Bitcoin Wiki - User contributions [en]

User talk:Sgornick

2013-04-25T09:40:37Z

Brenzi:

__TOC__

==06:22, 4 August 2011 (GMT)==
Trade‎; 05:20 . . (-71) . . Sgornick (Talk | contribs)‎ (→Getting started: Remove BTCBase, this is wiki is generally for english-only sites. There are separate wikis for other languages.)
Yet Bitomat is not available in English... what's the difference here? --[[User:Luke-jr|Luke-jr]] 06:22, 4 August 2011 (GMT)

Good point, Luke-jr. Unfortunately, they don't belong on the trade page for another reason -- they are info only, they have no trade. Otherwise I would add them back in somewhere.

==13:13, 10 August 2011 (GMT)==
Mr. Sgornick I thought this was a good idea. I don't understand how it hurts the community?!(I don't see the reasons in deleting them.) I made my contributions (Introduced 4-5 bitcoin-related sites and wrote some descriptions). The users don't have anything to loose and the BTC I make out of this I intend to spend on bitcoindeals.com (after I get an invitation). Isn't there a way I can leave those links there? We have the same rights on this wiki so I hope we can disscus this with respect and consideration.
--[[User:Vladgiurgiubv|Vladgiurgiubv]] 13:13, 10 August 2011 (GMT)

Vladgiurgiubv, It was an unwritten but generally accepted rule that no affiliate / referral links should be included in the wiki for a number of reasons. The [[BitcoinWiki:Rules|policy]] does now exist though.

==22:58, 11 August 2011‎ (GMT)==

Dear sgornick, I realize you recently removed my links to iscyspace on the mining guide, how bit coin works and irc claiming they were none existent, this is not the case, I'll agree to the irc one because well . . . my irc is pretty much empty >_< however my site most certainly does exist and in fact the guide is blatantly on the open page, as a sign of good will I have removed the linkbucks links and replaced them with direct links instead as i pay for my site through advertisements, although even I admit the linkbucks thing took it a bit to far, I've sent you an email explaining the situation and offering some further comments and I hope to hear back from you soon.

It is blatant spam/advertising. Using a binary distribution site for open source software is uncool, and clearly shows you to be unqualified to contribute further on this wiki, in my opinion. I've referred this to the admins. - [[User:Sgornick|Sgornick]] 23:30, 11 August 2011 (GMT)

It's not a binary distribution site first of all, it offers links to the official download pages for each piece of software man, its simlpy a guide to help people set up miners and solve any common problems, the only advertisements on the site is a top banner and a side box of which both are tiny and non distracting, there are no pop ups and no spam, we don't take emails from people so we cant spam them through that, I just don't understand how you see the site as spam advertisements, have you even looked at it =/ Seriously look, its just a set up guide and in fact has less advertisements on it than most other websites, I don't understand the rationality behind your argument, can you at least check my site and show me what spam advertisements you are referring to so i can fix this problem, because believe it or not the site does matter to me, as does its popularity with the bit coin community and the simple removal of my links yesterday literally vaporized my hit rate to practically non existent, you know the bit coin community lacks simple set up guides and that's all I offer, a guide, with links to what they need, nothing more, no spam advertisements like you claim. And finally as a testament to such, tell me EXACTLY what part of the site your unhappy with, and ill try my hardest to change it, im just proud of my little site and i don't want it being damaged, it makes no money and i'll show you, admins, and anyone else the ad sense logs to prove that.

== placement of only ==

Hi. I just edited the Network article to correct some sentences with the word "only" in the wrong part of the sentence, and noticed that one was a recent edit of yours, so thought I'd let you know. I realise that the word is often misplaced in sentences even by native English speakers, possibly even the majority, but as this is a technical document, and technically it does change the meaning by having it in the wrong place, I felt it better to correct these. --[[User:Rebroad|Rebroad]] 21:40, 23 February 2012 (GMT)

== "affiliate" link of dtsleech.com link ==

This isn't an affiliate link, it is a tracking link to measure the amount of users who click from this site to dtsleech.com and the amount of sale/conversions there are link specific. It is not a link associated with any user account at dtsleech.com or in any way an affiliate link. It is purely for market research, would appreciate if it was not removed.

== Tonal ==

May I ask why you take LukeJR's side in the edit war on Tonal Bitcoin? If you are the Stephen Gornick from the forum I would really appreciate your reasoning why the wiki should keep Tonal* around.
--[[User:Giszmo|Giszmo]] ([[User talk:Giszmo|talk]]) 00:59, 28 December 2012 (GMT)

Thanks Giszmo for inquiring. My beef is that waging an edit war causes me more work. I peruse the [[Special:RecentChanges|Recent changes]] to know what content has changed so that I can help remove spam, or learn what has changed. If daily I come across an edit and revert of a page, day after day, that is upsetting to me. The article isn't hurting anything. My opinion then is to just leave it be. And if there's an edit war I will attempt to show it is futile (unwinnable) because I will add my firepower (i.e., I can click "undo" too) on the "let it exist" side.
- [[User:Sgornick|Sgornick]] ([[User talk:Sgornick|talk]]) 20:33, 28 December 2012 (GMT)

I understand your motive but can't agree with your action. If you have more power than others then you should use it with care and not randomly just stop an edit war. Edit wars are hard work, too ;)
You claim there is no harm done but you [https://en.bitcoin.it/w/index.php?title=Talk%3ATonal_Bitcoin&diff=34092&oldid=34043 don't allow a discussion about exactly that to take place]. I'm really disappointed. What next? Delete my account for annoying you here cause you need more time to keep up the good work?
If the majority of editors understand and support a consensus, you have less work, as not only others do what you would have to do else, but yet others feel worse about doing what you have to revert later. As it stands I have no bad feelings to bring back the Tonal:Talk but if there is a good reason not to discuss this particular article and I find this good reason somewhere, I will refrain from doing so.
--[[User:Giszmo|Giszmo]] ([[User talk:Giszmo|talk]]) 20:29, 8 January 2013 (GMT)

As the [[Talk:Tonal Bitcoin]] page says, discussion is fine, just not trolling (which is useless and only clutters up the page so legitimate discussion is harder). --[[User:Luke-jr|Luke-jr]] ([[User talk:Luke-jr|talk]]) 13:36, 11 January 2013 (GMT)

==Bitcoin Energy consumption==
I do not agree with your latest modification on [[myths]] about energy consumption. Let's talk on [[talk:myths]] 09:40, 25 April 2013 (GMT)

Talk:Myths

2013-04-25T09:35:11Z

Brenzi: /* Bitcoin mining is a waste of energy and harmful for ecology */

= Terrorism =
From the linked Wikipedia page:
:The USA PATRIOT Act defines terrorism activities as "activities that (A) involve acts dangerous to human life that are a violation of the criminal laws of the U.S. or of any state, that (B) appear to be intended (i) to intimidate or coerce a civilian population, (ii) to influence the policy of a government by intimidation or coercion, or (iii) to affect the conduct of a government by mass destruction, assassination, or kidnapping, and (C) occur primarily within the territorial jurisdiction of the U.S."

This definition is broad enough that it could probably be applied to the Bitcoin system. IANAL but I imagine lawyers could pretty easily demonstrate that Bitcoin is 'dangerous to human life' because the Four Horsemen can use it for evil [drug-dealers, money-launderers, terrorists, and pedophiles.] It can 'influence the policy of a government by coercion' by removing options such as Federal Reserve dollars. (C) might be tricky to prove.
[[User:PLATO|PLATO]] 22:34, 23 March 2011 (GMT)

: besides the one attorney general that made a snide remark about terrorism in the LibertyDollar case, i don't think that this is in any way a 'common misconception', so i'd question whether we need to have the 'terrorism' section at all.--[[User:Nanotube|Nanotube]] 04:02, 24 March 2011 (GMT)

I agree. All yes for removing terrorist stuff? [[User:EvanR|EvanR]] 00:10, 30 March 2011 (GMT)

= Fractional Reserve Banking =

I'd like to suggest a change here (translation: I fundamentally disagree with the tenor of the article). Credit Unions/Building Societies could quite easily be created, and this would increase the apparent amount of BTCs in existance, but it probably wouldn't exceed twice the original number.

