Quote from: Bitcoiner on July 16, 2010, 02:01:51 PM

There is no law when it comes to Bitcoins, other than the law of human action. Sovereign fiat might create new money with impunity, but then again, sovereign fiat is required to pay taxes and it is legal tender. Bitcoin shares none of these "advantages". Nobody will accept "loans upon loans upon loans" if they are not required to by force of law (and they defacto aren't; please read the Agorism post

), as the further this goes, the more unstable things get. I'll reply in more detail to your other post.

They *will* accept loans upon loans upon loans. No one forces them to do it today. Taking out a loan is what creates the vast majority of inflation in today's economy. Want a house? If you get a mortgage, you inflate the currency. You also accept "loans upon loans upon loans." So, don't get a mortgage. You also save yourself from the risk of foreclosure, from interest payments, and from a myriad of legal fees if you just buy a house with dollar bills. You could do that today. Go down your street, though, and poll the people - "What percentage of homeowners do have or have had a mortgage?" The result will be well in excess of 95%. No one forced them to accept loans upon loans, but they did, because they wanted a house now that they didn't have the money to buy. Greed made them accept the fictitious idea that loans can back loans, be those loans in whatever currency you wish. The same will happen with bitcoins.

You claim that "there is no law when it comes to bitcoins other than the law of human action." This is true, but there are two caveats to that statement.
1) There is no law now, because the system at its current size is no threat to government control. As soon as it is, there will be laws. The government may not have the power to print the money, but they have the power to enforce...whatever they wish.

2)My quote about loans upon loans stands whether we're talking dollars, bitcoins, gold, or cigarettes. Whatever your basis of money, there are two options - A)Banks must have X% in reserve at all times, and debt loans don't count, or B)Banks must have X% including debt loans on reserve. The law in developed nations is that banks are entitled to count debt loans of bank balances *as backing toward identical loans.* Whether these loans are indollars or bitcoins doesn't matter - the law on how the banks are allowed to operate is the same. The state does not require banks to keep any percentage of paper dollars backing loans, and so the law stands that, with bitcoins, they wouldn't have to keep any percentage of real bitcoins backing loans. The law is about the loan practice, not the currency. We could use seashells for currency, and the law would apply just the same.

Quote from: Bitcoiner on July 16, 2010, 02:23:06 PM

Except with Bitcoins, there is no force to keep people captive to a system that they know is ripping them off and no monetary pumping to paper over losses. No taxes, no legal tender laws. Anything operating in the Bitcoin economy survives (and fails) on its own merits alone.

Why not? The banks are legally able to rip them off with fake, invented bitcoins that exist only on balance sheets, just as they're allowed to with dollars. If people don't want to go to the banks and only use real bitcoins, then fine. But people can opt not to go to the banks today - they just choose to go to the banks, to take out loans that invent fake money (and which, in a bitcoin economy, would invent fake bitcions). Thus, these people's complicity with the banks would inflate the bitcoin economy, just as they do the dollar economy. Also, as US law stands, taxes must be paid on *dollar equivalent wealth.* Get some stock benefits as part of your paycheck? If they are theoretically convertible to dollar value, then you must pay taxes on them. Generate bitcoins? If you fail to report the income of the exchange-rate dollar amount of these coins, you *are committing tax evasion in the United States.* There are tax laws. The government might not track you down, might not prosecute you, might not even know, but the crime is being committed, whether you're caught or not. Also, what's to prevent such "captive" laws as you mention from taking hold, as they surely will once (if) bitcoins take off?

Quote from: Bitcoiner on July 16, 2010, 02:01:51 PM

So we both agree that the laws suck. However, these laws are just arbitrary points that have nothing to do with market forces and the banking system only survives because there is a lender of last resort. Such a lender of last resort cannot exist in a hard money system such as Bitcoin.

Its true that banks are a lender of last resort. But my guess is, in a bitcoin economy, if someone wants to buy say, a house, they're going to have to go to a lender of last resort. Otherwise, they'd have to have enough friends lend them enough money to buy the house...which they could do today. They don't do it today, though, they go to banks, because your friends don't want to take that kind of a risk (or don't have that much money). Why can such a lender not exist in a bitcoin system? There were gold-coin lender banks in hard-money systems before dollars...there will be bitcoin lenders of last resort as well. They can exist and they will, not because people are forced by law to use them, but because they will hand over the money to buy a house or a car, an Joe and Shirley want that shiny new BMW now, not when they've saved for it.

