132 sats \ 3 replies \ @elvismercury OP 19 Oct 2023 \ parent \ on: _Broken Money_ book club, part 2 bitcoin
Do you think fractional reserve can only emerge as a result of cheating, and has no actual utility?
This is something I'm wrestling with, drawing inspiration from the history of free banking, and from Selgin's book Good Money which probably was the single-biggest influence in getting me to think about btc seriously, which is ironic.
I haven't done a deep dive into this debate. I know much ink has been spilled on the question.
However, I think even in a framework of contract based fractional reserve banking, the temptation to cheat would prove irresistible. If the contractual arrangement specifies a 10% reserve, some lenders are going to push it to 9.9% and hope they get away with it.
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Agreed, that has historically been the temptation. In the brave new world of blockchains, though, I think we have a means to put an end to that -- define the fractional reserve limit in advance, and make it visible to all. I suspect this is inevitable, and we'll see in practice how it shakes out.
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People thought gold was safe, too. Then bankers invented paper gold certificates.
You're right that this new verification technology makes it possible for people who really care to have high confidence in the integrity of the reserves. However, there will be bad actors who obfuscate what they're actually doing and lure in customers with the promise of higher returns.
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