However, a bank functions differently: it creates a distinction between "hard money" (bank notes+coins) and "credit money" (money in bank accounts). So, in a bank I may deposit some real money (notes) but the bank effectively may lend some of that money to others AND I may also spend that money "in" my account by transferring it via a cheque or e-transfer to another person's account. (Building socities don't allow you to do that.)

Now if I were to make a _BTC_ deposit into a "bank", then I wouldn't be able to spend the money in my "account" using conventional BTC trading (confirmations etc). No, what the bank would have to do is to set up a "virtual BTC" (vBTC) trading system, whereby they would manage accounts and transactions, and banks would owe each other v-BTCs depending on how their clients were deciding to spend/borrow their money. Banks could issue huge (virtually infinitie) amounts of v-BTCs depending on how risky they felt that morning.

But then we'd be back to the present situation with fiat currencies, banks, treasury bills, etc etc. I guess it could be a new kind of "gold standard" - a "BTC standard". But the banks would still rule the world, and I thought we sought a way out of that....

...maybe the ability of the user to transact BTC independently of any "fractional reserve banks" would keep a check on their potentially enormous power. But then if the number of v-BTCs was much more than real BTCs (as seems very likely if FRB took off - currently then ratio of v-GBPs to real GBPs is 20:1) then BTCs might end up so scarce in comparison that user trading in BTCs would no longer take place: it would all be in v-BTCs. All this make me think actually v-BTCs wouldn't work in the conventional way, and therefore that fraction reserve banking might not generate any more than 21m v-BTCs. I'd welcome help here.

So my simple answer to the "Myth" question would be "FRB is possible, but "virtual BTCs" would be created, not real BTCs. [[User:Lawrence18uk|Lawrence18uk]] 19:47, 8 September 2011 (GMT)

No no.. No v-BTCs are necessary for Fractional Reserve Banking at all. You can read how Fractional Reserve Banking works on [http://en.wikipedia.org/wiki/Fractional_reserve_banking#How_it_works Wikipedia]. Pay special attention to the "Example of deposit multiplication" section.

--[[User:Atheros|Atheros]] 03:02, 11 November 2011 (GMT)

= Fractional reserve banking with Bitcoin is fundamentally different =

'''--------PeterSurda said the following-------'''

My edit was removed only because someone disagrees with it, although they did not provide counterarguments. I did not claim that FRB is impossible, I claimed it is unlikely, due to lack of demand for Bitcoin substitutes. Without substitutes, FRB is impossible. '''Supply of Bitcoins cannot be increased beyond 21 million.''' The only thing that can be increased is the amount of Bitcoin substitutes, which are incompatible with Bitcoins. Demand for lending does not increase demand for Bitcoin substitutes. The argument presented by the author of the current text on the wiki is erroneous. It is impossible for a bank to accept a Bitcoin demand deposit and lend it simultaneously. It requires a creation of a Bitcoin-subsitute, for which there is no demand, because Bitcoins can exist in forms that other money, such as gold or fiat, require substitutes. [[User:PeterSurda|PeterSurda]] 09:28, 7 November 2011 (GMT)

I rewrote FRB, hopefully it is more understandable now. I found the explanation of Atheros in my talk page so I was able to address it. [[User:PeterSurda|PeterSurda]] 23:44, 7 November 2011 (GMT)

'''--------Atheros Response-------'''

I (Atheros) have responded on your talk page and I will respond here as well.

You are confused because you are confusing money supply with currency supply. Indeed, you are only using the word "supply". The currency supply is limited to 21 million bitcoins. The money supply is not. MtGox could tomorrow start lending out the hundreds of thousands of bitcoins they have in cold storage without adjusting the amount of bitcoins presented to users as available for withdrawal. They would maintain a reserve for the people who do withdraw bitcoins. We would then instantly have Fractional Reserve Banking. You need to give up this idea of substitutes that you keep using. Substitutes which are fundamentally different from Bitcoins are not necessary for fractional reserve banking. You've said several times on several talk pages that "Without substitutes, FRB is impossible" but need to explain what you mean by substitutes in the first place. The Wikipedia article on FRB, despite being very detailed, does not talk about substitutes.

You said on my talk page that "With fiat dollars, the base money are the reserves the commercial banks have with the central bank"

Why must the reserves be held at a central bank? I see no reason that this is necessary.

You said: "Only the central bank can create the reserves. "

What does this mean? If a commercial bank holds money in an account from which they do not lend out any money, then that money is held in reserve. No central bank is needed.

You said: "With gold, banks take in gold bullion or coins, and provide either bank notes, account balances or cheques as substitutes. The banks in case of gold money cannot create more gold any more than in case of fiat money commercial banks cannot create more reserves."

Ok, suppose they did not provide cheques or bank notes. Suppose that they only provided an account balance. I suppose you could call this account balance a substitute, but I've never heard it called such a thing. No one calls their bank account balance their "substitute dollars". For all intents and purposes, they consider their balance to be as good as dollars- indeed they can ''demand'' dollars at any time which is why the deposits made with the bank are called demand deposits.

In response to the rest of your post on my talk page, you seem to be saying that because Bitcoin has no substitutes, then there cannot be FRB. My response is to say, first of all, that I'm just barely going along with your idea of a substitute anyway. I still don't see why having or not having substitutes has anything to do with FRB. But I will respond to your paragraph anyway because it contains a contradiction which makes winning this argument easy. You have previously defined that account balances (along with things like cheques) are substitutes, correct? And Bitcoins can be put in accounts, right? So then the user would be presented with an account balance, for example their MtGox balance, right? So there is your substitute! You have said that "The only way to do FRB is to present an alternative, a substitute, which of course is incompatible with Bitcoin". Thus we have a clear contradiction in your logic.

I will now respond to your sentence: "Bitcoin Substitutes are required. Please explain how otherwise you can expand the supply without using magic."

It is important to recognize the difference between Currency Supply and Money Supply. The currency supply of bitcoins is limited to 21 million. Money supply is higher because it includes demand deposits. Let us take an example:
Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. The total money supply of Bitcoins at this point is 180. You can see that there is no magic required. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. The money supply of bitcoin is now 100+80+64 = 244 bitcoins. Supposing all banks put 20% in reserves for safe keeping, and suppose everyone uses banks (as opposed to keeping them in a wallet on their computer) then the money supply of bitcoin will max out at 500 bitcoins. Obviously because some people will hold their own bitcoins and because they will be used out in the world for transactions, the money supply wouldn't reach 500 bitcoins, but it can easily exceed 100.

An obvious response is 'Well what happens when Gavin takes his bitcoins out of the bank!?'
The answer is that that is what the reserves are for. '''Although not reflected in this example, the actual reserves held by a bank would be vastly greater than the amount held in any individual customer's account'''.

And that is how Fractional Reserve Banking works.

To avoid an edit war on the wiki page, I have put in a temporary message which I believe is neutral.

--[[User:Atheros|Atheros]] 02:55, 11 November 2011 (GMT)

'''--------PeterSurda Response-------'''

<blockquote>You are confused because you are confusing money supply with currency supply.</blockquote>
Your alleged distinction between "money supply" and "currency supply" is bogus. Please look at the wikipedia page about Money supply: http://en.wikipedia.org/wiki/Money_supply

<blockquote>MtGox could tomorrow start lending out the hundreds of thousands of bitcoins they have in cold storage without adjusting the amount of bitcoins presented to users as available for withdrawal.</blockquote>
You fail to address my point that this requires that these balances need to be accepted as if they were real bitcoin. That's not the case. It is explained in the wikipedia page: http://en.wikipedia.org/wiki/Metal_as_money :

<blockquote>Money must be a tangible asset while a money substitute may be only a claim on a tangible asset. Either money or a money substitute may circulate as currency.</blockquote>

This matches exactly your descriptions of fictional FRB-Mt. Gox activies: they provide to borrowers claims on bitcoin: Mt.Gox account balances. Only if someone else accepts these balances instead of Bitcoin, would the FRB have an effect on the money supply.

