How Cryptocurrencies Like Bitcoin Could Upend Central Banking

http://www.americanbanker.com/bankthink/how-cryptocurrencies-could-upend-banks-monetary-role-1057597-1.html

I recently had a fascinating chat with the economist Peter Šurda to discuss how nonpolitical cryptocurrencies like bitcoin could alter the future of fractional reserve banking.

The debate between the full reserve bankers and the fractional reserve bankers is an old one and it has been explored in depth by the Austrian school of economics. More recently, the debate has been broadened to include the dynamics of introducing the bitcoin cryptocurrency, which is the functional equivalent of digital gold, since its supply is predictable and fixed.

26 comments on “How Cryptocurrencies Like Bitcoin Could Upend Central Banking
  1. Jahilea says:

    The more bitcoin cheerleaders point out what a great threat it is to the corrupt currency systems, the more they call down the violence of the police state. Not sure why you guys want to taunt your enemies.

    Also, bit coin fails the durability test. Bury any device or disk for 100 years with bitcoins on it. It will be broken and useless much like faded paper. Hard drives, dvds, cds, USB drives and other forms of digital media don’t last very long. I spend a fortune migrating my digital hording every 3 years to prevent any loss.

    How is bitcoin any different from any other local currency? The vast mass of humanity is not and will not be online, so it feels like another elitist solution for lazy keyboard jockeys.

  2. shabnam says:

    As I recall, Facebook started in much the same way as Bitcoin. Now I hear that its a CIA tool to collect personal info about every user…..

    When the end game of the NWO is to have ONE Central banking / money control system, then Bitcoin could well be their perfect way to do it.

    After Bitcoin controllers eventually cream off the profits, much like Wall St does with the stock market & then let its select investors ( the Sheeple ) down, as I`m certain that one day they will, then perhaps the ex financially flush of this world will see the age old wisdom of keeping things & money more tangible & local.

  3. TheGreek says:

    SOS Y’all! BANK RUN IN CYPRUS!!!

    http://www.cyprus-mail.com/category/tags/troika

    Saver’s are screwed once again! Is Cyprus just a test run for the rest of the EU?

  4. flicks says:

    Will silver go to 400 – absolutely, when – who knows, why – it has important use to humanity. Bitcoin has no use other than as hurd mentality pump an dump. How long do you think it will be before the charges for use go up ? how long will the storage devices last – think floppy disc, Jahilea – already some of my DVDs with raw files from 2004 in perfect condition are corrupted and not readable. If it can be obtained by all then a banksters can manipulate it; anything online can be manipulated – the plug pulled. And hope you don’t get a serious electromagnetic storm or near a strong electromagnet – it will wipe the memory.

  5. StackEm'High says:

    @ Jahilea@shabnam@flicks – I agree with your statements. Buying into the bitcoin bubble only really makes sense if you are wealthy and want to make a political statement. Some people without savings may be attracted to bitcoin as a get rich fast scheme and these people may end up terribly disappointed.

    It’s hard enough convincing people that gold and silver are money. At least these PM’s will protect your purchasing power and will be around for your grandchildren’s children’s children. The majority of people I know are even skeptical about online banking, yet alone converting all savings into another form of digital currency that can’t be traded for much except illicit drugs (Silk Road).
    So we here talk about returning to a currency backed by gold. Then what about a bitcoin standard? That Idea almost sounds as ridiculous as a trillion dollard coin. Creating wealth out of thin air.

  6. MirrorMirror says:

    .

    Stop Being A Momentum Monkey
    http://www.youtube.com/watch?v=6vFGSksgwec

    5 mins.

    .

  7. blindman says:

    there is no limit to the potential supply of “bit coins”, all statements
    to the contrary are false statements. think about it.
    just as there is no limitation on the number of potential artists, numbers
    or bacteria in the universe. at any moment there may be an estimate
    but the estimate must change in time. one might imagine the bit coin
    model being successful for a time, at that point it will be copied or mimicked
    many times and the limitation of the number of units will become unlimited
    or there will be a political solution which will destroy one of it’s charms.
    .
    “..JON MATONIS: Does a demand for positive return on bitcoin balances lead to an environment of competitive bank lending with risk-adjusted interest rates? And will this lead to an environment of fractional reserve banking with depositors offered higher interest rates in exchange for the additional risk premium of running a fractional portfolio?

