- cross-posted to:
- tech@lemmy.161.social
- cross-posted to:
- tech@lemmy.161.social
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as long as the “exchange” holds your keys for you, there is no obligation for them to maintain assets equal to the deposits.
What does this mean?
If you deposit BTC to a centralised exchange they display your balance but they don’t necessarily have to keep that BTC. They may have users that have a total balance of 1 million BTC but only hold 500 K BTC in their wallets due to hacks or other bad decisions they have made. If you had the BTC in your wallet with your own keys the balance will show what you have with no risk of deceit.
If they lend someone money, that needs to be in the form of real valid coins. They can’t create coins out of thin air, except by mining. The coins they lend must come from somewhere, from mining or deposits.
So they can’t lend out more money than they have as deposits.
Where do the coins come from then?
Nobody said they are creating coins. Just that they may be displaying balances that they may not have anymore.
Oh I understand. Thanks.
So bitcoin banks can loan out your money. What they cannot do (i think) is create new money the way normal banks do. If I lend the bank $100, the bank can turn that into $150 credit + $50 debt. Then it can loan out $120 dollars. I think that’s impossible with bitcoin, which is an important and good feature of the currency. But I thought the article was saying bitcoin banks can do that.
So they can’t create new BTC but they can loan it out and display to you that you have BTC balance when they don’t actually have it in their possession, just like banks. BTC in a centralised exchange on in a bitcoin bank is not real BTC. It does not have the same properties as BTC.
Fractional Reserve Banking is the most common form of banking. It is wasteful for a bank to do nothing with all the money that is deposited, so instead they will only hold a fraction ~(10-25% iirc) of the total value of all deposits in reserve ready to be withdrawn at a moment’s notice. Banks invest the majority of the money that is deposited.
This is normally a productive and stable practice, but can cause the bank to collapse if there is a run on the bank and the bank’s customers want to withdraw more than the reserve fraction in a short time. To solve this problem, central banks hold gigantic reserves of cash to rapidly lend to the smaller banks so they can survive a run. Governments also insure people’s savings accounts to undermine any incentive to run on banks in the first place.
Coinbase is just like any other bank, they do not hold “assets equal to deposits” they hold a fractional-reserve, and use most of the money deposited with them to make investments. Coinbase, however, is not federally insured (for crypto holdings), and there is no central bank reserve for crypto currencies, so if there were a run on Coinbase it could collapse.
This article makes a lot of good points but Bitcoin still has the confidence of the market at the moment.
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The thing is the prices in cryptocurrency are based upon speculation and not really about utility or actual technology understanding, so Bitcoin could remain the leader for longer than 2 or 3 years.
I can just say a little :
- electricity this is already debunked if you’re saying btc is electrically demanding - the same goes with facebook.com . And that’s not the end of it, free market rules, if it’s cost more to mine one bitcoin then people will just not do that.
- Also what scalability have to do with centralization I can’t square that circle. If you follow max keiser : he always say something about ‘hash-war’ maybe you can research more about that.
- Finally at least BTC is the first coin ever invented, it will never go easily. This is not sh*tcoin we talk to.
It definitely is electrically demanding. You must never have mined Bitcoin.
It’s true but you should know your capability yourself, as of now I’m watching the trend it’s the government power or at least business size enterprise can sustain this kind of operation.
that’s the point : if you don’t know bitcoin and how hash computing works, you’ll use your domestic hardware and complain about that.
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maybe we have a different way to approach the problem, I’m more to economic implications and factoring it to how corrupt the banking system are, electricity that scale are just tiny expenditure an * just let free market decide in the end.* If there’s a better replacement that might be YES in the future, but for now it’s more important than ever for it to exist.
The question is when. Bitcoin is currently just a game of ride the momentum and try to get out at the right time. It’s calculated gambling. it’s true for the miner
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that’s true this is why there’s hashwar in the horizon, and if oilrich country smart enough they’ll make use of this ‘peak oil’ for their benefit.
but I might not disagree if you say bitcoin is like a bubble if there’s another competing technology can easily threaten it.
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yes, the limit of the bitcoin is came from that. If you remove hashrate and electricity from the key issue, bitcoin will not again limited in quantity it was never the problem, it’s the feature. And no one forced anybody to mine for BTC.
for scalability, I know your concern. but that doesn’t mean you own btc farm = own world’s bitcoin. again, my approach is from economical standpoint : it’s not centralized. As for 51% attack, that **theoretically can happen ** but it’s hard to fulfill many condition needed.
or do I miss something?
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