<blockquote>Why must the reserves be held at a central bank? I see no reason that this is necessary.</blockquote>
The reason why commercial banks cannot create fiat reserves is that it's illegal: only central banks are permitted to do that. They allow commercial banks to use these reserves and issue substitutes (e.g. bank account balances) upon that. The physical currency (notes and coins) is, in case of fiat, merely a distraction. Typically, the bank notes and coins are also issued only by the central bank, but in small exceptions, private banks are allowed to do that too (e.g. Scotland, Northern Ireland, Hong Kong). In the latter case, these are however also only substitutes: the issuing bank must redeem them to legal tender upon request. Please read the wikipedia page on Reserve requirements: http://en.wikipedia.org/wiki/Reserve_requirement . Of course, a commercial bank can create their own fiat currency, let's call them Rothbards. But that's not the case we are discussing.

<blockquote>No one calls their bank account balance their "substitute dollars"</blockquote>
Economists do.

<blockquote>For all intents and purposes, they consider their balance to be as good as dollars- indeed they can demand dollars at any time which is why the deposits made with the bank are called demand deposits.</blockquote>
However, they only do this because they know that if they use EFT or cheque, the recipient will accept it as if it was money proper. There is no way of creating cheques or bank account balances with fiat money or gold that does not involve substitutes, and because these have sometimes lower transaction costs, this creates demand for these substitutes. With Bitcoin, the requirement for such substitutes is absent (or, better said, limited).

<blockquote>you seem to be saying that because Bitcoin has no substitutes, then there cannot be FRB.</blockquote>
I did not say FRB or substitutes with Bitcoin are impossible, on the contrary, I provided examples of both FRB and substitutes as such. I just explained why it is difficult to conduct in in a profitable manner, unlike with fiat and gold.

<blockquote>My response is to say, first of all, that I'm just barely going along with your idea of a substitute anyway.</blockquote>
Money substitutes are not "my idea", these are terms by many economic schools and even the legal system. I merely merged various facts into a unique arrangement.

<blockquote>I still don't see why having or not having substitutes has anything to do with FRB.</blockquote>
Let's say I have 100 BTC. How can I increase the money supply to 200? Only by promising to my customers "I will redeem up to 200 BTC". This is a claim they have on me, i.e. a money substitute I issued. If these claims are accepted as if they were money proper, they can circulate, and increase the money supply. If they do not circulate, they cannot increase money supply, they can only make me bankrupt (or a rich scammer).

<blockquote>You have previously defined that account balances (along with things like cheques) are substitutes, correct? And Bitcoins can be put in accounts, right?</blockquote>
Poor choice of words on my part I am afraid. I said that "Bitcoin is the equivalent of a bank deposit". I should have written rather something like "Bitcoin is functionally similar to a bank account".

<blockquote>So then the user would be presented with an account balance, for example their MtGox balance, right?</blockquote>
Bitcoin Mt.Gox balance is a substitute: it is an entry in their database that represents a claim on their reserves, an actual Bitcoin wallet. You cannot transfer this substitute outside of Mt.Gox' systems, i.e. they do not circulate. Even withdraw methods like green addresses and redeemable codes are Bitcoin rather than substitutes.

<blockquote>They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. The total money supply of Bitcoins at this point is 180.</blockquote>
The total account balances indeed list 180. However, this only increases money supply if someone is willing to accept these fractional balances as if they were real Bitcoin. But you can't do anything with them. In order to use them, you need an account in Bank Alpha. For people that do not have an account with Bank Alpha, these balances are not only worth less, they are unusable (incompatible with Bitcoin network). And even if there was Bank Beta that accepted it, these two banks would need to agree upon a way of settling these balances, and promise not to redeem other banks' deposits against real Bitcoin. This works with fiat and gold because there is no alternative to these settlements, and it can increase banks profits. With Bitcoin, it would just increase the costs so banks cannot gain anything in participating in something like this.

<blockquote>And that is how Fractional Reserve Banking works.</blockquote>
You omit the point where the substitutes need to be accepted as if they were money proper, which is the basis of argument.

<blockquote>To avoid an edit war on the wiki page, I have put in a temporary message which I believe is neutral.</blockquote>
Thank you, I prefer to have it clarified instead of an edit war too.

Let's say I store Bitcoins and instead provide you "Surdas", which will be denominated in BTC. You can only use Surdas in my "bank". Bitcoin users cannot send or receive Surdas because they are incompatible with their systems. Let's say I collect 100BTC from you, and issue you a trillion Surdas. Will that increase the money supply of the Bitcoin economy?

--[[User:PeterSurda|PeterSurda]] 10:15, 11 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>Let's say I collect 100BTC from you, and issue you a trillion Surdas. Will that increase the money supply of the Bitcoin economy?</blockquote>

No. The money supply would be the number-of-bitcoins-in-existance + 1 Trillion Surdas.

<blockquote>Your alleged distinction between "money supply" and "currency supply" is bogus. Please look at the wikipedia page about Money supply: http://en.wikipedia.org/wiki/Money_supply"</blockquote>

Why? You did not say why. I am very familiar with Money supply. Perhaps instead of currency supply, I should say monetary base since there is a Wikipedia article on "Monetary Base".

<blockquote>You fail to address my point that this requires that these balances need to be accepted as if they were real bitcoin. That's not the case. It is explained in the wikipedia page: http://en.wikipedia.org/wiki/Metal_as_money </blockquote>

The Wikipedia article "Metal as Money" is garbage, as evidenced by all the tags at the top. The article does not cite any sources. I see now why you keep talking about money substitutes.

The balances to not need to be accepted by anyone except the holder of the account. The balances to not need to be transferred by cheque or EFT.

<blockquote>Gox activies: they provide to borrowers claims on bitcoin: Mt.Gox account balances. Only if someone else accepts these balances instead of Bitcoin, would the FRB have an effect on the money supply. </blockquote>

No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins.

<blockquote>I said "Why must the reserves be held at a central bank? I see no reason that this is necessary."

You responded: "The reason why commercial banks cannot create fiat reserves is that it's illegal: only central banks are permitted to do that."</blockquote>

You and I are using the word reserves differently. You are using it to mean a reserve of the monetary base. But that is not what reserves means in the context of Fractional Reserve Banking. Reserves can and often are held by commercial banks. Even the top of the "Reserve Requirements" Wikipedia page to which you link says that "It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank." If you want to talk about holding gold or even fiat money in reserves at a central bank, you can, but that is not what reserves are in the context of Fractional Reserve Banking.

<blockquote>I said: "No one calls their bank account balance their "substitute dollars""
You said: "Economists do."</blockquote>

No they don't. Economists call them [http://en.wikipedia.org/wiki/Demand_deposit Demand deposits].

<blockquote>However, they only do this because they know that if they use EFT or cheque, the recipient will accept it as if it was money proper.</blockquote>

No, people consider the money in their bank account to be as good as dollars in their hands because they can access the money on demand. Cheques and EFTs need not be involved.

<blockquote>Money substitutes are not "my idea", these are terms by many economic schools and even the legal system.</blockquote>

It is not mainstream. The one article that talks about substitutes to which you linked on Wikipedia is slanted, unbalanced, disputed, contains original research, and lacks citations.

<blockquote>"If these claims are accepted as if they were money proper, they can circulate, and increase the money supply. If they do not circulate, they cannot increase money supply"</blockquote>

False. Money does not need to be in circulation to increase the money supply. It can be stored in bank accounts. Bank accounts contain demand deposits. Demand deposits are included in the money supply. It annoys me that you wouldn't know this despite telling ''me'' to read the article on money supply. Here are the very first two lines: "In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)."