    PETER ŠURDA: Yes, I would say it does, but until there are industry niches that primarily use bitcoin, it is probably not much different from gambling.”
    .
    rather than borrow coin parallel coins will come about by industrious entrepreneurs
    instantly doubling the money supply and decreasing the value of coin by half
    and it will happen thousands of times until there is a political solution.
    that is my guess.
    .
    there are no short cuts to this problem, the universe wants a straight up
    answer this time , “on this day” !
    Peter Tosh – Downpressor Man ( Live ) ( High Quality )
    http://www.youtube.com/watch?v=KBa4DvSkjJs

  8. blindman says:

    and as an addition to the above comment @b….,
    that is the point where the monkey, chimp rips off
    your face and eats your hands. apologies for the violating
    and violent imagery.

  9. His Advocate says:

    So are all you Bitcoin haters aged silver hoarders with too much time on your hands or something?

    @”It’s hard enough convincing people that gold and silver are money.”

    The only sensible thing said in all the FUD.

  10. El_Puerco says:

    BitCoin Ponzi Scheme?!…Hey!….Someone care to comment?!…

    http://www.youtube.com/watch?v=0UKC7iaBKvs

    :)

  11. Bill says:

    I am not convinced that bitcoin could not be squished if it started taking off. I don’t think TPTB would let this work, even if they had to alter the Internet. Hey they are throwing Baron vonNutthouse in the big house for less.

  12. mijj says:

    @blindman > there is no limit to the potential supply of “bit coins”, all statements
    to the contrary are false statements.

    ha! ..

    There *is* a limit on the supply of Bitcoins. It’s part of the definition of what is Bitcoin. Bitcoins are mined and tested according to the definition. Changing the definition to accept other criteria results in something that isn’t Bitcoin and won’t be accepted into the Bitcoin structure.

    It’s like saying, “i don’t like that gold is limited and difficult to find. So, i’m going to change what i say is gold so i can have more of it.” But this only works on people who accept as gold anything with “gold” written on it. The test for Bitcoin is integrated into the Bitcoin structure, there is no faith involved.

    Bitcoin is gnostic, not fiat (ie. based on knowledge, not faith). The patron saint of Bitcoin is St Thomas, who wouldn’t accept anyone who calls himself “jesus” merely on their say-so .. and submitted the pretenders to a proper test.

  13. Jayme says:

    “Bitcoin is gnostic”

    not really. the whole point of ‘privacy’ and ‘anonymity’ advertised by digital currency enthusiasts is agnostic. bitcoin hoarding is still a problem. it is also a deflationary currency which means the rich get richer and the poor get relatively poorer.

    if anything, bitcoin is agnostic.

  14. aleksy says:

    “The debate between the full reserve bankers ”

    Who/where in the world are there any full reserve bankers? That is saying there are honest bankers! If so, where? When has banking ever been honest?

  15. blindman says:

    @mijj..”ha!” ..
    bitcoin^ tm does not own the interwebs, there will be mimics and
    parallels, competitors etc. spun up, bytecoin^tm, bitemecoin^tm, bitbucks^tm,
    barfcoin^tm, gymcoin^tm etc….
    and futures markets on them to determine their relative price. this will
    dilute the bitcoin “experience” of asset appreciation.
    in as much as bitcoin is not a fiat currency it is virtual. why is there a limit
    of 21 million “coins” or blocks? is it the verification difficulty? what does that
    mean or imply for the future of the relationship between the technology and
    the human user? will there then be bitcoinII and what will that do to the
    price of the “coins”?
    st. Thomas, did he find anyone to pass the assay? any 24 carat people out there
    to satisfy his internal standard, humans that lived up to his ideal? I would have
    to research that but I hope he did find at least, in his own heart, one who he
    could trust, one that had a perspective on life, not just the frauds in life but all
    of it.
    “.. The test for Bitcoin is integrated into the Bitcoin structure, there is no faith involved.”
    the problem is not necessarily faith or lack of faith but price discovery over time.
    internally bitcoin may be solid gold but it exists in a bigger world than it’s own
    internal structure. when that internal structure is pressed by the real world it may change.
    frankly, at this time with limited uptake on all this, I see it as a symmetric weapon
    being deployed against the fiat fraud money system but I fear the ones who will
    be destroyed in the battle will not be the intended victims, if this was even the
    original intent? might it be an effective weapon there, is it a weapon, is it more
    on the same con gone rogue, will many people be fleeced? I don’t know.
    there must be a limit to the number of times the public can be fleeced of
    their earned money before their brains melt down.
    .
    let me ask you again why is there a limit of 21 million bitcoins? and ….
    says who? by what authority, did jesus say that? or moses…”thou shalt make
    21 million bicoins!” oh yea, that was god. you see, there will be more once
    the cat has escaped the bag, how many more? it is matrix money and resonates
    with matrix people. that is fine and great and all till someone has their face
    and hands ripped off by the pet chimp in the garage. there is always
    a pet chimp in the garage waiting when it comes to money.
    .
    there is an actual limit to gold and silver and that is why they are precious,
    that and their intrinsic qualities in this ‘universe’ as it relates to this species
    (or vice a versa), this is the real method and reasoning of their
    value or proper price. virtual coin, by decree only, can be limited in supply
    but human decree is political, not real and not even technical in this case,
    and can be overturned in the blink of an eye.
    as has been said, and I paraphrase ” gold is the only standard we know”.
    it is in the languages and means many things “the gold standard”.
    even in the bitcoin space I have heard the term “digital gold” .
    well, we need to build up to that, start with digital hydrogen, helium, lithium etc ..
    .
    bitcoin is virtual and man made, gold is not. think about it.
    strange times. you talk about accepting as gold that which has
    written on it g.o.l.d., that is bitcoin! it is fiat currency without even
    the fiat ! that is the beauty of it ! it is really nothing but a packet of
    ” electronic trust” exchanged between strangers calling themselves
    peers ! fantastic ! so it is man made, unregulated, virtual,
    and there is a futures market to trade “it” on but ….
    there is a limit of 21 million. here is where I say again, and my ass is a banjo !
    there will be moar, by demand, if it is not stomped on by the primary
    purveyors of fraud and fiat money, or coopted and manipulated by them
    and other, muddying the waters while the original problem of financial
    fraud is never addressed. maybe that is the point, it cannot be stopped?
    best to you and all.

