It gets better: tether (a stable coin) looks like it’s about to crash. Crypto might be in for a wild ride.
This could prolly start its own thread but I’ll include it here as a factor in whether or not using Bitcoin as legal tender is a good idea:
Bitcoin has now recovered its mid-year losses and it’s close to it’s all-time highs. While I remain skeptical that cryptocurrencies will ever have large-scale, legitimate uses I am beginning to suspect they will be around for a long time. For one thing they will have non-legitimate uses like tax evasion and organized crime and are no more likely to disappear than those are.
They may even have some positive effects in that they light a fire under governments to start their own digital currencies which could increase efficiency in all sorts of ways without the problems of crypto. And there will probably be interesting innovations in cryptoworld especially in smart contracts and programmable payments. which could be adapted by mainstream finance.
How to launder a half-billion dollars:
It is now being resold for a billion dollars:
Guys, when I would watch Lou Dobbs on CNN Headline News back in December 1995 exhort yet another new website that would allow people to view crappy pictures of their pets, if I knew I would be talking in 25 years about how international criminals are using the internet to generate fake money which could buy fake crappy .gif’s which could legally be converted into real dollars… at a half-billion per shot… it would have been like:
After the sale there was another offer of over a billion dollars.
There is no chance, zero, that this isn’t money laundering.
Now it’s Bitcoin City!
For Bitcoin specifically, as it is limited in how many coins can be minted.
How can you handle loans with interest? Currently banks just create money and loan it. If all the Bitcoins are mined and in circulation. There cannot be anymore created. But loans continue to increase the money supply. It seems that if a limited crypto currency is to be used as an actual monetary basis, it will require some changes in the functioning of loaning money.
Banks can “create” money through fractional reserve lending. You can do that with bitcoins just as you can with dollars.
Bitcoins are not created that way. Such created Bitcoins would not integrate with the blockchain system of Bitcoin.
I don’t think you grasp what fractional reserve banking is. There is zero reason this wouldn’t work. People could deposit bitcoin with the bank, and the bank could transfer that bitcoin to borrowers. That’s all there is to it. There is no need to duplicate a bitcoin or create it out of thin air. As a consequence you’d have a separate ledger of bitcoin owed, of course, outside the blockchain, but hell, that’s also how it works with dollars, whereby you have a ledger of dollars owed outside the actual existence of money.
Fractional reserve banking is not as you describe. The word fractional is key. A bank does not have to have all the currency it loans out in actual deposits. Only a fraction of it. For instance. If the law allows, a bank can loan out $10 dollars for every $1 dollar it actually has in deposits. ( fractional reserve banking allows just such things ) So if a bank was only using a finite currency such as Bitcoin, it could not loan out more Bitcoin than it has in deposits. It cannot create new Bitcoin, or duplicate transactions of Bitcoin. The bitcoin blockchain system does not allow for a Bitcoin to be in a persons savings account, and also be out and about with other people spending it.
As I mentioned, there may evolve some scheme aside from the Bitcoin blockchain to allow such shenanigans. But that would pretty much defeat the basic good intentions of a finite currency and blockchain as it is.
It’s almost exactly the opposite. A bank might be able to lend 90% of its deposits, but it cannot lend over 100%. That’s a physical impossibility.
Yes, I know how it works. That’s my point. Fractional reserve banking does not require anything be created out of thin air. You can have fractional reserve banking with a finite currency, that’s the entire point of fractional reserve banking.
Sure it could. You transfer 1000 BTC to the bank, it lends out 900 BTC. Someone deposits 900 BTC, the bank loans out 810. The bank is now in current possession of 190 BTC, owes 1900, is owed 1710, and didn’t create a single bitcoin. That is fractional reserve banking.
Oh right. Got it reversed. But it still means that the bank can lend out money that is not in free circulation. Which Bitcoin will not track properly.
Thanks for pointing it out.
This illustrates both my reverse number mistake, but also how much extra bitcoin could be injected into the Bitcoin total. Which it is not set up to handle.
You are thinking of the bank acting as something like a crypto vault.
Rick jay is imagining it to be part of a banking system where it plays something like gold used to play 100+ years ago.
The problem is with lending it out.
Bitcoin does not allow double spending. Having 1 Bitcoin in a bank account means you have to have a blockchain transaction that places it there. Probably a bank administered wallet. If the bank loans that bitcoin to someone, then it goes from the banks wallet to their wallet. Or remains in the banks wallet and what they do with it is transacted with the banks wallet. But if you then withdraw your bitcoin from your account, the bank loses that Bitcoin from its wallet. So it now disappears from the person who took the loan of it. It gets even more steps removed and complicated as purchases go on.
But it is actually always your Bitcoin. And it is the only one that belongs to you in the blockchain scheme of things, until you actually make a purchase or give it away.
So what? This has to do with the fundamental concept of ‘money’.
A lot of crypto enthusiasts don’t like this concept, so they would rather bitcoin (or whatever crypto they use) to act like a virtual gold standard. This is an actual problem with cryptos - the way they are ‘intended’ to be used isn’t really money, even if the designers and proponents think it is.
But the average person doesn’t care. They don’t really care that when they go to the bank they can’t actually get gold or whatever. A lot of times, they don’t really even care if they can get green bits of paper. What they care about is the ability to safely store and spend money.
Whether that’s in dollars or quatloos or ether, they often don’t need or care that they can’t immediately take physical (or virtual) receipt of them - they care that there is a bank or government that says they have it or can get it easily.
If that causes confidence issues with bitcoin, that points to a fundamental issue with its suitability as a currency (which I personally don’t see as a good idea for a few different reasons)over any of a variety of extant fiat currencies.
Hmmmm.
Skimming that fractional reserve banking article I posted a link to. Am i really that far wrong? Not at all in some more purely financial instrument reserve requirements.