Re: Is there any change that protect crypto from fractional reserve style stuff?
The thing with Fractional reserve practices is this... The Banks created money out of nothing, because Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, and are at liberty to lend the remainder to borrowers. Source : Wikipedia
You cannot create bitcoins out of nothing, because Bitcoin has a fixed supply and that cannot be changed without a majority vote from full nodes. They will never allow that, because that will reduce the value of the bitcoins they own now.
It is not as simple, banks could do to bitcoin what they did to gold.You cannot create bitcoins out of nothing, because Bitcoin has a fixed supply and that cannot be changed without a majority vote from full nodes. They will never allow that, because that will reduce the value of the bitcoins they own now.
Step one: begin to accept gold and encourage people to deposit their gold with you arguing you can secure it properly while they cannot.
Step two: as this practice becomes popular people for the most part begin to use the certificates they got from the bank as money instead of gold.
Step three: since the amount of people asking for their gold back is low then keep a small amount in reserve while loaning the rest and multiply the profits of the bank, also known as fractional reserve banking.
And since this is something that could happen off the network there is nothing protecting bitcoin for something like this happening, the only difference is that the bitcoin network will keep on existing, so those which do not fall for this gambit will still be able to use their bitcoin as they want, but almost all bitcoin deposited on banks will never see the light of the day again as just an additional step is needed to make all those certificates fiat money by suspending your ability to exchange them for bitcoin.