<blockquote>You said: "The total account balances indeed list 180. However, this only increases money supply if someone is willing to accept these fractional balances as if they were real Bitcoin."</blockquote>

No, you misunderstand. When I said that Bank Alpha lends out Bitcoins, I meant it. Bank Alpha does not lend out Bitcoin Substitutes, they lend out Bitcoins.

You have admitted that the account balances in the example total 180. Therefore you have admitted that demand deposits are equal to at least 180 bitcoins. Money supply is defined as "currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)." Therefore Money supply is greater than or equal to 180 bitcoins at that point in the example.

I have countered your claims and answered your questions. I have provided an example of Fractional Reserve Banking with Bitcoins. Fractional Reserve Banking with Bitcoins is possible.

--[[User:Atheros|Atheros]] 18:32, 11 November 2011 (GMT)

'''--------PeterSurda Response-------'''
<blockquote>No. The money supply would be the number-of-bitcoins-in-existance + 1 Trillion Surdas.</blockquote>
Exactly. The issue of Surdas would have no effect on the Bitcoin economy, unless someone accepted Surdas instead of Bitcoins. That's my whole point.

<blockquote>Why? You did not say why. I am very familiar with Money supply. Perhaps instead of currency supply, I should say monetary base since there is a Wikipedia article on "Monetary Base".</blockquote>
You first need to define these two terms in a coherent manner, which has not happened.

<blockquote>The Wikipedia article "Metal as Money" is garbage, as evidenced by all the tags at the top. The article does not cite any sources. I see now why you keep talking about money substitutes.</blockquote>
That does not disprove my point. I could have just as well quoted Mises' Human Action or Theory of Money and Credit, http://mises.org/books/Theory_Money_Credit/Part1_Ch3.aspx

<blockquote>The balances to not need to be accepted by anyone except the holder of the account. The balances to not need to be transferred by cheque or EFT.</blockquote>
In order to increase the money supply, they do. You admitted this yourself in my example with Surdas vs. Bitcoins. Now, lets' get one step back and ask ourselves, why would the account holder accept such a weird instrument in the first place if he knew noone would accept it? It provides him no advantage over what he already has.

<blockquote>No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins.</blockquote>
In that case, they need to provide the claims (=substitute) to the lender. It's logically impossible to provide real bitcoins in excess of the reserves.

<blockquote>You are using it to mean a reserve of the monetary base. But that is not what reserves means in the context of Fractional Reserve Banking.</blockquote>
Of course it does. Wikipedia page on Bank reserves, http://en.wikipedia.org/wiki/Bank_reserves , says:

<blockquote>Bank reserves are banks' holdings of deposits in accounts with their central bank (for instance the European Central Bank or the Federal Reserve, in the latter case including federal funds), plus currency that is physically held in the bank's vault (vault cash).</blockquote>
And, since the currency is also issued by the central banks, that closes the circle.

<blockquote>Reserves can and often are held by commercial banks.</blockquote>
This has no effect on my claim.

<blockquote>Even the top of the "Reserve Requirements" Wikipedia page to which you link says that "It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank." If you want to talk about holding gold or even fiat money in reserves at a central bank, you can, but that is not what reserves are in the context of Fractional Reserve Banking.</blockquote>
This does not negate the fact that both cash and central bank deposits are, in fact, created by the central bank.

<blockquote>No they don't. Economists call them Demand deposits.</blockquote>
Demand deposits are a subset of money substitutes. Read the aforementioned chapter from Mises' book.

<blockquote>No, people consider the money in their bank account to be as good as dollars in their hands because they can access the money on demand. Cheques and EFTs need not be involved.</blockquote>
If they do not deposit the money in the bank, then it is also accessible on demand. Therefore, if your argument was correct, there would be no demand for bank deposits in the first place and banks would not exist. Your reasoning is therefore erroneous.

<blockquote>It is not mainstream.</blockquote>
The term might not be mainstream, but the concepts are. Even the article about Demand deposits you reference explains what it is. It says "These account balances are usually considered money and form the greater part of the money supply of a country." (emphasis added). However, it does not explain why. I provide an explanation. You just assume that there's some magic behind this, yet don't provide an explanation.

<blockquote>Money does not need to be in circulation to increase the money supply.</blockquote>
You phrase it wrongly. If it is not in circulation, it is not money in the first place. It is just some financial instrument. Like my Surdas.

<blockquote>Demand deposits are included in the money supply.</blockquote>
Wrong. Even the article you quote says "usually". You just assume that this is always true for some magical reason. It isn't, but until Bitcoin, it was not apparent. I explained the reason: the deposits are accepted as a method of payment, because there are situations where they provide lower transaction costs than the money proper, and with fiat/gold, this requires substitutes.

<blockquote>It annoys me that you wouldn't know this despite telling me to read the article on money supply.</blockquote>
And it annoys me that you miss the big gap in your reasoning, although I have been pointing to it since my first edit.

<blockquote>Here are the very first two lines: "In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)."</blockquote>
(emphasis added) Again, you miss the gap in your reasoning. Even here, it says "usually". You just jump to the conclusion that it is always like this. It's not and I explained several times why.

<blockquote>When I said that Bank Alpha lends out Bitcoins, I meant it. Bank Alpha does not lend out Bitcoin Substitutes, they lend out Bitcoins.</blockquote>
In that case, it is the lender that receives the substitute, which noone accepts. So he has no reason to deposit the money in the first place and Bank Alpha would not come to existence.

<blockquote>Money supply is defined as "currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)." Therefore Money supply is greater than or equal to 180 bitcoins at that point in the example.</blockquote>
Again, gap in reasoning, I already explained it several times. Merely because demand deposits form money supply with gold and fiat, it does not follow it works the same way with Bitcoin. You do not understand why economists include them in the definition of money supply in the first place.

<blockquote>I have countered your claims and answered your questions.</blockquote>
You make systematic errors in your claims. You also fail to answer the core question, why are money substitutes such as demand deposits considered a part of the money supply in the first place.

<blockquote>I have provided an example of Fractional Reserve Banking with Bitcoins. Fractional Reserve Banking with Bitcoins is possible.</blockquote>
For the last time, I did not claim FRB with Bitcoin was impossible. I even provided actual empirical evidence of it, unlike you. You have obviously no idea what you're talking about.

--[[User:PeterSurda|PeterSurda]] 21:07, 11 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>"Exactly. The issue of Surdas would have no effect on the Bitcoin economy, unless someone

accepted Surdas instead of Bitcoins. That's my whole point."</blockquote>

But this isn't Fractional Reserve Lending. I just answered your question to be polite.

<blockquote>"You first need to define these two terms in a coherent manner, which has not happened. "</blockquote>

'''Money supply''' is amount of currency in circulation plus demand deposits (depositors' easily

accessed assets on the books of financial institutions).

Apparently you do not accept this definition (more on this below).

The '''monetary base''' is highly liquid money that consists of coins, paper money (both as

bank vault cash and as currency circulating in the public), and commercial banks' reserves.

In the case of Bitcoin, this would be ''real'' Bitcoins which are limited to 21 million.

Do you accept this definition?

