Quote from: odolvlobo on June 15, 2015, 06:44:50 PM

Quote from: eerygarden on June 15, 2015, 06:04:49 PM

Quote from: odolvlobo on June 15, 2015, 04:43:24 PM

Quote from: eerygarden on June 15, 2015, 08:34:24 AM

I know what fractional reserve banking is. I mean how do you think it relates to bitcoin?

A simple example would be Coinbase loaning out the bitcoins they hold.

I am determined to understand this. So....

Lets say coinbase hold 10,000 bitcoins. Going with fractional reserve they lend out 1,000,000 bitcoin. How are they going to send them? An amendment to the protocol?

They hold 10,000 BTC and the loan 9,000 BTC. Everbody with coins at coinbase still believe they have 10,000, and some other people have 9,000. There are now effectively 19,000 BTC. If those 9,000 BTC are deposited and 90% are loaned, then there now effectively 27,100 BTC, ... Eventually if the reserve ratio is 10%, there will be effectively 100,000 BTC, even though there are actually only 10,000, and 90,000 BTC worth of promises.

I get it now. Fractional reserve within their own database. Not on the blockchain. Well... when we transact with others and use their systems we expose ourselves. Yes, I agree this could totally happen. This is a human problem though, not a bitcoin one.