Bitcoin vs. the Banks

[LightRider]

Exact, I have a problem about the world around me ruled by a banking system that is literally responsible of the environmental destruction by overstimulating consumption.

+1 Exactly!! 

This is why we should promote a resource based economy. All reality, no fantasy.

Economies are resource based by definition: Economies are how resources are distributed.

A "Resource Based Economy" is like saying a "Meal Based Restaurant"

We have an anti-economy based on a monetary system, and money is not real. Resources are real, and an economy based on distribution of real resources would be more effective in meeting basic human needs.

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[minorman]

Banking institutions tend to turn up in any advanced economic system... Bitcoin will be no different, and there most likely will be banks, MtGox is the closest thing to a bank we have right now. They issue their own currency (MtGox Redemption Vouchers) and offer various services and allow you to exchange and transfer funds.

Bitcoin doesn't allow anybody to create money out of thin air like the actual banking system. That's the main fundamental difference.

Absolutely any exchange can create money out of thin air. Get over the ability to create money out of thin air and start focusing on the trust behind it. If I create $100 out of thin air but promise you to pay you $100 tomorrow and you are positive through a track record of me being paid $100 everyweek at the same time for 20 years that you will get that $100, isn't that enough to make the transaction? What more do you need in a functioning society?

If you have a problem with that, you have a problem with:

1) MtGox codes
2) Ripple technology
3) The world around you

MtGox can create BTC out of thin air? Can you explain this?

Money should not be created out of liabilities, which is what our banking system does now. It gets you to sign a loan, and then monetizes your debt and treats it as a deposit (I think most people know this now).

Only banks can do this. MtGox or the IBB can't write up a BTC loan to you, and then magically create the BTC based on your loan contract. The main difference being BTC HAVE to be created with actual work (EARNED), while fiat is created with the push of a button.

This is why banks and our monetary system SUCK. They are getting something (your hard-EARNED dollars, for their NON-earned ones).


Think of it like this, Matthew. You spent months putting together your magazine, and I'm sure it was a lot of work. When you finally got it done, would you trade them all with me if I printed you out some occult pictures on my computer for you? It would only take me a few seconds to print a pentagram and an all seeing eye, while it took you months of work to make your mag. Not a fair trade, is it? Nor is it when banks do it.

I agree 100% with this.
This, in fact, is why fractional reserve banking (in the normal sense of FRB) is not possible with bitcoin, seashells, colored glass beads or anything other than fiat money. Sure, we can exchange promisses or mtgox vouchers in arbitrary amounts - even if there is only a finite amount of BTC behind these vouchers, or none at all - BUT without the legal tender laws and the UCC rules that makes debt (checkbook money) exactly equivalent to any other money once it is monetized - no rule or law in the world can convert a mtgox voucher into a "real" bitcoin, if the bitcoin isn't there in the first place.

A Bitcoin IOU (like a mtgox voucher) has a
value [in BTC] = (face value) * (probablilty of payment)
The latter factor may well be zero (Pirate bonds come to mind) - but amount of IOUs will increase the number of real bitcoins in circulation by even one Satoshi.
This is fundamentally different from FRB money creation in fiat, no matter what the bitcoin wiki says about FRB.

[BTCurious]

…

There is nothing preventing Fractional reserve banking with Bitcoin.

Let's say 10 people have 100 BTC in MtGox, and MtGox decides to use 900 BTC to buy some BitBerries. The BitBerries guy then puts his 900 BTC on MtGox.
Now there's 1000 BTC on MtGox, but people's accounts show that they have 1900 BTC in total. This works as long as not everyone withdraws at once.


This is the core of fractional reserve banking, and it can be done with Bitcoins as well.

[hashman]

…

There is nothing preventing Fractional reserve banking with Bitcoin.

Let's say 10 people have 100 BTC in MtGox, and MtGox decides to use 900 BTC to buy some BitBerries. The BitBerries guy then puts his 900 BTC on MtGox.
Now there's 1000 BTC on MtGox, but people's accounts show that they have 1900 BTC in total. This works as long as not everyone withdraws at once.


This is the core of fractional reserve banking, and it can be done with Bitcoins as well.

I thought so too at first but this is not quite right?  Sure, the amount of MtGox codes has gone up.. but the amount of verifiable bitcoins has not..  there are still only 1000 verifiable bitcoins no matter how they have changed hands.  So yes, fractional reserve banking can be practiced with bitcoin in the same way in which it was for gold.   