Quote from: Bitcoiner on July 16, 2010, 02:01:51 PM

Fraud should be illegal, yes. If a bank says "Hey, we only keep 10% of your money on hand, so it might not be there when you want it!", then it is no longer fraud, but good luck attracting depositors Wink

Again, if it were not for legal tender rules and taxation, fiat currency would have a value of 0 with the kind of system we have in place today.

Funny you should say that. They attract *millions* of depositors. Do you not have a single bank account? I have several. This 10% rule (close to that amount, at least) is how *all US banks* operate today. They attract depositors - there's no way to deny it. However, you're right that fiat has no value without the decree that it must. We can wholeheartedly agree on that.

Quote from: Bitcoiner on July 16, 2010, 02:23:06 PM

Don't like the word "private" fool you: The Federal Reserve as as much an arm of the government as is the Treasury, Congress, or anything else.
Why would nobody ever question them? Why would anyone even pay any attention to them? They can say they have 10 million Bitcoins, but who cares? There is a limit to the amount of lying that can go on. "You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time."

Well, you're right that the Federal Reserve might as well be part of the government. Of course, Ron Paul and Dennis Kucinich(sp?) would say that the government is subservient to the Reserve...but that's another matter. To quote Mr. Kucinich, "The Federal Reserve is as 'federal' as Federal Express." You're also right that there's no guarantee that the people would pay attention to a Bitcoin-Fed, but what prevents the US government from passing a law requiring people to take their word, just as they have with the real Fed? The fed wouldn't have all the bitcoins they claimed, but they don't seriously have the money they claim to have now, but there's nothing we can do about it without utter anarchy. My point is that there's nothing inherent in the Bitcoin technology or system that makes a government requiring a people trust an obviously underfunded bank impossible. Likewise, inflation will still occur, even though it will be, like today's dollar inflation, by virtue of lie-bitcoins just like lie-dollars.

Quote from: Bitcoiner on July 16, 2010, 02:23:06 PM

"However, I also believe that, under bitcoins, no one would *EVER*, or almost ever, request real bitcoins. "

Why not? It's much easier to do so than it is to request a bar of gold, or even 1 million in physical cash.
You cannot have continual "virtual" inflation without a corresponding decline in the % of real reserves of Bitcoin. Such a system is inherently unstable since it increases the risk with every passing day.
Don't forget that banks are customers of each other, too. Maybe the average Joe won't care, but the larger the balance, the more people will care. I will bet you that banks will care that their deposits are being held in good hands.

No one will ever request real bitcoins because people will be ignorant of the difference between bitcoins and bank balances because they won't know the difference? Why would they prefer to work with bitcoins? Both are just numbers on the screen to anyone who doesn't understand cryptography and computers. At least with paper dollars, the average Joe can see the difference. With bitcoins and bank balances, people would believe them to be *identical,* and of course all the banks would say how much easier it is to use your bank balance - after all, with it all you need is a debit card, not a client, connection, and your wallet file. Thus, banks would only have to keep a minuscule number of bitcoins on-hand, because unless someone was a techie, there would be no difference between the account and "cash" bitcoins.

As far as the virtual inflation without a corresponding increase in cash...I really don't know how to argue this, besides to say that you can, and you do, have it today. Yes, you have real inflation, but you have *far* less real inflation than virtual inflation today. Similarly, you could have virtual inflation (maybe less, but the argument was about whether bitcoins are completely inflation-proof) with bitcoins, because people don't realize that bank balances made from loans do not exist in any way. They spend these loan-dollars without realizing they're fake, and more are created every day, and fake loan-bitcoins would be no different. The system is inherently unstable, yes - Greece right now is an example of what happens. But the system would exist with bitcoins. The only way out is to make (by government decree) the practice of creating fake liquidity with loans illegal. Its not illegal now, and it wouldn't be illegal with bitcoins without a change in the law, which the adoption of bitcions does not guarantee.

Will the banks eventually care that their money is fake-money? You would think so...you would hope so. It makes sense. But 99% of today's money is fictitious...as long as they can buy groceries and yachts and jets, they don't care. I wish they would. Even though the money is fake (as in, not backed by dollar bills or cryptographic bitcoins), its real in that people will accept it as valuable. The problem is that the economy is inflated when this fake-liquidity is created. However, if you have ten billion dollars, and you dilute the economy by giving loans so that your ten billion can only buy the goods of nine and a half billion, my guess is, you don't care. That's the position of the banks today.

