Quote from: Havoc on June 05, 2011, 02:29:46 PM

Quote from: alexk on June 05, 2011, 02:08:37 PM

Quote from: benjamindees on June 05, 2011, 01:49:48 PM

Well, in the US, credit card debt is normally a loan of goods or services, when it's not a cash advance. So it's consumer credit. I'm not sure what the definition is wherever you live.

Regardless, loaning Bitcoins isn't required for such services; and they can support a Bitcoin bank perfectly well.

Ok, you can continue making up your own definitions. According to http://en.wikipedia.org/wiki/Loan credit card debt is an unsecured loan, which i already pointed out. This will be my last post regarding this subject, i'm not here to argue about definitions.

If you can show me a way how a bitcoin bank can pay
1. interest to its depositors or
2. earn money by lending
i will be happy to continue with the discussion.

alexk

I can show it:

A deposits 100 BTC and is promised to get 110 back in a year.

B loans 100 BTC and promise to pay 120 back in a year.

After one year the bank has earned 10 BTC.

This example is not fractional reserve as the bank got assets covering all its promises. The bank is just a boker of loans between it's customers. A could of course lose his deposit if B never pays and this forces the bank out of business, but even if the bank just stored the BTC they could be stolen by a hacker. Deposits are never 100% safe.

Thank you for your reply.

Even if there was a fractional reserve in this example i would not have a problem with it. Fractional reserve banking is not the problem with bitcoins, it has been done with precious metals since the middle ages.

My problem with this example is the following:
Bitcoins are highly deflationary. Let's assume 20% deflation in bitcoins and 0% interest that you have to pay to the bank. This means you borrow 100BTC at the beginning of the year and have to pay back 100BTC at the end of the year. By the end of the year, these 100BTC will be worth 20% more than at the beginning. To make up for this 20% difference, the debtor needs a return on investment of at least 20% for his business. If the debtor also has to pay interest, the required return on investment would be even higher. This makes it impossible for many debtors to use borrowed capital and thus makes many businesses economically unfeasible.

20% deflation is a rather conservative estimate of bitcoin deflation. This is the reason why bitcoin banks can't earn money by lending out capital, which makes it impossible for them to pay interest to depositors.

alexk