Think Out Loud With Me: Bitcoin Banking and Money SupplySubmitted by Shahe_B on Mon, 04/01/2013 - 14:45
A few bitcoin thoughts (been hurting my mind trying to think of everything before I invest). Please let me know if I’m making a mistake with some of this logic, or if there is more info on it. I’m just thinking out loud here.
Note: All of this is under the assumption that 1. bitcoin stays static at 21 million coins. 2. bitcoin becomes the universal and only currency.
- Loans are almost obsolete. At least those that bare interest, since fractional reserve banking becomes impossible. At least not based on bitcoins.
- Loans can be made, but you would have to literally had over control of your bitcoins to the debtor. This would require either 100% trust or a securing of the loan in some sort of asset. of course this makes banking harder. it also makes entrepreneurship harder because you’d have to have something to leverage or earn complete trust of the lender.
- One of the ways I can think of how loans would work in a 100% BTC world is that your money would net you an actual ownership in whatever it was used for when loaned to strangers.
- Banking can still be possible, bitcoin banks would charge a deposit fee to have multiple back up servers that store your info with near impossible to hack encryption and possibly offline back up of info as well as paper copy of the coding (yes, a little over kill, but it’s security).
- These banks wouldn’t be able to pay you interest unless they were making money from your btc, which is, again, not possible given the fixed number of bitcoins.
- How will money supply expand to keep up with the needs of the public? I understand that the set value of each coin can increase and that bitcoin can be broken down into smaller and smaller denominations, but at a certain point, you reach a limit.
- I know that printing more dollars than there is a need for (beyond production value) creates inflation and that the smarter way is to create smaller denominations and let the value of people’s holdings go down. When you create new money, you must distribute it equally among whoever currently holds the money. If you don’t, then you are robbing holders of that money of value. Bitcoin can be broken down into smaller denominations, but there is a limit. I don’t like the limit because it creates a finality to the money supply.
- If there is a limit on the total money supply, then you are theoretically creating a zero-sum system. Unless alternate currencies are also adopted and help expand the money supply that way.
- I don’t like the implications of a world that only runs on Bitcoin.
- I don’t like Zero-Sum games because it goes against everything free markets try to achieve.
- If no other currency is created and BitCoin becomes the only currency in the world, it will be very valuable, but certain crucial aspect of economics would be difficult if not impossible.
- REPEAT: I don’t like the implications of a world that only runs on Bitcoin.
- There is this uneasy feeling of all money supply being finite. It means that one must lose money in order for someone else to gain money. Again; uneasy feeling.
- Austrians like the gold standard and gold is more or less finite in supply. But we forget that along with the gold standard, money had to be expanded to include other precious metals, like silver and bronze and copper. But also, other substances were considered money, like jewels and such.
- Likewise, bitcoin can not be the only currency in the world if decentralized digital currency is in fact the future. Being limited in supply will give way to complications down the road.
Sorry if these are a bit hard to follow. I tried to give some order to it but these are just random thoughts and concerns about bitcoins going forward.
if anyone has any thoughts to add to it, please let me know why I’m stupid and bitcoin is fantastic.