Re: Fractional-reserve banking in Bitcoins - nothing prevents it!
Here's how a bitcoin bank that takes actual bitcoin deposits and loans out actual bitcoins might work:
The bank offers to the depositor:
- Security for his bitcoins. The bank takes extreme measures to store the bitcoins in multiple forms, offline, heavily encrypted and insured in its vaults
- An easy, secure web interface to make and accept payments
- Perhaps a modest interest rate. But the above features may be enough to entice people to make deposits and keep their money in the bank.
- 50-99% reserve.... really depends on what the market will bear, but definitely greater than the 10% that is required now, I suspect.
Then, a certain percentage of bitcoins goes out in the form of commercial and consumer loans. Voila! Free market fractional reserve banking. Anyone want to start a business with me?
The bank offers to the depositor:
- Security for his bitcoins. The bank takes extreme measures to store the bitcoins in multiple forms, offline, heavily encrypted and insured in its vaults
- An easy, secure web interface to make and accept payments
- Perhaps a modest interest rate. But the above features may be enough to entice people to make deposits and keep their money in the bank.
- 50-99% reserve.... really depends on what the market will bear, but definitely greater than the 10% that is required now, I suspect.
Then, a certain percentage of bitcoins goes out in the form of commercial and consumer loans. Voila! Free market fractional reserve banking. Anyone want to start a business with me?
It is a good idea, I think. One key class of customers would be people who want to use the BTC loans to try to short-sell the Bitcoin market. They can borrow a bank note for X bitcoins and then sell it on the market, thinking that the price of BTCs will soon go down, and they can cheaply buy enough BTCs to pay off the loan with interest. Of course, egg on their face when the price goes up instead...
