[2014-12-28] CD: How 'Bitbanks' Could Solve Bitcoin's Volatility Problem

[panju1]

How 'Bitbanks' Could Solve Bitcoin's Volatility Problem

http://www.coindesk.com/bitbanks-solve-bitcoins-volatility-problem/

Bitcoin is actually very similar to another successful currency whose supply was basically fixed in the short run: gold. So the logical question is, why wasn’t gold as volatile as bitcoin is now?

Once people started using banknotes and checks instead of gold coins, this gave banks the ability to expand M beyond the relatively fixed supply of gold. And where these banks were least hobbled by regulation (for example, in Scotland), making loans on a fractional-reserve basis actually tended to keep MV fairly stable.

Similarly, we might expect to see banks arise on the bitcoin platform, issuing banknotes ('bitnotes'?) and making loans, and ultimately stabilizing the value.