Bitcoin and fractional reserve banking are compatible. And a fractional reserve system based on bitcoin would be different than what we have now. It’d be similar to what we had before nixon took us off the gold standard.
Banks depend on reserves and rules issued by the fed, and those reserves and rules are subject to arbitrary supply changes.
It is impossible for a non sanctioned bank to get reserve notes or have authorization to create notes banks lend out representative of that (dollars).
In a world where fractional reserve banking still exists, but is backed by bitcoin, you’d have lots of “bitcoin notes” being created, NOT bitcoin. No one would be creating new bitcoin apart from miners.
The faith in a “bitcoin note” would be tied to it’s ability to be exchanged for actual bitcoin in a wallet address.
The benefit (or downside, depending on your perspective) is that a central government would not have complete and total control over the supply of reserves that the banks get, and if banks lent poorly, they couldn’t get new emergency reserves from thin air. They’d have to get bitcoin from someone or go under.
There would be a fixed supply of the underlying reserve that people pass around iou’s for.
> In a world where fractional reserve banking still exists, but is backed by bitcoin, you’d have lots of “bitcoin notes” being created, NOT bitcoin. No one would be creating new bitcoin apart from miners.
No, this is a misunderstanding of how fractional reserve banking works. Bank deposits are money, despite the fact that they might be only partially backed with reserves. Bank deposits are not IOUs. And the same is true of bitcoin deposits held by the public at crypto-exchanges. Theses bitcoin balances are bitcoins, despite the fact that they might be only partially backed with reserves. These are not a "bitcoin notes", but actual bitcoins. And therefore more bitcoins can be created by exchanges simply by lowering their reserve ratio.
> the same is true of bitcoin deposits held by the public at crypto-exchanges. These bitcoin balances are bitcoin
No, those balances are not bitcoin.
If it is not a balance assigned in the distributed ledger, it is not bitcoin.
I understand that the ious in the dollar system are the money. You are misunderstanding the difference in how the reserves would be generated in a world backed by bitcoin. Saying bitcoin is the same as an iou not on chain is an egregious misrepresentation.
Bitcoin in a world with “bitcoin notes” backed by fractional reserve banking would be very similar to gold when dollars used to be exchangeable for a set amount of gold. It is not the dollar in that comparison, it is the gold. But it has the added property that it is easily transportable and could also act as a direct form of payment.
It is not practical to buy a sandwich with the equivalent dollar amount of gold, even when there was a static exchange rate between the two when we were on the gold standard.
It would, however, be practical to ALSO directly exchange bitcoin, in addition to exchanging “bitcoin notes”. Direct exchange is the original vision of crypto, but a world where people primarily exchange “bitcoin notes” instead of bitcoin still benefits from the fixed supply of what the note can be exchanged for.
Banks depend on reserves and rules issued by the fed, and those reserves and rules are subject to arbitrary supply changes.
It is impossible for a non sanctioned bank to get reserve notes or have authorization to create notes banks lend out representative of that (dollars).
In a world where fractional reserve banking still exists, but is backed by bitcoin, you’d have lots of “bitcoin notes” being created, NOT bitcoin. No one would be creating new bitcoin apart from miners.
The faith in a “bitcoin note” would be tied to it’s ability to be exchanged for actual bitcoin in a wallet address.
The benefit (or downside, depending on your perspective) is that a central government would not have complete and total control over the supply of reserves that the banks get, and if banks lent poorly, they couldn’t get new emergency reserves from thin air. They’d have to get bitcoin from someone or go under.
There would be a fixed supply of the underlying reserve that people pass around iou’s for.