Here is a helpful table. Monetary Base is MB and Money Supply is M1.
{| class="wikitable" border="1"
|-
! Type of money
! M0
! MB
! M1
! M2
! M3
! MZM
|-
| Notes and coins (currency) in circulation (outside Federal Reserve Banks, and the vaults of depository institutions)
| V<ref name="dollardaze.org">http://dollardaze.org/blog/?post_id=00565</ref>
| V
| V
| V
| V
| V
|-
| Notes and coins (currency) in bank vaults
| V<ref name="dollardaze.org"/>
| V
|
|
|
|
|-
| Federal Reserve Bank credit (minimum reserves and [[excess reserves]])
|
| V
|
|
|
|
|-
| traveler's checks of non-bank issuers
|
||
| V
| V
| V
| V
|-
| [[demand deposit]]s
|
|
|V
|V
|V
|V
|-
| other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts.
|
|
|V<ref>http://research.stlouisfed.org/fred2/series/M1</ref>
|V
|V
|V
|-
| [[savings deposit]]s
|
|
|
|V
|V
|V
|-
| [[time deposits]] less than $100,000 and money-market deposit accounts for individuals
|
|
|
|V
|V
|
|-
| large time deposits, institutional money market funds, short-term repurchase and other larger liquid assets<ref>http://www.investopedia.com/terms/m/m3.asp</ref>
|
|
|
|
|V
|
|-
|all money market funds
|
|
|
|
|
|V
|}

<blockquote>I said: "No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins."

You said: "In that case, they need to provide the claims (=substitute) to the lender."</blockquote>

Who needs to provide claims to the lender? Who is the lender, Bank Alpha for example? And
what do you mean by ''claims''? Can you please rewrite your statement so that I can understand?

<blockquote>"It's logically impossible to provide real bitcoins in excess of the reserves. "</blockquote>

Fortunately no one needs to.

<blockquote>"Of course it does. Wikipedia page on Bank reserves,

http://en.wikipedia.org/wiki/Bank_reserves , says:..."</blockquote>

Ok, suppose Satoshi puts 100 bitcoins in Bank Alpha and Bank Alpha puts a fraction of the
deposit (20 bitcoins) in a special account and does nothing with them. They then lend out 80
bitcoins. Can we say that the 20 bitcoins are held in reserve by the bank?

<blockquote>"This has no effect on my claim. "</blockquote>

Great. I am happy that we are starting to show some signs of agreement.

<blockquote>"If they do not deposit the money in the bank, then it is also accessible on demand.
Therefore, if your argument was correct, there would be no demand for bank deposits in the first place and banks would not exist. Your reasoning is therefore erroneous."</blockquote>

I can give you two examples that currently or formerly exist that show that people do demand bank deposits despite not having substitutes like cheques and EFTs: MyBitcoin and MtGox. People hold/held quite a bit of money in these services. There would be further demand for deposit accounts if banks offer a bit of interest payment. Did you really think that there couldn't possibly be other advantages to having money in a bank besides being able to write cheques and use EFTs with it?

<blockquote>I said: "Demand deposits are included in the money supply."

You said: "Wrong. ..."</blockquote>

So do you assert that demand deposits are not included in the money supply as it applys to bitcoin? Edit: You stated this clearly in the rest of your post. I'm glad we are close to identifying the reason we disagree. I will address this in my next post after you respond.

<blockquote>You said "In that case, it is the lender that receives the substitute, which no one accepts. So he has no reason to deposit the money in the first place and Bank Alpha would not come to existence."</blockquote>

Why would Bank Alpha receive substitutes? As I explained in the example, Bank Alpha receives Bitcoins!

<blockquote>"You do not understand why economists include them in the definition of money supply in the first place."</blockquote>

Ok, Why is that? And why would it be any different for Bitcoin?

<blockquote>"For the last time, I did not claim FRB with Bitcoin was impossible. I even provided actual empirical evidence of it, unlike you. You have obviously no idea what you're talking about."</blockquote>

I provided an example of Fractional Reserve Banking above! You didn't say that FRB is impossible but you did say that "Without demand for Bitcoin-substitutes, FRB is not possible." You also said, "If someone tried Bitcoin FRB, they would produce Bitcoin-substitutes: digital services or physical goods incompatible with the Bitcoin network, fiat money or gold. Who would accept something like that for payment?"

Doesn't that clearly suggest that FRB with Bitcoin isn't realistically happening?

I have asked several questions (this last one being the least important). I look forward to hearing your response.

--[[User:Atheros|Atheros]]

'''--------PeterSurda Response-------'''

Let's put our arguments into a formal structure.

Issue 1: definition of money supply:

* Atheros: Zero maturity is a necessary and sufficient condition for a claim to be considered a part of the money supply.
* PeterSurda: Both parts are incorrect. The necessary and sufficient condition is acceptance of the claim as a means of payment instead of the base.

Proof:
* there are claims which have zero maturity, and are not considered a part of the money supply. The best example I could think of are casino chips. They are zero maturity, but do not increase money supply regardless of whether they are backed by full or fractional reserves. Mt. Gox accounts are the equivalent of the casino chips: you can use them to exchange against other currencies on Mt.Gox' systems, and you can withdraw BTC. Other example I found are certain promissory notes.
* even demand deposits do not always have zero maturity. Banks typically request a prior notice if you want to withdraw larger amount of cash, however require no such notice if you just want to transfer money out via EFT.

Issue 2: application of the definition of money supply:

* Atheros: money supply is cash (including one held by public and bank reserves) and demand deposits. Money supply increases when banks lend reserves.
* PeterSurda: these two claims contradict each other.

Proof:
{| border="1"
|+ Money supply calculation
| Stage || Cash held by public || Demand deposits || Bank reserves || Money supply if demand deposit is not acceptable for payment || Money supply if demand deposit is acceptable for payment || Sum (cash + demand deposits)
|-
| Prior to deposit || 100||0||0||100||100||100
|-
| Creation of deposit ||0||100||100||100||100||200
|-
| Fractional reserve lending ||80||100||20||100||180||200
|-
| Creation of another deposit ||0||180||100||100||180||280
|-
| Additional fractional reserve lending ||60||180||40||100||240||280
|}

Clearly, the sums in last two columns are different. So either your description of FRB is wrong, our your definition of money supply.

Issue 3: Usage of services:

*Atheros: People deposit money into Mt. Gox. or mybitcoin (well, at least until it went belly up). These balances are demand deposits and therefore considered part of the money supply.
*PeterSurda: Being a demand daposit does not mean it increases the money supply. Only if they circulate. As far as I know, Mt.Gox does not even support P2P payments outside of the BTC network, and I think mybitcoin did, but of course this only works among mybitcoin customers. Flexcoin supports this too, but I think Strongcoin does not. Furthermore, acording to your definition of the money supply (see previous table), if Satoshi deposited a million Bitcoins into Mt.Gox, that act of depositing would increase the money supply of bitcoins by about 13%, regardless of what Mt.Gox did with their reserves! Clearly there is something fishy about this.

Issue 4: Effect of FRB on Bitcoin:

*Atheros: PeterSurda claims that FRB with Bitcoin won't happen.
*PeterSurda: I claim that FRB with Bitcoin has very little effect on money supply and is unprofitable.

--[[User:PeterSurda|PeterSurda]] 12:30, 12 November 2011 (GMT)

'''--------Atheros Response-------'''

Issue 1: definition of money supply:

I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions). The only reason casino chips aren't part of "the money supply" is because you haven't defined "the money supply". If by "the money supply" you mean "the money supply of casino chips" then casino chips are indeed part of the money supply (of casino chips).

Your definition of money supply: "The necessary and sufficient condition is acceptance of the claim as a means of payment '''instead''' of the base." (emphasis added)

What does this 'instead of the base' mean? Bitcoins are the monetary base of Bitcoin. Doesn't your definition mean that Bitcoins are not part of money supply?

Issue 3: Usage of services (related to issue 1):

I think it is goofy that you say that "being a demand deposit does not mean it increases the money supply". Let us suppose you have 100 bitcoins in your computer wallet and 100 bitcoins in MtGox in case you want to trade them some day. Wouldn't you say that you own 200 bitcoins? Wouldn't any reasonable person say that they own 200 bitcoins? Why, then, should the money supply be only 100 bitcoins? Why on Earth would the money supply go down when you move bitcoins from your computer to MtGox?

In reply to your "fishy" comment- As I've said, the money supply is currency in circulation plus demand deposits. If Satoshi moves a million Bitcoins from his wallet (which are 'in circulation') to a demand deposit, the money supply stays the same.

