Along with,
http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangero...
I'd ask him one question: how is the idea of regulated, political and centralized money working out for you?
I'd ask him one question: how is the idea of regulated, political and centralized money working out for you?
That's kind of a straw man, because the Euro is all of the burdens of a centralized fiat currency while lacking almost all of the benefits (or at least the ones most relevant to Greece's current situation).
Having a unified monetary policy among countries with incredibly fragmented and disparate fiscal policies is a recipe for disaster. Even in the US, fiscal policies are relatively unified at the federal level and states are prohibited from backing their own debt the way nation-states (like the US federal government and Eurozone countries) can.
And on that note, look at the USD. It's the strongest fiat currency in the world and the preferred medium of exchange worldwide, even despite all of the outstanding issues with the US economy and the state of the US national debt. Clearly a centralized, fiat currency can be powerful if you don't set it up for failure from day one (as the Euro was).
The UI of this place is terrible on mobile. Fingers aren't styluses, and nobody (out to three decimal places...) uses a stylus to interact with a mobile phone.
There's a difference between a temporary setback and problems with the fundamentals. This is the case in the private sector and it is the case with sovereign entities, and the people who keep buying US Bonds obviously understand this.
> and the state of the US national debt.
Debt is only a problem if you can't service it. This is doubly true with sovereign debt, where servicing debt provides people a safe place to invest their money.
None of what I said is controversial among people who understand economies. The fact people whine and moan about the USA's debt is a function of how easy it is to score cheap political points by taking advantage of the ignorant.
> None of what I said is controversial among people who understand economies.
I have a degree in economics, so yes, I understand how sovereign debt works. The point is that even if the market never loses faith in the US's ability to pay back its existing debt, if it stops being the most trustworthy source of newly-issued debt, the US loses a great deal of power.
The US is completely different. No matter how bad things get in Detroit, nobody seriously suggests expelling Michigan from the US.
Note that some BTC enterprises today like Coinbase actually defer blockchain transactions when users are exchanging in their network. That way they can aggregate small transactions and enable temporary chargebacks. But that really is all a bank can do at most - delay doing the final transactions - because they have to commit them to the global blockchain or you never actually made a transaction.
An analogy would be walking into a bank and handing the teller $100. This money goes into the cash draw (analogous to a hot wallet). When the customer behind you asks to overdraft their account and withdraw $100, your note is handed to them, but your account balance remains at $100. Now you both have $100.
Coinbase does not "defer" or "aggregate" transactions between their customers. Most internal transactions are processed "off-blockchain", which simply means that ledger entries are being updated in the background and no actual Bitcoin is being transferred.
Fractional reserve lending "backed" by BTC is possible, but then, you're not actually lending BTC - you're lending something that is "not BTC" - namely, a promise to pay BTC on demand, which is no different than fractional reserve lending that was backed by gold in the past (or, as it is today, lending that is backed by the value of the thing that is being lent - fiat currency).
The problem is that you can't think of BTC like a traditional currency because it isn't. Because it is digital in nature, it can act very much (almost exactly) like a modern currency, but when all is said and done, what you are left with is something that is much more like a commodity than actual currency.
Coinbase is free to do their internal accounting in any way that they wish as long as the numbers come out 'correct' on the balance sheet, but if I deposit BTC with them and then subsequently use that BTC to purchase goods and services, actual bitcoin will be transferred from me (via coinbase) to the merchant. The merchant receives actual bitcoin as a result of that transaction, not a promise to pay bitcoin at some point in the future. This is not fractional lending.
Banks are legally allowed to issue credit up to a specified multiple of their reserves, so, extending your analogy above, imagine an additional eight people behind you requesting to overdraft their account by $100. As a result of your $100 deposit, the bank is now legally authorized to approve each of those requests for a total of $900 in credit that was created out of nowhere. In point of fact, however, the bank can't just create money out of thin air. In order to extend this credit, they must have a reasonable expectation that the loan will be paid back - to act otherwise would have negative effects on the economy and the bank itself.
You just can't do that with BTC, and, in my opinion, that is not a limitation, but a very positive aspect of bitcoin - it doesn't fit into the current economic model.
That's not exactly how fractional reserve banking works. Banks can lend out a multiple of the reserves they hold, but they can't lend out more than their total cash on hand. If $100 was all our hypothetical bank contained, then it could only lend out $90 of it, not $900.
The exact same thing could be done with Bitcoin. If you put it in a bank, they could lend this out to another party (and use future deposits to pay you back if you tried to withdraw your BTC).
However, the point that I am trying to make is that you cannot do that with bitcoin because you cannot lend out BTC that you do not have. If you start out with 100 BTC, you can never increase that amount by any kind of fractional reserve lending - there will only ever be 100 BTC.
The idea of "BTC credit" expressed as actual BTC makes no sense -- 1 BTC is 1 BTC it is the thing that is used for trade. If you want to create a new kind of currency that is backed by bitcoin and start a bank that uses that currency for fractional lending, then there is nothing to stop you, but you would have to operate in something other than actual BTC for credit - using actual BTC for that just won't work, as you'll quickly run out of any BTC that you had after only a few transactions/loans.
You may have a good grasp of BTC, but you seem to have misunderstood lending and banking quite badly. Lending doesn't mean two people have the same money. Lending is when the lender takes money that they have, and give it in the borrower in return for a future claim of money from the borrower.
The fact that only one person can have a given BTC -- the same is true of, say, gold coins -- doesn't prevent fractional reserve banking with BTC (or gold coins.)
> Banks are legally allowed to issue credit up to a specified multiple of their reserves, so, extending your analogy above, imagine an additional eight people behind you requesting to overdraft their account by $100. As a result of your $100 deposit, the bank is now legally authorized to approve each of those requests for a total of $900 in credit that was created out of nowhere.
Er, no. Assuming the 9x multiple you seem to be assuming, and assuming that the bank was already at its limit when you made your $100 deposit, the bank would be legally permitted to honor only $90 in overdrafts from your deposit -- not $100, and certainly not $900 -- as they would need to retain the remaining $10 as the additional reserves to cover the $90 lent out for the overdrafts.
This does increase a measure of the money supply that includes both actual cash in people's hands and depository accounts, because now you have the $100 on account, and someone else has $90 they've borrowed (which they might deposit in a bank that could then keep $9 and lend out $81, etc.)
But it doesn't require the bank to magically create dollars to loan out that didn't exist before (the created money is the account balances that aren't fully covered by reserves.)
> You just can't do that with BTC,
You can do it with BTC, gold coins, etc., exactly as much as you can do it with dollars.
MtGox operated as a fractional reserve for a while, and it failed due to two reasons:
- Instead of investing the bitcoins to debtors they "lost" them.
- The complete lack of deposit insurance ensured that a bank run happened as soon as doubts of their liquidity circulated.
If you manage to fix these two problems (the second being the harder one - you'd have to work with different exchanges/banks and make sure they are regulated so they don't all fail) fraction lending isn't a problem.