Quote from: Bitcoiner on July 16, 2010, 02:23:06 PM

I think it will be much easier to demand real bitcoins; in fact, I would expect that those with large balances (other banks, rich players, etc...) would follow their holdings with close scrutiny, as they have the most to lose from fraud in the banking system.

I agree that the big players would follow their money closely. Today, the big players have gold, silver, industrial stocks, and diversified currency portfolios - they already follow their money closely, and have items of real value, not fiat cash. Sure, Warren Buffet and Richard Branson would probably want to have at least a solid portion of their money in bitcoins. Even Buffet and Branson and Gates, however, only make up a small portion of the economy. The rest of the seven billion schmucks on the planet wouldn't want bitcoins - they wouldn't know the difference between a bank website and a bitcoin client.

I decided that my small tech consulting business - just me, really - would accept bitcoins as payment. I sent out an email to all of my clients. I got back replies, and *all* of them basically said "WTF is this?" People barely know the difference between paper and bank websites. They wouldn't know the difference at all between bitcoins and bank balances, and thus wouldn't see any reason to request real bitcoins.

Quote from: Bitcoiner on July 16, 2010, 02:23:06 PM

To summarize, I think we both agree on the mechanics of the banking system. Where we disagree is if everyone can be fooled under a Bitcoin banking system. I don't think they can. Even if 999 average joes with 50 BTCs each are fooled, all you need is ONE guy with a hundred thousand BTCs to keep the entire banking system in line.

Now, this is a nice thought. If the banks got careless, and a consortium of people could accumulate 21,000,001 bitcoins total across all their bank accounts, then they could call the bluff of the entire system. That's certainly possible under bitcoins, and impossible under the dollar system. Of course, the public would probably believe those individuals to be "hackers" or frauds, rather than accept that their entire banking system was a joke.

Quote from: Bitcoiner on July 16, 2010, 02:23:06 PM

This isn't to say fractional reserve banking won't happen, but it will balance at the point where the supply & demand for money balance out. I fully expect that it will take the form of on-demand deposits which are 100% reserved and time deposits which can be fractionated.

How can you fraction something and still have 100% available at all times?

Quote from: Bitcoiner on July 16, 2010, 02:23:06 PM

It cannot continue beyond the point of equilibrium without an ensuing credit bust.

Yes, but then people just blame the "evil bankers" or the "incompetent government," rather than see the real reason for the bust.

By the way, I'm not sure if I screwed up the quote lines...I've been copying and pasting them to make my partial quotes, so my apologies if someone's name is mis-credited.

The issue is not that Bitcoins are or aren't more stable than dollars - They are. Their creation is independent of the government, they have a fixed amount, etc. My point is that inflation will occur in a bitcoin economy. The website states that it wouldn't, but this is simply untrue unless you change the law.

This is because banks will create fake liquidity by giving out loans which aren't backed by real bitcoins, just as they give out loans that aren't backed by dollars today. This will not inflate the number of real bitcoins in the system, but it might as well, because it introduces new bitcoin-value-units into the economy.

Could the banks get caught? Yes. Is it easier to catch the banks? Well, yes, much easier, if people demand real bitcoins...but at the same time, much harder, because the difference between a bank balance and a bitcoin is not at all obvious to average people, leading them to trust bank balances even more than they do now. ("What? You mean that's not the exact same thing? But they're both numbers on the computer!")

Hopefully, the banks would hold themselves more in line because they would know that if a few people got smart, they could *prove* that the money wasn't backed by bitcoins by accumulating a mutual balance of over 21,000,000. However...at that point, people would be trusting the balances anyway, so what would it matter? We'd be back to dollars essentially, just paperless ones.

The *only* way to prevent inflation is to tell banks "You must back your loans in bitcoins. You cannot loan out balances which are not backed by bitcoins that you have on file." This, however, requires the government to step in and mandate that the banks used bitcoin-backing for their loans. Not only will this not happen, because the government would then be unable to spend like there's no tomorrow, but it would make bitcoins a government-endorsed, and almost certainly government-regulated currency...and we all know what fun government-regulated currencies are.

In short, just because you cannot print additional bitcoins does not mean that the economy will not be inflated. To prevent backless-bank-loan-inflation, the law would have to be changed. The implication that a bitcoin economy would be free from inflation should be removed from the website. If the lead programmer or whomever maintains the site chooses to replace it with "inflation free given a change in monetary policy law," that's fine, but bitcoins do not prevent inflation, because inflation comes, at least the great majority of it, from loans rather than actual printing of cash.