The thieves have to know beforehand that they can't get all of a person's money.
An "abduction pin" would have helped in this case.  Too bad the banks don't offer this.

Put in the pin and the cops are silently notified.  Balance could be reported as overdrawn or allow access to a subset of funds.

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May 03, 2012, 08:15:25 PM
#26

If Bitcoiners in the future tend to centralize funds held via ebanks, then so be it. A) there's nothing you can morally do to stop it (other than pleading with people) and B) it likely represents efficiency and value gains which ought not be interfered with anyway.
+1

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May 03, 2012, 09:38:09 PM
#27

On the other hand, Bitcoin offers some good reasons to not to use banks at all.

Having the funds OUTSIDE of his control is actual an advantage.  

You don't need to let third parties in control of your information. You could hide the information from yourself and set a time for it to be released, using the timestamp. Time is your bank.

I don't know how nLockTime works, but if it does what it says...

Alternative just using bitcoin tech:

1.  create a transaction that sends your bitcoins from this address to your relative/uncle/family bitcoin address with an nLockTime set to one year in the future.

2.  give the signed transaction to your family

3.  In one year, your family can insert the transaction into the blockchain and it will get accepted.  If you decide that you are still alive/not in prison in one year, simply move the bitcoins from your current address(es) to a new address, and the transaction you gave to your family will not be accepted due to double spend protection.

Somehow this could be automated.

You guys have really come up with somethin'
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May 04, 2012, 01:24:43 AM
#28

I would trust banks with my bitcoin if they allowed me to use a debit card to withdrawal purchases anywhere and use my bitcoin as a funding source, that would be sweet!!!!

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May 04, 2012, 02:46:20 AM
#29

Banks lend a theoretically limitless supply of money into existence using a debt-based mechanism that would never mathematically work (compound interest) with a finite number of currency units, such as bitcoin. The only way banks could utilize bitcoins under their present and historical lending architecture would be to use bitcoin as a reserve currency unit upon which notes would be fractionally lent末僕ike issuing 2 MtGox btc codes for every 1 btc on reserve. Double spending is a nonissue as long as people spend the MtGox codes in lieu of actual bitcoins and never redeem them. Banks once similarly lent gold certificates based upon physical gold reserves, yet these certificates devolved into the purely fiat money we use today. Cent-per-cent gold convertibility or bitcoin convertibility of notes may seem fine and may appease people for some time, but it's a slippery slope towards centralized money. But why use a proxy for bitcoins, when one can use actual bitcoins?
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May 04, 2012, 05:30:22 AM
#30

Banks lend a theoretically limitless supply of money into existence using a debt-based mechanism that would never mathematically work (compound interest) with a finite number of currency units, such as bitcoin. The only way banks could utilize bitcoins under their present and historical lending architecture would be to use bitcoin as a reserve currency unit upon which notes would be fractionally lent末僕ike issuing 2 MtGox btc codes for every 1 btc on reserve. Double spending is a nonissue as long as people spend the MtGox codes in lieu of actual bitcoins and never redeem them. Banks once similarly lent gold certificates based upon physical gold reserves, yet these certificates devolved into the purely fiat money we use today. Cent-per-cent gold convertibility or bitcoin convertibility of notes may seem fine and may appease people for some time, but it's a slippery slope towards centralized money. But why use a proxy for bitcoins, when one can use actual bitcoins?

The real question is: If all Banks started to accept bitcoins, would you still trust Bitcoin? I don稚 think Bitcoin would be capable of getting libertarian panties wet at that point.

Hahaha.  Cheesy  That is the real question!

The Satoshi = Bernanke theory comes to mind for some reason.  Cheesy Cheesy
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May 04, 2012, 05:47:38 AM
#31

Banks lend a theoretically limitless supply of money into existence using a debt-based mechanism that would never mathematically work (compound interest) with a finite number of currency units, such as bitcoin.

This fractional lending is the tool used by banks to cause the recent crash. Because eventually, you've lent $1000 out, and sold that debt, but only have $100, and realize the $1000 can't be collected, making the debt worthless.

"Natural selection" and "Survival of the fittest" would deem that your organization fall, and in a BTC economy, you'd need real BTC to bail you out. In the current setting however, the reserve just prints more money, diluting the existing value of the $ as a whole, and the bank continues to run its scam.

So I guess a more focused question would be, would the world as a whole be better served by a currency like BTC, where the network doesn't care if your economy collapses due to a shortage of reserves?
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May 04, 2012, 04:40:15 PM
#32

Banks lend a theoretically limitless supply of money into existence using a debt-based mechanism that would never mathematically work (compound interest) with a finite number of currency units, such as bitcoin. The only way banks could utilize bitcoins under their present and historical lending architecture would be to use bitcoin as a reserve currency unit upon which notes would be fractionally lent末僕ike issuing 2 MtGox btc codes for every 1 btc on reserve. Double spending is a nonissue as long as people spend the MtGox codes in lieu of actual bitcoins and never redeem them. Banks once similarly lent gold certificates based upon physical gold reserves, yet these certificates devolved into the purely fiat money we use today. Cent-per-cent gold convertibility or bitcoin convertibility of notes may seem fine and may appease people for some time, but it's a slippery slope towards centralized money. But why use a proxy for bitcoins, when one can use actual bitcoins?

The real question is: If all Banks started to accept bitcoins, would you still trust Bitcoin? I don稚 think Bitcoin would be capable of getting libertarian panties wet at that point.

As a libertarian, I have absolutely no problem with banks per se. I don't even have a problem with fractional reserve (banks should be able to set whatever terms they wish). I  simply have a problem with forced fiat currency, and with taxpayer-subsidized bank insurance (FDIC). Enable a free market in money and if banks occur then great!
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May 05, 2012, 06:42:54 PM
#33

The crash was caused more by artificially low interest rates that allowed the economy to grow too fast causing supply to outpace demand and then causing prices to drop.

And to answer the OP; No I wouldn't trust banks with bitcoins.  Banks are highly regulated by the government and it would be counter to the advantages of bitcoins to do that.  In truth, bitcoins are best suited as a means of transferring wealth (possibly as an international standard of exchange) and not as a store of wealth.  It is interesting to see the recent price stability but the price is mostly speculation driven. The US currency money supply and interest rates are controlled by the Fed to minimize inflation and wild changes in prices, even to the point of allowing big increases in unemployment.  Bitcoin has no control mechanism, actually large mining pools could exert some control with changes in fee rules but there would be a huge backlash from that.  The Fed is independent from the normal governmental institutions so they can make unpopular, but necessary, changes, much like how the Supreme Court is unelected.

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May 05, 2012, 08:12:14 PM
#34

Do these banks have to be specially anointed by the Pope to be allowed to use the bank label? Or do the organisations that already host banks of e-wallets count?

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May 06, 2012, 01:07:59 AM
#35

Investment banks are already eyeing bitcoin.
(Commercial banks? Not so much.)
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May 06, 2012, 10:20:01 AM
#36

Bitcoin has no control mechanism, actually large mining pools could exert some control with changes in fee rules but there would be a huge backlash from that.

I see you're new here. Of course Bitcoin has a control mechanism. Just have a look: http://bitcoin.sipa.be/ The automatic difficulty adjustments make bitcoin behave like a finite resource with an extremely well-controlled supply: http://blockchain.info/charts/total-bitcoins
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