  16. confused says:

    When the lights go out and you don’t have access to your ‘bitcoin thingy’ Id rather have Silver or Gold coins, Just call me old fashioned :)

  17. mijj says:

    mijj > “Bitcoin is gnostic”

    @Jayme > not really. the whole point of ‘privacy’ and ‘anonymity’ advertised by digital currency enthusiasts is agnostic.

    You misinterpret what i mean. (Understandable .. i’m pretty clumsy)

    I’m using “gnostic” as the opposite to “faith” (the basis of fiat). Gnostic means to “know” in the sense of to “experience” directly and personally – as opposed to “faith” which means to have an abstract “belief” in something.

    Eg. one does not “have faith” in the existence of ones arms and legs .. that’s direct personal experience .. ie. gnostic.

    Eg. to physically hold and directly experience physical gold is gnostic, to believe in a promise of gold is to have faith in the authority and integrity of the promiser.

    The faithful are shaped by what they believe is a higher authority.

    The gnostic are shaped by direct personal experience.

    Physical gold and Bitcoin are gnostic because they are pieces of objective reality. Physical gold and Bitcoin are objectively tested to be valid and are not simply declared to be valid by an figure of authority.

    /confused blather .. i hope this makes some sense. I’m really making a point that fiat money is essentially a religious creation by economic religious leaders. Physical gold and Bitcoin are formed from nature.

  18. blindman says:

    Waiting to Die
    http://verbewarp.blogspot.com/
    .
    Re-post, Interesting, perhaps timely?
    March 15, 2013
    http://aadivaahan.wordpress.com/2013/03/15/re-post-interesting-perhaps-timely/#comment-6153
    .
    modern day Gnostics.
    .
    fiat (n)
    “authoritative sanction,” 1630s, from Latin fiat “let it be done” (also used in the opening of Medieval Latin proclamations and commands), third person singular present subjunctive of fieri, used as passive of facere “to make, do” (see factitious). Also sometimes a reference to fiat lux “let there be light” in the Book of Genesis.
    .
    fiat is not by faith but by force of law with the threat of violence or retaliation, law,
    potentially resulting in denial of privilege or penalty when found in violation.
    some have faith in that but there is a distinction with a big difference.
    .
    the authoritative limit on the supply of gold is one thing, (it doesn’t grow on
    trees), the authoritative limit on the supply of bitcoin is what? a promise made
    by who? our/your peers? is there a technical limit? no. is there a restriction,
    an authoritative restriction on the production of same like and kind under a
    different name? no. there is merely a statement, a suggestion or innuendo ,
    an out your back door and in u window, no fact, contract or guarantee concerning
    limit of supply of like and kind. the statement that the supply is limited to
    21 million is, at best, misleading and is deceptive while potentially being accurate
    to the letter of the statement. the assertion that there is a limit of 21 million is
    also a dubious “authoritative sanction” -fiat, but it is made not from a position
    of authority. it is made concerning the structure of the internal restriction on one
    particular type/unit of exchange, virtual, among an unknown and as yet unannounced
    number of other ones. (has that already been priced in? no.). the more I think about it the more it makes me sick for many reasons and on freakin’ multiple levels.
    is it that this generation is just so saturated in derivative bullshit that we
    can’t collectively think anymore? or am I missing the brilliance of a truly
    valuable piece of the tool kit in the war against terroristic bankers? is
    someone thinking this is not a weapon of mass confusion but a samurai sword
    of justice? is justice to be had through a wild ride of frenzied and furious mass fleecing?
    am I communicating my concern regarding the price discovery problem
    adequately?
    this is the type a sword that has a double edge and can cut in either direction.
    or perhaps it is like jumping from the frying pan into the fire while there is a
    perfectly cool spring available?
    not my problem right now and I keep hearing in my ear “don’t go borrowing
    troubles.”
    no one minds when stolen money is stolen back? or some one minds but
    not the general public observers, that is one thing, but to steal money from
    “innocent” (unknowing) people in retribution for having been robbed is
    something else; like robin hood on acid, tarantino could make that happen.
    but that could be where this is headed. jeeze, already there in Cyprus and …..
    bitcoin is late to the party?

