Nic_Sako

bitcoin

Curious - Bitcoin as money and Fractional reserve banking (been reading Mises)

Yeah amen, we need to change. Thanks for the reply. 

Agreed, thanks for the reply. Interesting, ill check it out.

Hi SN, happy friday from AUS. I have a bunch of questions here, im really curious to see what people think. Thanks and have a good weekend! 

Theres 2 parts to this based on some reading i've been doing on Mises (things like this: https://oll.libertyfund.org/page/liberty-matters-lawrence-white-mises-theory-of-money-credit).

                       Part 1 - How does bitcoin become a money when people don’t want to spend it? Sorry if this is a common concern, I don’t see much posted about this. 

According to Mises, individuals value money according to how much they expect it to buy based on the PPM (purchasing power of money) most recently observed. Based on PPM, the person decides how much money to hold (demand). Market quantity demanded is total individual quantities.  

Regarding bitcoin, if someone like me is certain that adoption will grow and PPM will keep rising, why would/should I use bitcoin to transact and engage in the network I am promoting, unless it becomes a default method of payments and transactions (not anytime soon in developed countries I think).
I am in a dilemma where I want to support bitcoin and have it used more around the world, but I only want to buy it and not use it because I will lose out on PP (purchasing power) in the future. 
One question is how do I support the bitcoin system, something I believe in, when I don’t actually want to use it? This seems to be a downside to being an early(ish) adopter. Is it just through trying to educate people?
Of course, others around the world are benefitting from using btc or stablecoins too where fiat money is far more broken.

And when on-chain data shows us more and more bitcoin aren't leaving wallets with so many hodlers, there is less bitcoin on exchanges and this will sky rocket price with adoption growth. 
If this keeps happening and adoption grows, it makes it even harder for the people in the worst spots who can benefit the most to get involved.



                        Part 2 (maybe controversial lol) - FRB (fractional reserve banking) and bitcoin (in a free banking system). 

We know that we need to move away from monetary expansion that holds the Interest rates too low causing cyclical malinvestment. But is it a free banking system we need to move to and does this involve FRB (fractional reserve banking)?
The ideal state for us is for banks to not resemble what they are now and no central bank money printing, but realistically, at least where I'm from, I don’t see people caring enough to learn about bitcoin, or self-custody, or learn anything about money for banks to not exist in some form and take even the smallest complexity out of the system. The indoctrination into the current way of thinking about money is so deep that it's not even thought about or questioned. 

So could a FRB system based on bitcoin be a real thing within a free banking system (free banking described by Mises/Austrian economics)? 
Do people think this would be good or is it a stupid question and not even necessary because bitcoins are so divisible? 
Was part of the point of it being so divisible to eliminate the need for FRB? 
I just don’t see majority of people directly buying bitcoin and self-custodying, I see a lot of people preferring to just have a more simple set-up as they don’t care about actually holding bitcoin, don’t understand it enough etc. 

I didn’t really consider this as an option until reading some of Mises work and further discussions of it like the link at the top. 
Mises describes FRB as being feasible in a free banking system, not directed by uniform policy by something like a central bank. In theory, in an environment where the seller accepts the bitcoin medium of exchange, it doesn’t need to be redeemed or held in self-custody, so a bank only needs a fraction. Of course this introduces trust back into the system, but like I said, I don’t see realistically, a world where bank-like companies don’t exist. However, they will need to have a real foundation and backing being bitcoin (and/or gold). 
Am I going against everything bitcoin should be here if it’s a system backed by bitcoin?

In this system, the bank has the problem of how much reserve to hold but should manage it well from experience says Mises, but I guess this would have to be determined how they would operate without a central decision maker. My understanding is a bank in a free banking system, is not like what we see now. Mises called this in saying that when acting in uniform under central bank policy, it is a recipe for disaster and recessions.

Free banking competition will expand money supply only when there is demand even when interest rate is unchanged and uniform. Meaning that a limit on the expansion of money supply is non-existent when a uniform interest rate policy is followed by all banks (when it is set by a Central Bank). 
Because, otherwise, banks expanding the money supply by offering lower rates will be restrained by then having lower reserves compared to other banks. Instead of moving in unison.

So there is a natural limit in free banking. This stabilises exchange value of money. Money creation lacks natural limits only under central banking. Mises then argues that when free banking is not operating, the second best option is legal limitation on money creation, but I think this can be thrown out the window. 


Developing Gameboy Bitcoin Wallet: My Latest Project is Here!

anipy

@Nic_Sako's bio

thanks! from Lyn Alden's article - https://www.lynalden.com/open-networks/

Learning as much as i can and writing to improve my own understanding and maybe even share knowledge with others. 

Got sucked into bitcoin about a year ago and nearly everyday since, i have been learning more and more. I want to try right some of my own things now. I will start running a node soon too. 

Bitcoin as a piece of software is revolutionary, but it really became special for me when i saw the impact first and second hand that it can have around the world in less developed countries. 