Bitcoin as legal tender

That is extending the situation with complications to obscure the basic concept.
Yes kiting does exist. But it is not really legal or a good foundation for economic systems.
The math is as stated. Adding more participants and amounts does not change the reality if all operate in the same mode.

I suspected BTC blockchain did not support such. And trying to use concurrent blockchain contracts can work in support of an ever expanding money supply. But defeats the supposed benefits of BTC.
Catch 22. A catch that some wealthy folks like a lot.

Kiting is where you have outstanding debts greater than your assets. If you are kiting you are insolvent. You are unable to pay your debts as they fall due.

What banks do is different - they have debts that fall due later and will have funds to cover those debts when they arise.

Thanks for the comment.
The situation does indeed happen even with our fuzzy flexible dollars. Many banks are currently implementing ever more inventive accounting to remain solvent. I see 2008 recurring…what say you Phil?

First of all, this isn’t what kiting is.

Secondly, you can argue the current system has flaws, but I’ve never argued it didn’t. The point here is that you can bank with bitcoin just as you can with dollars.

Exactly.

Do they?
You should look into many of the articles of just how insolvent many banks and institutions are.
Of course not according to the current farcical accounting and legal standards. But taking actual reality into the accounts?..

Sorry. Posted ahead of reply.

But can the system of loaning and therefore expanding the money supply at the moment function with BTC?
If my bank loans me $1000 dollars, it is created with a few keystrokes and signing the papers. The bank may need to have a spare $100 dollars on account to allow them to loan me/create $900 more dollars.
Yes the accounting may legally have some time frames and so many other caveats involved. The system is incredibly complex and gamed in amazing ways.
But. The basic technology of Bitcoin is specifically designed to negate even the momentary false inflation of the actual supply of Bitcoin.
You cannot create or use more Bitcoin than currently exists.
If only 10 Bitcoins existed. Fred had 5 bitcoins. Ted had 5 bitcoins. Ned borrows 2 Bitcoins from Ted. Well Ted can’t loan them to Ned. Ted has to give 2 Bitcoins to Ned. Bitcoin system has no concept of borrow/lend. No payback in future. Ted and Ned cannot have 7 Bitcoins between them, if Fred still has 5. That equals 12 Bitcoin in circulation. But only 10 exist. That is like having dollar bills with the same serial number. Some are fake. At some point if Fred, Ted and Ned decide to buy 12 Bitcoin worth of goods or services, 2 Bitcoin of purchases will fail. Because there is only 10 Bitcoin that exist. In Bitcoin there is no future rearrangement of payback that is taken into account. The blockchain only sees 10 Bitcoins existing. Fred has 5, Ted has 3, Ned has 2. 12 Bitcoin worth of transaction is impossible.

Substitute ‘dollar’ for ‘bitcoins’ in that example, and what you have ‘proven’ is that banking is impossible, which clearly it is not.

The part you continue not to get is that people don’t care about “dollar with serial number xxxxx”. They care about “dollar”. Things only fall apart if people add the requirement that they only deal with a specific loaned cow or a specific dollar bill or a specific bitcoin. Sure, some people will care about that. Most don’t. That’s why money works.

We seem to be back at square one.

Firstly, once again, you really, really need to understand the following:

Your view that the limitations and restrictions of bitcoin somehow limit and restrict what can be done with bitcoin, outside of the bitcoin system, has no foundation in fact. You are like a person saying “but this is a wooden chair, so it is impossible to use it as firewood”.

Once again, annotating your scenario:

  • If only 10 Bitcoins existed. Fred had 5 bitcoins. Ted had 5 bitcoins. Ned borrows 2 Bitcoins from Ted. Well Ted can’t loan them to Ned. Ted has to give 2 Bitcoins to Ned. [Yes Ted can loan them to Ned. By giving them to Ned subject to a legally binding obligation upon Ned to give them back on terms. That’s what a loan of a fungible is. It is absolutely possible.]

  • No payback in future. [sez who? I can show you hundreds of years of legal system that says a contract to pay back in future is legally binding. How precisely does bitcoin stop that happening?]

  • Ted and Ned cannot have 7 Bitcoins between them, if Fred still has 5. [quite correct. Ned has two, Fred has three plus a legal entitlement to get two back from Ned, under the loan agreement]

You are like an alien who is shown in isolation an internal combustion car and examines the whole thing closely then says “but that can’t possible work because it would need gasoline supplies and mechanical repairers and it will wear out and it won’t function without paved surfaces”.

You understand BTC well, I assume. You don’t seem to understand the existing system into which it is or could be injected.

