Guys, thanks for your responses.

It means that my suggestion wouldn't fly, especially due to following scenario:

1) Attacker gets the private key, and starts a transaction;
2) I am notified and cancel the attaker's transaction;
3) Then I try to start my transaction to move the bitcoins to safer place;
4) However the attacker cancels my transaction as well;
5) Then all repeats...

I realized the delaying of the transaction doesn't really help. We need something else. Something which is more like a "vault" then just a "wallet".

I think I have another idea, but I'll start another thread on that.

Thanks!

Are you saying that in order to have such feature, it requires a change in the Bitcoin protocol?

There's also the issue of... if the "hacker" can send that transaction, can't they also cancel your transactions?>

Sure of course, but the hacker can't steal anything by cancellation of the transaction. It would be an annoyance for you but you would retain your money, which should be a huge difference for you.
In sum the feature would prevent (or make it much harder) the stealing.

Yes, exactly I didn't want to change how the Bitcoin protocol, just would like to have such feature in the existing (or new) business, similar to 2 step verification feature.

I am sorry, it is not a question of being stupid.

The issue is that a regular user doesn't have any clue about cryptography, public/private keys etc. However each of them would understand to cancel transaction which didn't originate from them, providing they'd have the chance.

It's about making adoption of Bitcoin easy for everybody.
If the adoption will require too much of knowledge especially about security, as it does now, then the wide spread adoption won't happen.

Well you are right, that people won't understand the intricacies, but I believe they will very well understand when somebody tell them, "Hey your bank doesn't have all your money". They will take them out ASAP, thus all finance business will avoid using FRB to avoid being vulnerable to bank run.

I think in history there was never FRB sustained without government intervention.

Yes I agree FRB is possible. But I don't agree it is a good thing. It is no because it is a fraud. And as it goes with any fraud it is possible to happen.

However my point is that because of Bitcoin nature one can not sustain such fraud in a long term, i.e. the FRB will not work. All attempts to do FRB will lead to a crash of such institution.

That's a good point, but there is some difference. The central banks did exist. The difference is that there were banknotes which were backed by gold. Not the gold itself circulated, but the banknotes. The central bank could print more, even without having enough gold to back it, and they did so. To counter that, the governments restricted private individuals to convert the banknotes to gold, or allowed it at fixed price below the market price, or simply confiscated gold from private people. It was de facto a fiat currency (the banknotes), just technically backed by gold, but not really a gold.

If you go further back in time, when the real gold was used in circulation, i.e. the gold coins. Even that time they could debase the coins by "shaving" them, or adding less precious metals (all just different forms of inflation), or simply by fixing price by government.

All the above is not possible with Bitcoins, again I have to say, hats off to the creator.

This is probably only point I am going to agree with you.
Therefore picked it up, so we don't depart in bad mood. 

My stand is that in case of Bitcoin the reserve rate will be 100% in long run (and would be with every currency unless government creates central banks and bailouts insolvent institutions). Only 100% reserve would work for Bitcoin banks because nobody can create central bank for Bitcoins.

OK, even though we disagree, it was nice to have this thread.

Take care!

As for your argument, I've understood it and have already addressed that in one of my first responses to you. Since you seem not to be satisfied, I'll go one step further and leave it there.

Suppose a bitcoin bank exists and holds fractional reserves. That alone is completely possible. Suppose, now, that there is a run on that bank, and withdrawals cannot be satisfied. In this case, the reserves are depleted. In this case, the bank has lost all credibility, and either a) all borrowers from the institution are forgiven of their debts and the depositors lose their deposits, b) another institution buys up the bank's ledger and funds the repayment of depositors to pick up the loan obligations of any depositors to the institution, or c) the bank continues functioning and directs all payments of debts straight to fulfill withdrawal requests of depositors until solvency is reached.

In this case, the single bank is affected, not FRB as a whole. In this case, it was the single bank that miscalculated the risk (or properly calculated, but lost their bet on solvency, so to speak.) This neither requires a central institution to bail the bank out, nor does it act as a reflection on FRB as a whole.

At this point, there's really no further that this discussion can go. As it stands, you haven't accepted any arguments against your position despite any validity they hold, and there's really nothing else to say on the subject. It's up to you, and others reading the thread, to make the choice to accept the more reasonable position despite any personal attachments to a previously held opinion. I hope that I have given sufficient reason to believe that my position is the superior one, and I believe that I have done so.>

In your scenario, point b) why would other institution buy subject which has no assets only obligations? No such c) point will happen.

If a) happens no customer will ever trust any bitcoin bank using FRB, and if they do not announce it, the run will happen after first suspicion of FRB in such institution.