[BTCurious]

So yes, fractional reserve banking can be practiced with bitcoin in the same way in which it was for gold.

Yes, this is true. But that's still called fractional reserve banking.

It's something that's different from actually printing new money, but it shares some characteristics.

[minorman]

So yes, fractional reserve banking can be practiced with bitcoin in the same way in which it was for gold.

Yes, this is true. But that's still called fractional reserve banking.

It's something that's different from actually printing new money, but it shares some characteristics.

You are of course right - this kind of  FRB where all we are creating is IOUs can be done with anything by anybody. But there is a catch - one which makes "real" banking FRB far more sinister. An example:

---
Let's say you lend me 100 USD, and I give an IOU in return. Have we created new USD? No. Theres still 100 USD (and an IOU which is NOT USD).
Then I can re-lend, or spend the 100 (actual) USD -  and you can, maybe sell my IOU to someone for, say 90 (real) USD (assuming a 90% probability that I'll hounor my debt to the holder of the IOU). Have we now created any USD? No. There is still only the original USD plus an IOU in circulation, and that IOU looks nothing like a 100 USD bill.

Contrast that to me lending that 100 USD in a bank:
I go into the bank and sign an IOU for 100 USD to the bank and the bank writes up the balance in my account by 100 USD. (Notice that in this case the bank did not need a single USD of pre-exisiting money to do so - unlike the previous case. The money came from thin air.) For legal reasons, then the bank then promptly sells my IOU to a third party which completes the monetizization process creating 100 brand new USD.
The outcome: I get 100 real, legal USD - which I can get in an ATM as a nice bill and which is legal tender for all debts, public and private. The bank gets an IOU for 100 USD from the third party, and the third party gets my IOU.
---

You see the difference? Banks use the legal tender laws and the UCC laws (re-sale of the IOU "in good faith") to legally turn my IOU into real USD.

Without the bank's trick, you and I can only create IOUs - not real USD. This is the banks legal monopoly on money creation. This is the important step in FRB. Not the creation of the initial IOU.

Therefore, it does not matter if mtgox issued 1E9 worth of bitcoins in vouchers - there would still only be about 9E6 (real) bitcoins circulating, but if BOA issues 1E9 USD in "loans" the total amount of (real) USD in the world increases by that amount.

The difference is crucial - and perhaps not understood by whomever wrote the wiki.

[justusranvier]

Let's say you lend me 100 USD, and I give an IOU in return. Have we created new USD? No. Theres still 100 USD (and an IOU which is NOT USD).
Then I can re-lend, or spend the 100 (actual) USD -  and you can, maybe sell my IOU to someone for, say 90 (real) USD (assuming a 90% probability that I'll hounor my debt to the holder of the IOU). Have we now created any USD? No. There is still only the original USD plus an IOU in circulation, and that IOU looks nothing like a 100 USD bill.

It is true the IOU is not USD, however if merchants start treating IOUs as fungible with USD then an increase in the IOU supply increases the total money supply just like a increase the USD supply.

When you swipe a Visa at the grocery store the merchant doesn't differentiate between credit created by your bank and "cash".

If in the future bitcoin merchants start accepting fractionally reserved bitcoins then it will result in a similar situation. The only difference is that with Bitcoin nobody has the ability to offer unlimited bailouts to cover unbacked credit.

[DeathAndTaxes]

If in the future bitcoin merchants start accepting fractionally reserved bitcoins then it will result in a similar situation. The only difference is that with Bitcoin nobody has the ability to offer unlimited bailouts to cover unbacked credit.

However as a merchant I can choose not to accept those fractional reserve IOU of unknown quality.  A consumer can choose to hold their coins as non-fractionalized "real coins".  Try doing that with USD.  Even if you found a bank which didn't use fractional reserve the supply of USD (not IOU which are semi-comparable) continues to expand. 

You simply can not hold USD and "opt out" of any FRB system.
You can hold BTC and "opt out" of any FRB system.

Bitcoin is freedom.  No need to try and prohibit IOU which are partially backed by BTC.  Let the market decide but YOU (and me) have the ability to choose.

[justusranvier]

Bitcoin is freedom.  No need to try and prohibit IOU which are partially backed by BTC.  Let the market decide but YOU (and me) have the ability to choose.

