Quote from: bitcoinator on November 22, 2013, 10:40:36 PM

Quote from: Melbustus on November 22, 2013, 10:29:39 PM

Quote from: bitcoinator on November 22, 2013, 10:24:26 PM

Similarly there are only 21 million bitcoins. But bitcoin banks could hold 210 million bitcoins off the block chain.

A bit on the chain is worth ten in the bank?

If it works this way with USD, why wouldn't it work with BTC?

Edit: virtual BTC will debase the real ones same way as virtual USD debases paper bills, but they will probably have equal value ($100 bill has almost the same value as $100 bank deposit).

Oh, the bankers will try to fractionalize Bitcoin for sure.

The problem is in your example the banks would have 10-to-1 leverage, and at some point will have a squeeze that will turn into a run on the bank. Today this happens all the time, but the FED is able to print and backstop the banks at will, or run other special liquidity programs, which have the effect of preventing a run from ever happening, but slowing destroys the dollar. But with Bitcoin there will be no FED to provide liquidity. People will learn the hard way to not do business with leveraged banks (something that was common knowledge just 2-3 generations ago).

Any bank providing 10-to-1 leverage will get wiped out, and the end result will be that banks do not fractionalize Bitcoin.