Actually there is an error in my last post. It should say:

I fully understand that existential contracts can be crafted and adhered to. But I am talking about the basic concepts of Bitcoin. It is based on defeating/controlling the fact that the money supply is constantly increasing. It is trying to make a harder currency. Easily creating more of a currency will devalue the currency leading to inflation. Which is happening now. Bitcoin was designed specifically to not allow that. I am positing that bitcoin as it is designed will make loaning Bitcoin difficult or impossible.
Yes you can externally game the Bitcoin system to allow all sorts of things that then make the concept that Bitcoin was designed to prevent, to be possible.
But if you are arguing for such things, then the concept of Bitcoin is moot.
I am saying that the Bitcoin system itself. Not combined with other systems, other side deals, alternate bloody universes. Is not compatible with the basic concept of loans with or without interest.
All replies to my basic question relate to a system that Bitcoin itself is designed to be incompatible with. To resist and defeat. No reply has put forward a viable scheme that is not at odds with the basic ideal and functionality of Bitcoin.
I have offered the only possible shaky side step, and even that involves converting Bitcoin into commodity futures until the loan is paid off. Which would also delete those Bitcoins from circulation for the period of the loan.
Yes I know, side contracts are a thing. But they still do not duplicate Bitcoin for multiple spending!

Question to those replying to my posts.
What is the maximum number of Bitcoins possible to exist?

It seems that most folks are overlooking the fact that in the Bitcoin system, no two or more people can spend the same Bitcoin. You can go and give a person at the coffee place a dollar or debit / credit card and get a coffee. The transaction of a dollar does not require the seller to check the serial number of the dollar and match that to a record of you being the last person to own that dollar. But Bitcoin does require that. Your debit / credit card being checked, does report that you have a dollar to buy a coffee, but does not specify what dollar it is. You may have no dollars and be buying on credit or overdraft. Bitcoin does not allow that.
So as I posted earlier. Loaned Bitcoin is not loaned. It has to be possessed by the person using it to make a purchase. It cannot be simultaneously in the bank account of one person and also be used to purchase something by another person. The Bitcoin blockchain system does not allow that to happen.

I dunno, man. It seems pretty simple to me. Reminding me that dollar bills have serial numbers helped. We could track every dollar bill and who owns it. It doesn’t change that I have a pool of available dollar bills in my bank but only a portion are currently assigned to me. With Bitcoin, you could see the history of people who used your money while it was in the bank. That could be neat (or terrifying.)

If I withdrew all my dollar bills, I probably wouldn’t get back the exact same ones I deposited. I wouldn’t get back the same bitcoins either. That doesn’t matter though since one bitcoin is just as good as another.

Imho, these things are even more complicated than derivatives, are not what they are being sold as being, are highly speculative, will never become an actual currency, the market(s) themselves easily manipulated by both private and state actors, and, to make this a catastrophe-in-waiting, is being sold to small private investors who have no idea they’re doing.

Just remember, when this bubble crashes, the US Government doesn’t bail out the small investors- their job is to make sure Goldman Sachs and Wells Fargo are still functioning. Even in 2008 the US government didn’t give a shit if you lost your house as long as the loan on the house could be settled in full.

If the bank loans you $1000, they send you $1000. If the bank loans you a BTC, they send you a BTC. Fractional reserve banking does not require the creation of nonexistent money out of thin air.

You can have bank loans with a fixed money supply. See the illustrations we’ve provided; in not one case did the bank create a dollar. You can have fractional reserve banking with gold, or Pokemon cards, or commemorative plates, without the bank ever creating gold, Pokemon cards, or plates.

We all understand that perfectly well. It doesn’t matter. That has nothing to do with fractional reserve banking and would not prevent it in any way. Again, go back to my illustration. The bank never creates any bitcoin, and yet you can plainly see it loans out a bunch of it.

You’re getting way too hung up on the fact BTC can’t be copied. We all get that. Similarly, a $20 bill cannot be copied, either. (Well, not legally.) But if you deposit $20 in the bank, the bank can lend out $18 in equally non-replicable currency, and then someone can deposit that $18, and the bank can lend out more. These transactions are all on paper, not in actual currency.

If the bank lent me 100 BTC they could easily have me sign a contract stating them that I owe them the value of 100 BTC subject to the conditions of the loan agreement. I suspect it’ll be easier to account for it with an alternative stable coin (let’s call it BTCx), so the bank lends me 100 BTC and then they hold a wallet for me that has 100 BTCx coins which signify the amount of BTC they have loaned me. The BTCx could be worth $0.0000000000001 or whatever and either stay at the value forever or are pegged to the US dollar or even to the value of BTC. The bank then charges for holding these coins equivalent to the interest I owe for the BTC.

I need to think this through but there’s a way to do it efficiently without even needing real money to get involved.

The problem that I see with bitcoin is interest.

When the bank lends you 100 BTC, it wants 110 BTC back by the end of your loan(as an example, obviously the specifics depends on interest and loan terms).

Where does that bitcoin come from to cover that interest? If bitcoin were treated as US dollars are now, then most people would be paying interest on the loans, requiring there to be more bitcoin in circulation to settle all the loans.

Now, having a money supply that doesn’t grow does mean that interest rates can be a bit lower, as the lender doesn’t have to take inflation into account, but they still need to charge some interest, in order to make a profit and to cover defaults.

If bitcoin doesn’t grow as fast as the overall interest rate, then there will no longer be enough bitcoin to cover all debts.