Why Banks are Declaring War on Bitcoin

http://markmaunder.com/2013/12/05/banks-declaring-war-on-bitcoin/

by mmaunder • 13 years ago

18 28 13 years ago

jheimark• 13 years ago

However you feel about BitCoin, some of the assertions in this article are pretty insane. A new currency doesn't magically erase our need for debt, and debt isn't always a bad thing.

csmuk2• 13 years ago

I think it's a little more complicated than that.

Basically bitcoin removes the bank's ability to derive profit from debt and that's why they're pissed off.

Debt is never a good thing. All it does is facilitate currency flow rather than solve any problems. Inevitably a whole industry appears on the back of that facilitation (banking, finance, insurance etc).

pdkl952• 13 years ago

"never"?

When a particularly nasty seasonal-storm hits town, and somebody wins "ripped off half your roof" lottery, is everybody supposed to have cash on-hand to fix it? Or do they just get to sleep in the rain while raising cash?

Debt is necessary in a lot of places, because humans, unfortunately, generally lack the ability to predict the future.

greyfade• 13 years ago

Basically bitcoin removes the bank's ability to derive profit from debt and that's why they're pissed off.

Then why don't they just mine? They can profit off network transaction fees, and can set up value-add services on top of helping deal with bitcoin (like escrow and m-of-n transactions).

It's not as if there's no opportunity here.

knowitall2• 13 years ago

While I like Bitcoin, I doubt it will lead to an Utopian future. It doesn't change the basic economic problem ("there isn't enough to go around") or human nature. It's just an utility that makes some things more efficient.

userulluipeste3• 13 years ago

"It's just an utility that makes some things more efficient."

Well, this in itself looks like a small thing if we're to ignore that an important part of our society's system is deficient. </pun>

knowitall2• 13 years ago

I didn't mean it to deride Bitcoin - I like Bitcoin. I just don't think it will lead to an Utopia were we are all just friends and forever without debt.

gklitt• 13 years ago

This article seems to glorify the idea of people keeping money out of the banking system to avoid banks making money off interest spreads. But our economy actually relies on capital being available through banks. How would people having all their wealth in bitcoin be any different than people keeping cash under the mattress -- and why wouldn't there be the same negative economic consequences?

dpatru2• 13 years ago

This article seems to glorify the idea of people keeping money out of the banking system to avoid banks making money off interest spreads.

The problem with banks is not that they make money off of interest spreads. The problem is that banks are an integral part of the fiat money system that allows the creation of new money too easily. (Banks create money by lending out money held in demand deposits. For example, if I deposit $10 in my checking account and the banks lends out $5 of it, then I still have my full $10 to spend while the borrower has $5 of new money. This is called fractional reserve banking.)

Bitcoin, because it is fixed in quantity, cannot be used in a fractional reserve system.

But our economy actually relies on capital being available through banks.

Our economy relies on investment which can be defined as resources directed towards creating value in the future rather than in the present. By aggregating the resources of many individual savers and making them available as business loans, banks facilitate investment. They could continue to do this with bitcoin.

How would people having all their wealth in bitcoin be any different than people keeping cash under the mattress ...?

Banks are better than mattresses because they are more secure and they make transactions easier. You can't wire money from your mattress or write a check against a mattress account.

Bitcoin is more like a bank account than a mattress in this regard.

maxerickson• 13 years ago

If person A gives a bank 10 bitcoin, the public ledger reflects that. The bank can then lend 5 bitcoin to person B. The ledger will reflect this. Person A can peek at the ledger and notice that the bank has 5 less bitcoin, but they might (I mean I think they will) act like they still have 10 bitcoin. So person A and person B will be acting like they have 15 bitcoin.

Banks aren't conjuring actual money to supply the $5, they are relying on people not all trying to spend their money at the same time. This still works with bitcoin (it just happens to be the case that it is easier to peek at what the bank is doing).

scotty79• 13 years ago

Debt and deposits could easily accomodate deflationary currency. As long as deflation rate is predictable. When bitcoin becomes main money of the world its deflation will be associated with growth of world ecomomy which should be predictable enough.

hartator2• 13 years ago

Deflation isn't built in bitcoin.