I think the one who doesn't understand FRB is you.
You don't seem to understand that in fiat money world the FRB is sustained solely only because of central bank ability to print new money out of nothing. Without that FRB collapses, entirely.

Have a nice day too!

It is not important if one person made all the deposits, or 1000 of persons. The point is if bank has only 10% of reserves and if its clients want to withdraw let's say 20%, the problem is there.

I apologize if it was suggested before, but I couldn't find it in the forum.

The problem:
What I see the main problem with bitcoin wallets (online or private) is that if somebody hacks into it, it can transfer all your bitcoins immediatelly and the transaction is irreversible.

The solution:
Suggesting to have two kinds of wallets:
1) Wallet for daily usage, which would allow the immediate transactions like the current wallets do. The users would typically use those with small amount of bitcoins needed for everyday use, similar like your real wallet having just small amount of cash.

2) Wallet for storing, which would not allow immediate transactions. Those transactions would be scheduled, and would execute only after certain time interval (let's say 24h or 48h).
Such pending transaction would be cancellable at any time during that interval. This feature would prevent the attacker to steal your bitcoins quickly. Using appropriate notifications for scheduling the transactions, the rightful owner would be able to cancel maliciously planned transactions.


What do you think?
Thanks,
-P

What are you talking about? Since the FRB bank used 90% of my money, they have only 10% of my money available. Where they'd take the other money from if I want to withdraw all my money?
They can go around that problem only if central bank stands behind them, and prints the missing money when needed, which has a lot of bad consequences. Without central bank the FRB bank would go bankrupt immediately people would be suspicious about its insolvency.

My argument is that bitcoin FRB won't work because there is no possibility to create central bank which could create new bitcoins when they want and back the fraudulent FRB banks.

RE: drhobomanxxiii

The FRB is fraud. The bank which does FRB claims that all of your deposits are available for withdrawal. At the same time it is not true because it uses portion of your deposits (nowadays the fiat bank use about 90% of them) for their own investments trying to make profit on it.

The fraud is when somebody claims something, while knowing that it is not true.

The insurance business is like any other business, it has to fulfill its obligations to the clients. If it is not able to fulfil them, due to bad management, bad calculation or else, it goes bankrupt. That is not FRB, it's just a bad business run.

The FRB increases money supply because at the end the central bank prints new money to cover the otherwise insolvent institutions. You can see it anywhere in the world, every fiat currency loses its value in the long run, prices in those currencies go only up.

Just use common sense, you don't need to do crazy mathematical analysis.

Think about it this way... If you are in debt, you hold an account payable to a bank that's greater than your assets currently on hand. Are you committing fraud? Before you answer, realize that this is the exact same scenario that the bank engages in, except that there are different actors in play and the banks do this en-mass.

Or, hows about this one... Insurance providers rarely, if ever, have enough reserves on hand to handle all of their liabilities if a large number of people place legitimate claims under their contracts. Is this fraud? Again, it's a nearly identical scenario.

FRB isn't fraud. There is certainly risk management involved, but it isn't fraud.

"the FRB could survive a longer run only if there is an entity of last-resort-lender"

This isn't the case. You're assuming, first, that any non-100% reserve rate would result in bank runs, and that said bank runs would bankrupt all banks. Second, you're assuming that any such bank runs would bankrupt all banks, thus removing the FRB system. I could go in-depth as to why these are incorrect assumptions, but I think some minor thought put onto my explanation of the assumptions themselves should reveal that reasoning.

As for the economic arguments you make, I would love to see your supply/demand analysis given the circumstances leading up to changes in reserve rates. For example, if an increase in deposits occurs, how does this affect the money supply, and in turn, what does this do to prices? Or, if the reserve rate goes down due to a change in society's time preference (see also, discount rate, or interest rate,) is the drop in reserve rate the cause, or effect, of any increase in prices that follows?

I used to be against FRB, but now I'm not 100% certain. There's far too many variables to account for. In the case of FRB under Bitcoin, I believe many of those variables will be accounted for in a way that enables markets to properly set both reserve rates and interest rates in light of changes in the values of said market. And, you must remember, changes in prices are not necessarily good nor bad in and of themselves. If there's a lower reserve rate due to changes in market values, that will likely coincide with an increase in prices. This wouldn't be bad at all -- in fact, it would be a sound market correction due to changes in supply/demand.>

Yes, FRB is fraud. The bank doing FRB claims all your deposit is available at any time. That is a lie because they are playing with your money and trying to earn profit on that, and therefore not all your money is available at any time as they claim. That is the nature of fraud, somebody claims something which is not true.

If you store your furniture in a storage facility, and they would use it at the same time, it would be the same kind of fraud.

