| > Actually, you can't. If I am in possession of 1 BTC and I give it to you, I am not in possession of it anymore -- there is nothing that I can do to get it back unless you give it back to me. There is absolutely no way to do fractional reserve lending with BTC because you can't 'lend' someone BTC -- it's either mine or it's yours. period. You may have a good grasp of BTC, but you seem to have misunderstood lending and banking quite badly. Lending doesn't mean two people have the same money. Lending is when the lender takes money that they have, and give it in the borrower in return for a future claim of money from the borrower. The fact that only one person can have a given BTC -- the same is true of, say, gold coins -- doesn't prevent fractional reserve banking with BTC (or gold coins.) > Banks are legally allowed to issue credit up to a specified multiple of their reserves, so, extending your analogy above, imagine an additional eight people behind you requesting to overdraft their account by $100. As a result of your $100 deposit, the bank is now legally authorized to approve each of those requests for a total of $900 in credit that was created out of nowhere. Er, no. Assuming the 9x multiple you seem to be assuming, and assuming that the bank was already at its limit when you made your $100 deposit, the bank would be legally permitted to honor only $90 in overdrafts from your deposit -- not $100, and certainly not $900 -- as they would need to retain the remaining $10 as the additional reserves to cover the $90 lent out for the overdrafts. This does increase a measure of the money supply that includes both actual cash in people's hands and depository accounts, because now you have the $100 on account, and someone else has $90 they've borrowed (which they might deposit in a bank that could then keep $9 and lend out $81, etc.) But it doesn't require the bank to magically create dollars to loan out that didn't exist before (the created money is the account balances that aren't fully covered by reserves.) > You just can't do that with BTC, You can do it with BTC, gold coins, etc., exactly as much as you can do it with dollars. |