Issue 2: application of the definition of money supply:

There are problems with your table.
*The reason the last two columns are not equal is because you added bank reserves in your sum. Bank reserves are not included in M1 (money supply) which you can see in my table above in the ''minimum reserves and excess reserves'' row.
*Demand deposits are never accepted as payment so having two columns to address this doesn't make sense. That said, the values you have in the column ''Money supply if demand deposit is acceptable for payment'' are correct. The only thing that is accepted in the case of Bitcoin is bitcoins. A person can either withdraw the bitcoins himself and give them to someone else, or he can instruct his bank to move the bitcoins from his account to someone else's. Here is the corrected table:

{| border="1"
|+ Money supply calculation
| Stage || Cash held by public || Demand deposits || Bank reserves || Money supply
|-
| Prior to deposit || 100||0||0||100
|-
| Creation of deposit ||0||100||100||100
|-
| Fractional reserve lending ||80||100||20||180
|-
| Creation of another deposit ||0||180||100||180
|-
| Additional fractional reserve lending ||60||180||40||240
|}

--[[User:Atheros|Atheros]] 19:05, 12 November 2011 (GMT)

'''--------PeterSurda Response-------'''
<blockquote>I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions).</blockquote>
No, that's not what you said, you also included bank reserves. You also quoted sources that include bank reserves as money supply, including the description and the tables. You contradict that now.

<blockquote>The only reason casino chips aren't part of "the money supply" is because you haven't defined "the money supply".</blockquote>
According to your justification for demand deposits being a part of money supply (zero maturity claim), casino chips should also be a part of the money supply. Can you address this?

<blockquote>If by "the money supply" you mean "the money supply of casino chips" then casino chips are indeed part of the money supply (of casino chips).</blockquote>
The question is not what I mean, but what you mean.

<blockquotE>What does this 'instead of the base' mean?</blockquote>
I've been talking about this since the beginning, it looks like you're finally coming around to confront it. It means that whoever you are sending money to is willing to accept this claim instead of accepting Bitcoins. Like cheque or EFT instead of cash, or (on gold standard) banknote instead of a gold coin.

<blockquote> Bitcoins are the monetary base of Bitcoin. Doesn't your definition mean that Bitcoins are not part of money supply?</blockquote>
Read what I wrote. I did not say that the base (Bitcoin) is not the part of money supply, I wrote that claims on Bitcoin are only a part of the money supply if they are an accepted method of payment.

<blockquote>I think it is goofy that you say that "being a demand deposit does not mean it increases the money supply".</blockquote>
I think it's regrettable that you still don't understand this.

<blockquote>Let us suppose you have 100 bitcoins in your computer wallet and 100 bitcoins in MtGox in case you want to trade them some day. Wouldn't you say that you own 200 bitcoins?</blockquote>
You own 100 bitcoins and a claim on 100 bitcoins. This claim is only a part of money supply if you can use it for payment. At the moment, you can't. While it is hypothetically possible to use this claim as a method of payment in the future, there is no demand for it, unlike the situation with fiat and gold.

<blockquote>Why, then, should the money supply be only 100 bitcoins?</blockquote>
I already explained it several times: for the same reason that owning 100 USD's worth of casino chips is not a part of the money supply of USD: they are not acceptable for payment. The "reserves" of the casino, however, in the absence of FRB, are a part of the money supply. So in your case the money supply is 200 BTC: 100 Bitcoins in your own wallet plus 100 Bitcoins as Mt.Gox reserves. The account balance you have with Mt.Gox does not appear in the equation.

<blockquote>Why on Earth would the money supply go down when you move bitcoins from your computer to MtGox?</blockquote>
They money supply does not go down, because Mt. Gox keeps reserves in the nominal value equivalent to your deposit.

<blockquote>As I've said, the money supply is currency in circulation plus demand deposits.</blockquote>
That's not what you said. Go back and read your own words. You also included bank reserves. In fact, you complained about me not including cash reserves in my definition of fiat FRB.

<blockquote>If Satoshi moves a million Bitcoins from his wallet (which are 'in circulation') to a demand deposit, the money supply stays the same.</blockquote>
In that case, your prior definition of money supply is wrong and your whole argument collapses.

<blockquote>The reason the last two columns are not equal is because you added bank reserves in your sum.</blockquote>
Go back and read what you wrote. You wrote several times that bank reserves are a part of the money supply. Look at the definition you quoted, and at the table you copied from the wikipedia article.

You still have failed to address the question why are demand deposits a part of the money supply in the first place, whereas casino chips aren't (at least I hope you do not claim that casino chips are a part of the money supply).

--[[User:PeterSurda|PeterSurda]] 20:41, 12 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>I said: "I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions)." </blockquote>

<blockquote> You said: "No, that's not what you said"</blockquote>

Not only did I say it, I said it three times!

<blockquote>"...you also included bank reserves. You also quoted sources that include bank reserves as money supply, including the description and the tables. You contradict that now." (and) "Go back and read your own words. You also included bank reserves. In fact, you complained about me not including cash reserves in my definition of fiat FRB." </blockquote>

I just searched this thread for every occurrence of 'reserve' and read each paragraph and couldn't find where I claimed money supply includes bank reserves. Could you point it out for me?
Concerning the table, I said that "Money Supply is M1". Note that M1 doesn't have a tick mark in the ''minimum reserves and excess reserves'' row.

<blockquote>"According to your justification for demand deposits being a part of money supply (zero maturity claim), casino chips should also be a part of the money supply. Can you address this?" </blockquote>

If we are talking about the money supply of dollars, then casino chips, bitcoins, gold bars, and chickens are all not part of the money supply (of dollars). Only ''dollars'' are. If we are talking about casino chips, then casino chips are included in the money supply of casino chips but those other things are not.

Is this statement correct? ''PeterSurda says that the Money Supply of Bitcoin is the total value of claims on Bitcoins which are an accepted method of payment.'' If that isn't correct, can you fix it?

I would like to be able to calculate the money supply. Is this statement correct? ''PeterSurda says that Money Supply is the amount of money in circulation plus bank reserves.'' If that isn't correct, can you fix it? Thank You.

<blockquote>"You own 100 bitcoins and a claim on 100 bitcoins. " </blockquote>

>99% of the population doesn't see it like that. They see the money in their bank account and money in their hand as basically the same thing. Certainly I admit that they aren't the same, but if you ask people how much money they have, nearly everyone is going to take the number of dollars (or euros, etc.) in their wallet and add the number of dollars (or euros) in their bank account, and tell you that number. They will also behave as if they have that number of dollars/euros. This is why demand deposits are included in the money supply. This is why my definition of money supply is useful.

<blockquote>"So in your case the money supply is 200 BTC: 100 Bitcoins in your own wallet plus 100 Bitcoins as Mt.Gox reserves. The account balance you have with Mt.Gox does not appear in the equation. " </blockquote>

Excellent- I understand what you are saying. You claim that money supply does include bank reserves but not demand deposits, correct?

(I may not be able to continue responding until Monday evening. We need a break anyway.)

--[[User:Atheros|Atheros]] 05:54, 13 November 2011 (GMT)

'''--------PeterSurda Response-------'''

<blockquote>Not only did I say it, I said it three times!</blockquote>
I apologise, you used confusing terminology and I though that's what you're saying. Nevertheless, why did you pick M1 rather than M2 or MZM? You said that zero maturity is the reason why demand deposits are a part of the money supply.

Let me address the two definitions you provide, monetary base and money supply.

Monetary base is the money itself. In case of gold, it's the gold in existence. In case of fiat, it's very muddled: whatever the central bank produces (coins, banknotes, commercial bank deposits), to a certain extent other things, such as gold deposited in the CB, are also acceptable. In case of Bitcoin, it is Bitcoin. Claims on money are not a part of this.

Money supply is all the base money, plus claims on money that people accept as a means of payment, minus reserves of the issuers of those claims.

