Quote from: ruletheworld on June 02, 2013, 11:01:09 PM

Quote from: malditonuke on June 02, 2013, 09:14:21 PM

Quote from: aaaxn on June 02, 2013, 09:52:46 AM

Quote from: ruletheworld on June 01, 2013, 10:42:39 PM

Credit is a hard concept in the Bitcoin economy. That being said, lending isn't that terrible. Go back to the basics -

If a bank uses only Bitcoin, then this is how it will make money: through a spread between savers and lenders. That's how traditional banks are supposed to make money too. People deposit their Bitcoins in the bank for safekeeping and they get some rate of interest. If you're borrowing Bitcoin from the bank to start a business, say, then you need to pay back a higher number of Bitcoins. The bank keeps the difference for taking that risk. Same concept as traditional economy.

Remember currency is just the medium of exchange. The total wealth of the world can keep increasing irrespective of the currency.

You did not understand the problem. If deflation is 20% a year you cannot lend from bank for anything under 20% in real terms. Such high interest would cause demand for credit to be very small and without demand there is now way bank can profit from lending.

It was a good answer to the original poster's question: 'How do banks pay their lenders?' The OP seemed to be under the mistaken impression that a specific business (a bank) needs to increase the stock of money to to pay the interest off loans. The truth is that profit can pay the interest.

Also, if the currency is increasing in value 20% per year, think about why that is. It's because of economic growth. If you can't have economic growth with the currency appreciating that much, then the growth slows, and the currency increases in value at a lower rate.

Yeah, that's exactly what I wanted to say. If you say that the units of currency are fixed, then with economic growth, the value of each of these unit will increase proportionally. The reason that doesn't happen with fiat currency is essentially inflation (inflation defined in terms of increasing the supply of currency, not CPI based inflation). In a Bitcoin economy, the value of 1 Bitcoin will be 1/21 millionth of the size of the economy. The economy grows irrespective of the currency units.

This is not accurate, as you are discounting the existence of credit-money, which is the essence of the question posed here.
Lenders / Banks which own Bitcoins may lend the right to them out as credit-money, letters of credit, or other instruments useful in trade. The bank may charge some interest on this credit-money. This is what happens today with fiat currencies. It is the same mechanism. It doesn't matter that the quantity of Bitcoin is fixed to an absolute number at any given moment. Credit-money may expand the amount of circulating money beyond that fixed amount.

This is the same way that the amount of printed serial numbered paper dollars is different from the amount of "money" being used in commerce. Much of it is a secondary ledger held in a bank accounting system and not physical paper fiat currency.

This is not a real problem, or rather it was a problem solved several thousand years ago, and really very well re-solved by Italian Banking to end the "dark ages".
The world was using gold and silver, also a fairly fixed quantity, with only tiny amounts of inflation/mining/discovery. As well as plenty of losses in shipwrecks and such.

The only reason this is even a question is because folks have become so accustomed to inflationary fiat currency that doing without them is outside imagination. But we used to all do without them very nicely.