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Comment by danmaz74 | Hacker News Reader

AFAIK, fractional reserve is the bete noir for many believers in bitcoin.

> AFAIK, fractional reserve is the bete noir for many believers in bitcoin.

Then they're hosed, because as soon as somebody somewhere makes a loan using bitcoin, then bitcoin becomes a fractional reserve currency.

Edit: It seems that some cryptocurrency folks have confused "fractional reserve" with "fiat". Those are two very different monetary concepts.

And it's worth remembering that banks aren't the only institutions that make loans. There are a lot of businesses that extend credit (post-paid services, invoicing with net 60 terms, etc), which has the same exact macroeconomic effect.

>as soon as somebody somewhere makes a loan using bitcoin, then bitcoin becomes a fractional reserve currency.

No, there is the other option called full reserve banking.

i don't get how you can loan bitcoins in any other way other than full reserve - unless you somehow put trust into the bank (which you have to for fiat money, but for bitcoins, you can verify and so don't have to trust credit/notes offered by the lender).

Because somebody will get the idea to offer of interest on bitcoins in exchange for lending their coins. And somebody will take that bet.

It's not like cryptocurrencies can change human nature.

interest bearing loan has nothing to do with the "reserve" you need.

if i borrowed 1 bitcoin from you, and then i default, then how are you going to pay back that bitcoin to whoever deposited it?

From the profits earned off of other borrowers. Like banks do.

Same way you don't get back the exact serial-numbered dollars you loan (deposit) to a bank. It's not the _identity_ of the bitcoin which matters, it's the value.

If you want a lockbox, get a lockbox. If you want a deposit account, you're storing and retrieving fully fungible and interchangeable entities.

Probably only the sort of fractional-reserve banking in which the banker lends out for a year or 30 deposits accepted under the promise to return them upon demand. That's the sort that can have bank runs. If depositors agree that their money is locked up for a while, no problem.

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