<blockquote>If we are talking about the money supply of dollars,</blockquote>
Casino chips (in US) are denominated in dollars, just like demand deposit accounts. Why are they not a part of the money supply, while demand deposits are?

<blockquote>Is this statement correct?</blockquote>
No.

<blockquote>If that isn't correct, can you fix it?</blockquote>
See above.

<blockquote>I would like to be able to calculate the money supply.</blockquote>
See above.

<blockquote>99% of the population doesn't see it like that.</blockquote>
There is a reason why economists use the definitions they use, and you still do not understand this reasoning. You use "money supply of dollars" when addessing casino chips, but what does it actually mean? Do you understand that?

<blockquote>They see the money in their bank account and money in their hand as basically the same thing.</blockquote>
And the reason why they do this is that they can use it as a payment method instead of using cash printed by the central bank: e.g. cheque, EFT, debit card. That's also the reason why they do not see casino chips as money: they cannot use it as a payment method instead of the dollars (or euros or whatever). That's also the reason why economists include demand deposits in fiat world in the money supply. This reason is absent with Bitcoin, and there's little reason for it to change.

See aforementioned Mises:

<blockquote>Technically, and in some countries legally as well, the transfer of a banknote scarcely differs from that of a coin. The similarity of outward appearance is such that those who are engaged in commercial dealings are usually unable to distinguish between those objects that actually perform the function of money and those that are merely employed as substitutes for them. The businessman does not worry about the economic problems involved in this; he is only concerned with the commercial and legal characteristics of coins, notes, checks, and the like. To him, the facts that banknotes are transferable without documentary evidence, that they circulate like coins in round denominations, that no fight of recovery lies against their previous holders, that the law recognizes no difference between them and money as an instrument of debt settlement, seem good enough reason for including them within the definition of the term money, and for drawing a fundamental distinction between them and cash deposits, which can be transferred only by a procedure that is much more complex technically and is also regarded in law as of a different kind. This is the origin of the popular conception of money by which everyday life is governed. No doubt it serves the purposes of the bank official, and it may even be quite useful in the business world at large, but its introduction into the scientific terminology of economics is most undesirable.</blockquote>

In 1912 when he wrote it, he saw a difference between the cash deposit and a bank note. In the meantime, the difference has vanished, because it became much easier to do these transfers (e.g. cheque/debit card/EFT). With Bitcoin, you cannot transfer these balances among each other outside of closed systems, you need to perform a withdrawal as a part of the procedure.

Once again, the reason why demand deposits are included in the supply of money is not that they are redeemable on demand, but because they are an accepted method of payment. That's the purpose of the term money supply too: to measure the amount of whatever is usable for payment. That is why casino chips and Surdas are not included in it, and that is why balances of claims-issuing companies like Mt.Gox and flexcoin should not be included in it either, as long as they are not used as a method of payment without conversion into "native" Bitcoin. That is also why economists use the definitions they use: the amount of things that are usable as payment is what they analyse, not the maturity of claims.

--[[User:PeterSurda|PeterSurda]] 07:45, 13 November 2011 (GMT)

One link to support my definition of money supply: http://wiki.mises.org/wiki/True_Money_Supply :

<blockquote>Algebraically, TMS = Standard Money (held by the public) + Money Substitutes</blockquote>

And here is Rothbard in Austrian Definitions of the Supply of Money, http://mises.org/rothbard/austrianmoneysupply.pdf , confirming my analysis:

<blockquote>It is important to recognize that demand deposits are not automatically part of the money supply by virtue of their very existence; they continue as equivalent to money only so long as the subjective estimates of the sellers of goods on the market think that they are so equivalent and accept them as such in exchange.</blockquote>

--[[User:PeterSurda|PeterSurda]] 12:00, 13 November 2011 (GMT)

'''--------Atheros Response-------'''

I picked M1 because that is what all the mainstream textbooks say. I believe they say that because the things in M1 are the things most people consider to be their ''money''. Certainly that definition of money isn't useful for all situations which is why those other M's are shown. This is why the word ''usually'' appears in the description of money supply on Wikipedia which you pointed out earlier.

Concerning casino chips, I didn't know casino chips were valued in dollars. Now that I know that: Whether we consider casino chips part of the money supply or not has no effect on the size of the money supply; the money supply will remain the same. The reason is that supposing we consider casino chips to be money, then when we put 1 dollar into the casino's vault, that dollar is removed from the money supply, and one dollar in the form of a casino chip is added to the money supply. '''Notice that we are still talking about the money supply of dollars.''' (Chickens, Bitcoins, and Gold are not included.) The money supply remains equal to what is was earlier, but an additional dollar is now held in reserve. If you don't like this and don't want to say that casino chips are money; that's fine. In that case, the dollars in the vault are still part of the money supply and the chips simply represent a claim to retrieve them.

<blockquote>"You use "money supply of dollars" when addressing casino chips, but what does it actually mean? Do you understand that?" </blockquote>

Did my above paragraph answer this? If no, can you please restate?

<blockquote>"That's also the reason why they do not see casino chips as money: they cannot use it as a payment method instead of the dollars (or euros or whatever). " </blockquote>

Except that people ''do'' use casino chips as a payment method in cities like Las Vegas. You can pay a hooker or tip a waitress in a restaurant with the casino chips. If casinos were in every city, then you could use the casino chip anywhere as a payment method. Also, if you can't use a cash dollar as a method of payment in the jungle, wouldn't you have to admit that under your definition, tourists remove their dollars from the money supply when they visit the jungle?

Concerning your quotes from Mises and Rothbard, and really your views at-large: This is the Austrian school of thought. This isn't mainstream. Your definition of money supply is not in textbooks taught in very many schools. Your definition of Fractional Reserve Banking thus doesn't match what most economists consider it to be.

--[[User:Atheros|Atheros]] 04:15, 15 November 2011 (GMT)

'''--------PeterSurda Response-------'''

Regarding casino chips: I think we're making some progress. You argue that the reason why casino chips do not affect the money supply is not that they are not used as a general medium of exchange, but because the issuers thereof do not overissue them (FRB). How do you know they do not overissue?

Use of chips as a payment method: please look at wikipedia page of Money: http://en.wikipedia.org/wiki/Money:
<blockquote>Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.</blockquote>
(emphasis added) Are chips generally accepted? No, they are only accepted within a very narrow geographical area, and only for certain services. Similarly as vouchers, coupons, bus tickets and so on. So why do you think they should be reflected in the money supply? More importantly though, balances on Mt.Gox, flexcoin and so on are used as a medium of exchange even less: in the hypothetical scenario of transferring Bitcoins from Mt.Gox to flexcoin, rather than exchanging the balances, the Bitcoins are withdrawn from Mt.Gox, sent over the Bitcoin network, flexcoin stores them in their "reserve" wallet and issues new claims (balance) to the recipient. So even if we omitted the requirement for general acceptance, it still would not support your argument.

As your example with jungle and uselessness of dollars, I admit that the definition is fuzzy, I have my own problems with it. But hopefully we can agree that unless you accept something as a means of payment, the change of supply of it has no effect on our spending decisions, correct? If Walmart issues vouchers in the value of, say, one trillion dollars, unless you intend to shop at Walmart, this has no effect on your purchasing decisions, correct?

Most importantly though, you still haven't address the core issues. Why economists use the definitions they use? Why do the definitions of M1 say that it usually includes demand deposit, but not always? What does money supply measure? If you disagree with Austrians, what is your alternative explanation?

While it isn't as clear from wikipedia as from the Rothbard quote, here it what it says about money supply: http://en.wikipedia.org/wiki/Money_supply :
<blockquote>In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.</blockquote>
and
<blockquote>Money is used as a medium of exchange, in final settlement of a debt, and as a ready store of value.</blockquote>
Are account balances on Mt. Gox or flexcoin used for any of this? Maybe for the last one. But they are rarely a medium of exchange or a final settlement of debt. The wikipedia article continues:
<blockquote>Narrow measures include only the most liquid assets, the ones most easily used to spend...</blockquote>
(emphasis added) Are Mt.Gox / flexcoin balances used to spend? In general, no, they are redeemed into Bitcoins in order to spend them.

