Does a Bitcoin Standard Fractional Reserve Exist? – Bitcoin Magazine
This is an excerpt from the “Bitcoin Magazine Podcast” hosted by P and Q. In this episode, Eric Yakes joins us to talk about his 7th property of money Bitcoin introduced, fractional reserves in the Bitcoin standard, and interesting stuff. Bitcoin projects are currently underway in this area.
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Eric Yakes: I’ve spent a lot of time reading the news since the summer to find out how Bitcoin’s “banking system” will be built.
I have actually published a research paper and there is a lot of controversy. He was in July when I started digging into this research. Many people put together things like “this is how bitcoin works”, “this is what the title means”, etc. There is a lot of information around. How is this ecosystem actually built? Bitcoin can do nothing.
Bitcoin can underpin everything, but for all its capabilities we need the entire financial system to revive in this space. I think it will be radically different from what we are historically accustomed to.
I was researching the practical side of it and I was like, ‘Okay, what company is this? How do they work? How does the Lightning Network work? How do we create the different financial markets that exist on top of it?” When I got to it and was looking at what people were saying on Twitter, I was wondering what credit would look like in Bitcoin. There has been much debate about the general theory that Does it exist? What does it look like if it exists? Do you have a partial reserve? All of these different types of stuff, and I think there was a piece Nic Carter released this summer, and Stephan Livera responded to it. It’s a higher level discussion. People didn’t have a complete understanding. What I published in his September was a discussion about it, saying, “This is what I think a full reserve system looks like, and this is what a partial reserve system looks like. It is what I think it is.”
Note that when I say fractional reserve there is a way to end up. It’s in the banking model, which is what we have historically. [few] An example is that the government controls the institutions, but this concept of free banking has been observed, and historically “there were systems in which the government did not rely heavily on the issuance of money. There are times when you can say that there was. , and it was actually all done through the bank. These banks have decided how much gold they want to keep in reserve. They then lent out over those amounts and some failed.
My book talks about a system that ultimately has a central bank that creates incentives for credit to continually expand until the whole system eventually collapses. But if you look at the free banking system, instead of issuing gold to everyone, there was a major innovation that issued paper receipts that were much easier to transact with. They are therefore much more suitable for transactions. And when you go beyond the reserve and start issuing paper, it’s called fiduciary media.
You are expanding the money supply now. Not only is there a 1:1 backing for every paper receipt you issue. It was interesting to see some of these systems that are generally free and not heavily regulated without central banks or anything like that. The United States is a good example of an over-regulated system. There were all these laws still enforcing all these perverse incentives within the US free banking system. So the Bond Collateral Act is one of the big laws. We had all these banks in various states, but the United States has had no central bank for about a century, maybe a little longer. There was a bank in the issuing state. These states have tightly regulated it and enforced these bond laws on banks. Up.
There were problems such as the war going on, but that system didn’t work well and a lot of problems came out of that system. What received little attention was the Scottish Free Banking System, he was one of the systems that actually worked well. It’s the 18th century and he’s the 19th century. It was for a period of about a century. It wasn’t perfect and there were regulations that existed above it. We’ve seen systems that work very well for almost a century. The only real problems were during the Napoleonic Wars. When you’re in the banking system and there’s a war and all the governments around the world start printing and abolishing their gold standard, that’s the end of a banking system that works when you have to compete. international level to freely print currency.
The point is, things are actually working well in this banking system. It is under a partial reserve and the natural imposes on the market as to how much of its “trustee media” (aka credit) will be extended through these banks if we allow it to operate in the market. There are restrictions.
If there are 100 banks in an economy, one of which goes crazy and eventually fails, and there is no bailout, then these systems function quite differently than the hazards we have in them. our current system. Banks act under the assumption that they may fail. Without going into all the nitty-gritty details, it’s a theory that people need to understand, and while fractional reserves are bad, they’re not necessarily the devil. may be entrusted to
Then follows an ethical debate about whether we should be allowed to do it in the first place. Is it permissible to promise people that they can redeem banknotes one-on-one with you while you are printing more banknotes than you actually have in reserves? Austria One will enter into the ethics of debate. Having these conversations is important, but I care more about what we see. What we see is that throughout history there has never been a permanent full reserve that has ever emerged. It’s just been relegated to something like a full reserve that doesn’t offer a service with a bill of exchange. We’ve seen it in history, but there has never been a perfect reserve system in history. The expectations that emerge with Bitcoin are an exception to history. There have been two times since then, and there’s been a lot of debate as to why it’s showing up in Bitcoin.
I’ll explain the trade-offs between how these things emerge and how I think it’s likely that both will emerge eventually. I’m still digging and researching it. Looking at the problems Bitcoin solves and the Lightning Network and Bitcoin enabled by the issuance of on-chain assets, it is economically viable and the emergence of a full reserve system on a large scale is highly likely. I understand this. We won’t completely eliminate partial reserves, but when you look at all the different efficiencies, agility, information and transparency within the system, it will give you information and transparency that banks have never had before. increase. Possibility of full reserves.
I’ve been digging a lot of areas around it. News related to that is Taro, which was announced in March of this year. They recently rolled out a testnet. I think this will be a big step for asset issuance in Bitcoin.
Does a Bitcoin Standard Fractional Reserve Exist? – Bitcoin Magazine
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