I never suggested IOUs should be prohibited. It's not accurate to say that credit bubbles won't happen in bitcoin though. They will happen but they won't be as severe.

[doobadoo]

Governments is not in control of any currency, I don't know where you took this idea. Government is only regulating this stupid system. "banks" as the actual concept is a real problem because all money in circulation represent a dept and can be taken away from you (as society) at their all mighty willing at any moment. How a monetary system that only depend on its credit can be a good concept for the people. This concept is only good for the banks itself and that's all.

t

All the money in circulation is not a debt.  Say again, NOT a debt to society.  Enough of your crap.  Read a book, not the zeitgeist video, thats all u saw, and u think u know something.  U dont!

All the interest paid to the federal reserve on the bonds held in their system open market portfolio remit their coupons to treasury.  Minus of course The Fed's actual operating budget. 

Thus all the printed money is just that, spent by a democratic process.  Just like you want.  So really,  your idea is to reform the system, but leaving it alone.

 

[DeathAndTaxes]

All the money in circulation is not a debt.  

False.  Under fractional reserve system it is not possible to produce money without debt.

debt = money
debt = profit

All the interest paid to the federal reserve on the bonds held in their system open market portfolio remit their coupons to treasury.  Minus of course The Fed's actual operating budget.

lolz.  while true the feds operating budget is immaterial. The fed is merely the start of the fractional reserve pyramid.  The token amount paid to the treasury is negligible compared to the amount of wealth stolen via inflation both by the banking cartel and the government.

Say you own a $1,000 bond and it pays 2%.  You earn $20 at the end of the year.  However inflation was 3%.  In reality you would need $1,030 just to break even and $1,031 to have profited in real terms.  So you are falling behind.  The notational amount may keep rising but the wealth is represents is declining.  Now monetary systems are a closed loop.  If the real wealth you bond represents has declined then who has benefited?  However it gets worse.  The government (totally beholden to banking cartel and their monopoly on the issuance of money through debt) has the audacity to pretend the $20 is a profit and then TAXES you for getting ahead.  Except you aren't getting ahead you are falling behind.

You aren't being taxed on the more .... you are being taxed on the less.  You are less wealthy and at the same time owe taxes.  The federal reserve and all their subsidiaries use inflation (inflation they both control and cause) to transfer your wealth from you to them.  The state is completely complicit in this ongoing theft.  They could index your basis by the rate of inflation (i.e. re-evaluate the bonds value from $1,000 to $1,030 and thus accurately let you report your $10 loss) but they don't.  They pretend you are getting too rich and everyone needs to pay their "fair" share.  So both the government and the banking cartel benefit from this theft yet it is these two entities entrusted to ensure inflation is kept under control.   You think it is a coincidence that the US dollar has lost 99% of it's purchasing power (i.e. store of wealth) in the last century when the two "gatekeepers" both benefit from this deception?

Have fun paying taxes even when the real value of your assets decline as you delude yourself thinking there is a single cent in the US economy which wasn't produced by debt.

Money = Debt
Profits = Debt

The government and private cartel of banks conspire to ensure the supply of debt and thus money and thus profits is continually expanding.  The transfer of wealth from the working class to the parasite class simply couldn't happen without it.

[knight22]

Governments is not in control of any currency, I don't know where you took this idea. Government is only regulating this stupid system. "banks" as the actual concept is a real problem because all money in circulation represent a dept and can be taken away from you (as society) at their all mighty willing at any moment. How a monetary system that only depend on its credit can be a good concept for the people. This concept is only good for the banks itself and that's all.

t

All the money in circulation is not a debt.  Say again, NOT a debt to society.  Enough of your crap.  Read a book, not the zeitgeist video, thats all u saw, and u think u know something.  U dont!

All the interest paid to the federal reserve on the bonds held in their system open market portfolio remit their coupons to treasury.  Minus of course The Fed's actual operating budget.  

Thus all the printed money is just that, spent by a democratic process.  Just like you want.  So really,  your idea is to reform the system, but leaving it alone.

 

PLEASE, stop pretending knowing something that you don't! and PLEASE taste your own medicine and go read this book: "Modern Money Mechanics" written by the Federal Reserve Bank of Chicago itself to understand the process behind the money creation and how money is representing ONLY a DEPT.  

