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108 sats \ 7 replies \ @ama 14 Apr 2023 \ parent \ on: Fractional reserve banking in Bitcoin bitcoin
Because they won't be able to lend BTC that they don't have, like they do with fiat, which is what fractional reserve allows.
Banks do not lend fiat they don't have. People deposit fiat, get an IOU, and the fiat is lent out and the bank gets an IOU. Thus two IOUs are created which balance each other. But no pseudo-fiat is created.
Exactly the same thing can and will happen with BTC, since credit is valuable and bought for interest.
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Sorry, but no. Banks lend money they don't have and that they create out of thin air precisely by fractional reserve, which cannot happen on PoW blockchains (BTC or LTC) layer 1.
Of course there can be other non institucional form of fraud, like lending other things than BTC or LTC using them as "collateral" that they don't have, like Sam Bankman-Fried and other crooks have done already. And that'll keep happening, of course.
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This is a very common misconception which many people have.
I don't care, I make money out of peoples mistakes instead of arguing.
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Not arguing, just trying to educate the misinformed hopping to help them better understand the corrupt system the neo-liberalism has brought us, and why Bitcoin is so much relevant than they might think.
As US Space Force's Major Jason Lowery has explained to the US Defense Department, Bitcoin is a weapon of self-defense and not just money. And I'm convince it is so not only for States (mainly for every other one to defend themselves from US predatory abuse), but also for individuals (mainly the working class and the poor, closer and closer as time pases), companies (mainly small ones), and all kind of other organisations.
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I agree. But it's still likely that some level of fractional reserve will be around since loans will still exist. In all likelihood fractional reserve will take it's place as an occasional tool in the financial system that is only used in a few specific instances.
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Yes, of course, it'll for sure happen on DeFi on Bitcoin, but not on BTC layer 1 (and hopefully layers 2).
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Yes, and they can't do that since the blockchain is public and can be verified by anyone with a node.
Lightning may be a different story but even there, the channels should be verifiable.
So if you go to a bank and don't check that they actually have your funds somewhere on the blockchain, that's on you.
For example, you can ask them to sign a message.
Also, you should use a 2of2 multisig. Else, they can just tell multiple people about the same funds.
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