It's the opposit in fact, inflation is built in bitcoin. Very slow inflation indeed that may lead to the increase in value of one bitcoin if more and more people do bitcoins but the number of bitcoins always go up.

eurleif2• 13 years ago

No. The number of Bitcoins in existence is capped at 21 million.

hartator2• 13 years ago

In 100 years...

Don't underestimate the zombie acopalysme that is coming.

pdkl952• 13 years ago

Wow. Spinning a "Tulip mania"-style market bubble into a magic new economic reality that makes debt unnecessary is really quite impressive.

I get it - a currency that is explicitly separate from the traditional {government,bank} control would be a very nice thing. It's even true that debt has been badly abused as a tool to increase the wealth gap.

These being true do not make /all/ uses of debt a bad thing, and it certainly doesn't protect a deflationary currency from its inevitable economic stagnation. In fact, the article's own argument admits this in inverse: to purposefully discourage taking on debt is the same thing as discouraging /investment/, as they are opposite sides of the same transaction.

I'm sure this is just me "declaring war" on the idea, though... go right on believing that the passion for tulips will last forever, and that housing prices never go down.

XorNot• 13 years ago

If you're eliminating debt, say goodbye to every small business which deals with seasonal spending cycles, or ecer wants to expand beyond being a small business...

gutnor• 13 years ago

More importantly - switching to bitcoin will not erase _existing_ debt.

And the current rich club (governement, banks, 1%) will not simply give up their wealth, maybe a few places will swap the early bitcoin miners but that's it.

KJasper• 13 years ago

Deflation is exactly why Bitcoin is flawed. Why would I buy something today if it's cheaper tomorrow? When people stop spending our current system grinds to a halt...

userulluipeste3• 13 years ago

"Why would I buy something today if it's cheaper tomorrow?"

Because you have needs, and some of these needs can not wait and needs to be satisfied now. Some of your needs may be ignored for a while though, and you'll be reluctant to spend on satisfying them. Yet, you'll decide to spend eventually (if you ever really wanted to buy whatever satisfies the postponed needs). That's because we have only that much time in our life (I doubt hoarding in itself is that rewarding on our personal level).

Also, the deflationary money may not be the only thing that accumulates value. A piece of land in a developing place may start accumulating value more rapidly than the money does. Won't you decide to buy if the item bought looks like a better investment compared to just holding money?

sz4kerto• 13 years ago

"What if debt becomes a very bad idea because saving becomes a very good idea, because whatever money you have becomes worth more as time passes."

"What if investing becomes a very bad idea because saving becomes a very good idea, because whatever money you have becomes worth more as time passes."

userulluipeste3• 13 years ago

Investment means (among many things) taking risks for various reasons, which includes creating an income-flow. This reasoning remains valid regardless of currency's nature.

Also, the same can be said about saving. Why would one save money in an inflationary currency if the money will loose value? I agree that a lot of people out there don't save, yet there are people who do. How come?

sentenza• 13 years ago

A currency that on average increases its value over time means creating an income flow without any risk. So all other investment options have to be that much more attractive to offset their attached risk.

There will always be some investments that are worth it and there will always be some reasons to save instead of spend, but the interesting things happen in between these two extremes. The inflation-to-deflation point is special because once there is deflation, it is not sufficient any more for a business venture to make money to be attractive.

If the currency under consideration has wide spread adoption, deflation means a system-wide slowdown in investment (_averaged_).

apw• 13 years ago

It's not clear to me why this author, and many others, seem start with the assumption that Bitcoin has become the only currency in a country (or the world), then proceed to list all the bad things that would occur.

It seems much more useful, and realistic, to list all the bad things (or good things) that will occur should Bitcoin become, say, 1% of the world's money supply.

Why Banks are Declaring War on Bitcoin

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