Hacker News Reader

Comment by einpoklum | Hacker News Reader

> I'm almost sure Coinbase practices fractional reserve

I'm not a crypto guy, so excuse the naive question: Can coinbase loan out money without actually transferring some sort of single-ownership keys for the amount loaned? If so, then indeed, they should be able to engage in fractional reserve "banking".

> and other forms of market manipulation

Modern money markets are based on fractional reserve banking. That's how most money gets created these days. I'm no fan of the prevailing economic system but it isn't some manipulation which moves you away from some pristine state.

View on HN

The issue isn’t that modern banks all do this. It’s that crypto was supposed to be different, a response to the financial crisis where people were affected that didn’t even gamble on housing, a way to truly own and prove your money is your money.

> Modern money markets are based on fractional reserve banking

Bitcoin was developed to solve this.

> That's how most money gets created these days

Bitcoin is a deflationary asset. It’s not supposed to be “made” because a bank/Coinbase says so, but only via mathematical proof of work.

> I'm no fan of the prevailing economic system but…

Satoshi wasn’t either. That’s why he made Bitcoin. If the argument for Bitcoin becomes “it sucks but we need banks to lie to us for the economy” then there is no core argument for Bitcoin.

> It’s that crypto was supposed to be different

It is different. Nothing is stopping people from moving their crypto from the exchanges, and at least with crypto people have the opportunity to do that. What hasn't changed is human behavior and our affinity for the path of least resistance.

No technology is going to change that.

Bitcoin has no opinion on fractional reserve banking. If entrust your assets to someone else, your contract with them can specify what they do with those assets until you ask for them. If you don’t like that, find someone else to hold your assets who doesn’t ask for those terms, or hold your assets yourself. But then you become responsible for preventing theft and destruction.

> crypto was supposed to be ... a response to the financial crisis where people were affected that didn’t even gamble on housing, a way to truly own and prove your money is your money.

I really don't see how that is the case. In fact, there is no such thing as "truly owning" things. Ownership is a social construct.

> Bitcoin ... is not supposed to be “made” because a bank/Coinbase says so, but only via mathematical proof of work.

Well, so is, say, gold, but once it seems some significant use as money, financial institutions start dealing in debts-of-gold, or debts-of-X, which _are_ supposed to be made because a bank/Coinbase says so.

> Satoshi wasn’t either. That’s why he made Bitcoin.

I dunno, it seems like he started Bitcoin to get filthy rich off of a pyramid scheme, which he has. Wikipedia estimates "his" worth at 73 Billion USD in BitCoin. Although.... it's BitCoin, so maybe it's not really worth that much.

Money is not created through fractional reserve banking. Money is loaned into existence by commercial banks. Similarly Coinbase can sell you coins which don't exist. Like a bank it doesn't have to make good on this IOU until you withdraw your funds.

Which with the volatility of Bitcoin puts them in a situation where they can underprice an asset if they loan it out. Bitcoin loaning is rather rare because of this.

It is fractional reserve banking which allows banks to loan money into existence, as long as their reserve is at least a certain fraction of their total loans. The alternative is full reserve banking, where banks aren't allowed to do that - or no-reserve banking I suppose...

Reply on news.ycombinator.com