  19. Jayme says:

    @mijj

    Most people will use gnosis as you have and will understand it the way you meant. I believe I understand what you meant. Incidently, trust is another word for faith. Bitcoin requires that you trust an organization on the other end of the internet whom you’ve never met and with whom a person may have no physical knowledge. Faith allows us to take that first step into the unknown with wonder, so enjoy Bitcoin: it may lead to a wonderful new way of finance.

    “Words are at best an honest lie.” Gnosis is direct personal knowledge of the ‘spiritual mysteries’ (whatever they are). Using gnosis as a substitute for knowledge of the physical world through direct sensory experience is, in fact, agnosticism. :-)

  20. Peter Šurda says:

    Hello,

    I’m the guy from the interview. I appreciate all your comments. Many of the issues that have been brought up (e.g. money supply, durability of Bitcoin, competitive threat from newcomers, etc) I deal with either in my master’s thesis or in blog posts on my blog. Feel free to read it.

  21. blindman says:

    p,
    thanks for the link and discussion.
    question, how can one ignore the price of bitcoin and
    simultaneously use it as a medium of exchange? this
    seems to be a Jedi trick and I am a mere mortal. I don’t
    want to be the guy who bought a t-shirt for $278.
    do you have any concerns with the futures market of bitcoin?
    price discovery and price establishment is central to money and
    medium of exchange, central. I can’t ignore that as the money does
    not grow on trees and once you manage to get some its employment
    requires considerable analysis.
    .
    https://icbit.se/node/1
    ” Also, ICBIT is not a place for money laundering, so we are not going to enforce any AML measures like ID verification requirement.”

  22. blindman says:

    I have not seen a discussion on this question?
    who owns “bitcoin”, is the legal guardian , rightful owner, of
    the name with rights to its use, etc ..
    not the partitioned coins but the entire block
    chain conglomerate? is that a relevant question?
    could it become a legitimate and relevant question
    with profound implications?

  23. Peter Šurda says:

    Thanks for interesting questions blindman.

    If you want to use Bitcoin as a medium of exchange but not exposed to the exchange risk, there are two straightforward options. The first one is to perform the transaction quickly so that you don’t hold them long (and companies like BitInstant on one hand and BitPay on the other can help you if you have a problem with DIY). The other option is to hedge your positions, that way you can significantly decrease the risk of loss due to exchange rate fluctuations, and there won’t be a direct link between your trades and exchanges either.

    Futures markets, there are some, but last time I checked they were rather immature, plus there is a high regulatory risk, so we might have to wait until decentralised derivative markets are created.

    I think the price will fluctuate until much higher levels of liquidity are reached, and the unit of account functionality won’t make much sense until then either.

    I don’t know if Bitcoin is a trademark. I remember there was a troll who wanted to register it, but I think he failed. Bitcoin is technically just a protocol, so the name doesn’t really matter. The blockchain could be, hypothetically, covered by copyright, but there isn’t any clear author or creator of a copy (it’s distributed), so it probably has little practical meaning. There are multiple open source implementations of the software itself, so that’s not an issue either.

  24. blindman says:

    thank you for the response peter. this I found curious.
    https://bitcointalk.org/index.php?topic=75972.0
    Topic: Who now owns Bitcoin.com ? (Read 1157 times)

  25. blindman says:

    peter,
    if you have not seen this thread here the link.
    Max Keiser – HuffingtonPost: ‘Is Bitcoin Money’
    http://maxkeiser.com/2013/03/14/64051/comment-page-1/#comment-625725
    .
    last comment too.

  26. Peter Šurda says:

    Thanks blindman,

    I continuously research Bitcoin so I’m aware of the links you posted (not your last comment yet though).

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