Do you use Bitcoin or Litecoin?

TheTracker

Sorry but I don't get the difference on the "where it is" part. It's almost the same with BTC as GBP. Parties lend, parties borrow, and parties take a cut for bring them together.

I personally do not agree with the antigovernment brigade on The evils of generating money ad hoc. I agree with what you listed as justifiable reasons. But I do agree with them that the "sufficient cash" argument is bunk. The drive for more may deflate the currency, if a currency is what it is, and it won't run out, it'll just be worth more tomorrow than today.

By the way the generation of the coins will eventually end. I think around 2150.

TheTracker

Linton wrote: »

The fact that you have the right to 100BTC is only known to the bank and whilst no cash was withdrawn all the borrower would have is also the right to the same 100BTC. These rights could be traded or used to pay debts just as if they were BTCs. The actual BTCs need never exist.

A crypto currency could work like this, but BTC is not designed to. You actually transfer the 'physical' BTC not a promise against it. There are motions to have a BTC ETF which I guess could grease some of that motion as it does with gold.

I'm interested in crypto currencies in general but highly doubtful they'll ever take off for joe public in my lifetime. I don't believe they are as evil or as wonderful as many say.

masonic

Linton wrote: »

Pounds and dollars are created every day by bank lending. You put your money in a bank. The bank keeps some for reserves but uses the rest to lend out to someone who at least initially puts it back into the bank. The bank can then lend it out again, keeping a bit back for reserves etc etc. Fractional reserve banking.

I don't see any issues with this bit from working using bitcoin as a currency, other than the volatility mentioned already by bowlhead.

If it all stays in the bank then money is removed from the economy, however if it is spent the government may have to print cash to meet the demand.

This is the bit that can't happen, because nobody has the power to control the rate of growth of the money supply. I guess the likely outcome is there would be deflation (fewer bitcoins needed to buy goods and services, more fiat currency needed to buy bitcoins). TheTracker's already mentioned that bitcoin is naturally deflationary. Supply/demand is what is currently inflicting wild exchange fluctuations on the currency. In that sense it could be likened to gold.

So contrary to what the bitcoin fans say, money isnt printed by corrupt governments. It is created by the underlying operation of the economy. Governments role is to roughly balance the creation and removal of the money by changing interest rates to encourage or discourage lending and spending and by changing the % reserve requirements.

This is why I can't believe Governments would give up their fiat currencies. They would lose too much power over the economy. In fact, even a rival currency that acted as a better store of wealth would be a threat to the Government's economic policies.

JohnRo

What's all this nonsense about money creation and government?