BTW I never saw that movie...

[DeathAndTaxes]

Bitcoin is freedom.  No need to try and prohibit IOU which are partially backed by BTC.  Let the market decide but YOU (and me) have the ability to choose.

I never suggested IOUs should be prohibited. It's not accurate to say that credit bubbles won't happen in bitcoin though. They will happen but they won't be as severe.

I didn't mean to imply you did.  Just pointing out that even if fractional reserve IOU system (with partial backing on BTC reserves) did arise some day you (and me) have the freedom to opt-in or opt-out of that system.  A choice not currently possible with the monopoly on USD the banking cartel enjoys.  More freedom is always better.  My guess is given a choice people won't choose to opt into a system where inflation can be used to steal their wealth when there is an equally effective system which doesn't.   Then again most people are dumb.

[cryptoanarchist]

Exact, I have a problem about the world around me ruled by a banking system that is literally responsible of the environmental destruction by overstimulating consumption.

+1 Exactly!! 

This is why we should promote a resource based economy. All reality, no fantasy.

Economies are resource based by definition: Economies are how resources are distributed.

A "Resource Based Economy" is like saying a "Meal Based Restaurant"

We have an anti-economy based on a monetary system, and money is not real. Resources are real, and an economy based on distribution of real resources would be more effective in meeting basic human needs.

Technically, what you're referring to as money isn't. They're called "Federal Reserve Notes", because they are IOUs, not money.

"Money" is any commodity that has enough demand to be used as a medium of exchange ie. gold and silver.

[LightRider]

Exact, I have a problem about the world around me ruled by a banking system that is literally responsible of the environmental destruction by overstimulating consumption.

+1 Exactly!! 

This is why we should promote a resource based economy. All reality, no fantasy.

Economies are resource based by definition: Economies are how resources are distributed.

A "Resource Based Economy" is like saying a "Meal Based Restaurant"

We have an anti-economy based on a monetary system, and money is not real. Resources are real, and an economy based on distribution of real resources would be more effective in meeting basic human needs.

Technically, what you're referring to as money isn't. They're called "Federal Reserve Notes", because they are IOUs, not money.

"Money" is any commodity that has enough demand to be used as a medium of exchange ie. gold and silver.

Exchanged to what end, and for who's benefit? Can you eat gold? Do you drink it? Can you breathe it in? Does it sustain human life or the environment? Does it provide energy or promote a safe and sane society?

[benjamindees]

Exchanged to what end, and for who's benefit?

The purpose of monetary exchange is to calculate the real rate of interest, which is the average growth rate of the economy, across disparate resources.

Think of it as a giant supercomputer.

Does it provide energy?

Yes.

[LightRider]

Does it provide energy?

Yes.

Explain.

[benjamindees]

Explain.

Efficient markets save energy, obviously.  But gold can also be used to produce energy.

[minorman]

Bitcoin is freedom.  No need to try and prohibit IOU which are partially backed by BTC.  Let the market decide but YOU (and me) have the ability to choose.

I never suggested IOUs should be prohibited. It's not accurate to say that credit bubbles won't happen in bitcoin though. They will happen but they won't be as severe.

Sure, you are right. Arguably we are seeing one right now (with pirate bonds which may - or may not - be backed by bitcoin).
But the key here is that when banks have monetized an IOU you *must* accept it: "Legal tender for all debts, public and private", whereas I am free to refuse your bitcoin IOU and demand real bitcoin instead.

[cryptoanarchist]

This is why we should promote a resource based economy. All reality, no fantasy.

Economies are resource based by definition: Economies are how resources are distributed.

A "Resource Based Economy" is like saying a "Meal Based Restaurant"

We have an anti-economy based on a monetary system, and money is not real. Resources are real, and an economy based on distribution of real resources would be more effective in meeting basic human needs.

Technically, what you're referring to as money isn't. They're called "Federal Reserve Notes", because they are IOUs, not money.

"Money" is any commodity that has enough demand to be used as a medium of exchange ie. gold and silver.

Exchanged to what end, and for who's benefit? Can you eat gold? Do you drink it? Can you breathe it in? Does it sustain human life or the environment? Does it provide energy or promote a safe and sane society?

Exchanged to what end? For who's benefit? Are you saying you've never traded anything? A trade benefits both parties involved, that's why its a trade - derp derp.