Insurance is a business, if insurance company is not able to fulfill its obligations to its clients then it is fully liable for it like any other kind of business, which could be caused by bad management bad calculation, but not fraud. There is no FRB involved.

To the economics, don't you see how much new money is being printed by FEDs nowadays in order to keep otherwise failed institutions alive? They do that only because otherwise those institutions would be insolvent because of FRB. Therefore the bailouts , and therefore the increase of money supply which causes inflation.

Without central bank, all the FRB banks would fail sooner or later,  because any suspicion of bank not having enough reserves would cause bank run. Then no business would try to repeat such model, since it would render highly unprofitable.

mtgox keeps all of its bitcoins in its wallet and not tied to any particular users. It maintains user account balances in its database. It has been hacked before and I suspect lost a portion of its assets while maintaining user account balances. It also may have had occasional theft, accounting errors, and perhaps some investment spending using bitcoins. So if user account balances total 1000 bitcoins, it is totally possible that mtgox only has some fraction of those bitcoins (and USD) available to pay out. I suspect that many new investors in bitcoins don't even have a wallet outside of mtgox as they are just in the speculation game, so it makes it even easier for mtgox to maintain a only a fraction of the balances of the accounts in its reserves.

Now, this doesn't mean that they are really doing this, but I have no reason to believe that they are not, and they are not the bastion of transparency. Heck, if they sold off 50% of their stockpile into cash right now, they would have a lot of fiat to work with, and it would be likely that users would never be the wiser. Maybe they could play even riskier and keep only 10% of the bitcoins.

What makes this possible scenario interesting is that this actually inflates the money supply. If there were only 1000 bitcoins in existence, and 500 were in gox balances, and gox spent 400 of them keeping 100 in reserve, there would be in effect 1400 bitcoins in circulation, even though there are only 1000 real bitcoins.

As someone on the sidelines I eagerly wait until there is a run on mtgox and keep a stockpile of popcorn on hand. Only then will we see what is going on in their backrooms.>


That is not FRB, if something got stolen from mtgox, and they are able to cover the losses that's only keeping their business afloat. They could only cover such loss if they owned more bitcoins by themselves (their own reserves), possible earned from their business.
(If somebody steals portion of you money, and you still pay your rent, that is not FRB.)
Every business and individual have to take care of protection of their assets, doesn't matter of what kind, if they were stolen that's not FRB, the stealing doesn't increase the total number of assets in the economy.

On the other hand FRB is based on a fraud, which would happen if mtgox used the bitcoins of the users for their investing activities, trying to make profit on that, and at the same time claiming all deposits are available for users.
I am sure if they tried to go that path, they would not last long.

All I am saying the FRB on bitcoins is possible, but can't work in long run, because of no lender-of-last-resort who would save insolvent institution.

Ok, you don't need FRB to lend money, but it surely increases the amount that you can lend and therefore decreases the cost of lending.  Otherwise lending will get much more expensive.  Will it not?>

Nope, there is no problem in lending bitcoins. The FRB doesn't make lending possible, FRB only by fraud allows banks to do the lending instead of the rightful  owners. Despite the fact, that it decreases the lending costs, but it also increases overall prices, so in sum there is no benefit. Actually there is a net loss of what bank earns on it while not being a rightul owner of the funds.

So with 100% the lending is possible, yes the lending costs will be higher, but at the same time the amount needed to lend will be much lower, since there won't be any induced inflation caused by FRB.
In sum, the 100% reserve banking is much more beneficial for the individuals (both borrowers and lenders), the FRB is beneficial for banks only (they earn interest on things they don't own damaging all other participants on the way).

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A year later the borrower pays back the loan by turning in 91.8 bitcoins to the bank.  I withdraw 101 bitcoins from the bank and the bank ends up with 0.8 bitcoins profit.  Is there something wrong with this scenario?  Is it any different from conventional currency?>

What you described is bank using FRB, which won't work in the long run.
The question is you need ask. What will happen when you try to withdraw your 100 bitcoins from such bank, but the bank has only 10 of them, because the 90 has lent?
There are few lessons:
1) Such bank can't afford to keep lending your bitcoins, because there is no cental bank which would create the missing bitcoins on demand;
2) In reality there is always 100 of bitcoins, never 190, and never will become 190 again because no central bank can print the missing 90 bitcoins.


What I say the banking of BTC is fully possible, but shouldn't be based on FRB. It should be 100% reserve banking. People don't understand the concept of 100% banking because currently the FRB is enforced by governments all over the world.
With 100% reserve bank, there would be no interest to earn. Because it would be a true bank, more likely you would pay fees for storing your bitcoins there. The benefit is that the bitcoins itself would no lose value, and would always appreciate in long run, thus keeping your savings safe.