Mt.Gox offers the following methods of transferring Bitcoins:

* redeemable Mt.Gox code
* Green address
* Bitcoin address

Only the first one is a claim, the others are native Bitcoin. The claim is only usable for other Mt.Gox users.

Flexcoin offers the following methods of transferring Bitcoins:

* another flexcoin ID
* an e-mail address
* an external bitcoin address

The first two are claims (I think, I am not sure about the inner workings of flexcoin). The claim is only usable for other flexcoin users.

The only people who are affected by (hypothetically) inflated balances of Mt. Gox or flexcoin are those that accept those claims. From this perspective, both functionally and scope-wise, this is similar to the aforementioned casino chips, vouchers and so on. It does not have an effect on the money supply any more than an overissue of casino chips has effect on the purchasing decisions of people other than the casino guests, aforementioned hookers and waiters.

--[[User:PeterSurda|PeterSurda]] 08:00, 15 November 2011 (GMT)

'''--------Atheros Response-------'''

I assumed that casinos weren't over issuing chips. I've just done some research and found that they are allowed to do this legally. So they are probably doing it. So they are increasing the money supply of dollars.

We could argue all day about what things are 'generally accepted'. 100 bills aren't generally accepted at gas stations. We shouldn't read too much into that particular phrase. Casino chips wouldn't be ''money'' far away from a casino, but they are money in Las Vegas. I have a Chinese 2 unit bill around here somewhere. It isn't money to me.

<blockquote>"If Walmart issues vouchers in the value of, say, one trillion dollars, unless you intend to shop at Walmart, this has no effect on your purchasing decisions, correct? "</blockquote>

If everyone in a 'community' of some sort shops at Walmart, then the vouchers would start to be traded like money among the members of the community for goods and services for a period of time before making their way back to Walmart.

<blockquote>"Why economists use the definitions they use?"</blockquote>

Because their definitions are the most useful.

<blockquote>"Why do the definitions of M1 say that it usually includes demand deposit, but not always?"</blockquote>

You are confused. The definition of M1 always includes demand deposits. The definition of money is usually M1. The definition of money is usually M1 because in most situations when you ask someone how much money they have, they add up the things in M1.

<blockquote>"What does money supply measure?"</blockquote>

I've answered this six times.

<blockquote>"If you disagree with Austrians, what is your alternative explanation? "</blockquote>

[http://en.wikipedia.org/wiki/Economics Mainstream Economics]

Concerning Fractional Reserve Banking in particular, [http://en.wikipedia.org/wiki/Fractional_reserve_banking this].

Here is [http://en.wikipedia.org/wiki/Money_supply Money supply].

<blockquote>"Narrow measures include only the most liquid assets, the ones most easily used to spend... "</blockquote>

So are you telling me that money stops being money when you put it in a bank, or MtGox? Because you are telling me that money in MtGox isn't sufficiently easy to spend because their transfers naturally aren't accepted by everyone.

<blockquote>"It does not have an effect on the money supply any more than an overissue of casino chips has effect on the purchasing decisions of people other than the casino guests, aforementioned hookers and waiters. "</blockquote>

No no; because the money supply increases as I described above, the value of each dollar goes down slightly which affects everyone.

I would like you to respond to this example:

Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. Despite the fact that Satoshi, Gavin, and Cameron only have claims to bitcoins, isn't the fact that they collectively know they can access 244 bitcoins significant to note and measure? This means that each bitcoin will be nearly 1/3rd as valuable as before Fractional Reserve Banking. How is that not significant?

--[[User:Atheros|Atheros]] 09:31, 15 November 2011 (GMT)

'''--------PeterSurda Response-------'''

Here we have it from wikipedia ( http://en.wikipedia.org/wiki/Demand_deposit : )
<blockquote>Demand deposits are usually considered part of the money supply, as they can be used, via checks and drafts, as a means of payment for goods and services and to settle debts.</blockquote>
(emphasis added)

Another link: http://www.economicsjunkie.com/true-money-supply/ :
<blockquote>Virtually everyone accepts payment in demand deposit money. Demand deposits are thus to be included in the money supply.</blockquote>

And here we have the Federal Reserve Bank of New York, http://www.ny.frb.org/aboutthefed/fedpoint/fed49.html :
<blockquote>The money supply measures reflect the different degrees of liquidity—or spendability—that different types of money
have.</blockquote>

So what reason do you have in asserting that maturity, rather than acceptability in transactions (as seen above), is the reason for including a claim in the money supply? And what do you think money supply actually
measures?

--[[User:PeterSurda|PeterSurda]] 10:14, 15 November 2011 (GMT)

<blockquote>So are you telling me that money stops being money when you put it in a bank, or MtGox?</blockquote>
It stops being a part of the money supply if it is held as reserve for money substitutes.

<blockquote>Because you are telling me that money in MtGox isn't sufficiently easy to spend because their transfers naturally aren't accepted by everyone.</blockquote>
What this means is that these balances are not money substitutes, only claims. They are not a part of the money supply of Bitcoin, rather the "reserves" of Mt.Gox are, because these "reserves" are what circulates if people are transferring Bitcoin among themselves. It is the equivalent of gold being able to instantly teleport among vaults at negligible cost. If this was possible, bank notes, cheques and EFT would not be used for exchange of gold, and bank balances would cease to be a part of the money supply.

--[[User:PeterSurda|PeterSurda]] 10:45, 15 November 2011 (GMT)

Also, definition of money supply from Merriam-Webster http://www.merriam-webster.com/dictionary/money%20supply :

<blockquote>the total amount of money available in an economy for spending...</blockquote>

Another definition: http://www.investorwords.com/3110/money_supply.html :

<blockquote>The total supply of money in circulation in a given country's economy at a given time.</blockquote>

These quotes (and the ones from previous post) lead to the following conclusion:

* the money supply does not measure the nominal value of zero maturity instruments denominated in that currency, but the nominal value of the instruments that are accepted as media of exchange
* deposit accounts are not always, by their virtue, a part of the money supply, but only to the extent they are accepted as a method of exchange

I provided quotes by non-Austrian, mainstream sources. What is your evidence that your position is correct?

--[[User:PeterSurda|PeterSurda]] 12:12, 15 November 2011 (GMT)

'''--------Atheros Response-------'''

I've cited many sources throughout this thread. I can even take your own Fed link and see that "The Federal Reserve publishes weekly and monthly data on two money supply measures M1 and M2. ... The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds."

Your definition of money supply is not useful.

I would like you to respond to this example:

Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. Despite the fact that Satoshi, Gavin, and Cameron only have claims to bitcoins, isn't the fact that they collectively know they can access 244 bitcoins significant to note and measure? This means that each bitcoin will be nearly 1/3rd as valuable as before Fractional Reserve Banking. How is that not significant?

'''--------PeterSurda Response-------'''

Atheros, your quotes do not address my points at all, they skip over them. From this you incorrectly conclude that they disagree with my arguments.

In your example, since Gavin, Cameron and Satoshi cannot at the same time buy anything worth more than 100 Bitcoins without using their account balances as a medium of exchange (thus elevating it into a status of money substitute), it means the money supply is only 100 Bitcoins. That's the purpose of the term money supply, it measures how much can be spent.

Your is the definition that is not useful in economic theories. Money supply measures the amount that is available for payment. Not the sum of zero-maturity debt instruments. Absent the requirement to be usable as a medium of exchange, it cannot be used in calculations of inflation or money velocity. You practically invented your own economic theory.

I challenge you to pick any professional economists, who disagrees with either of these claims:
* The purpose of the money supply is to measure the nominal value of whatever is used as a medium of exchange.
* The reason why demand deposits are included in the money supply is because they are used as a generally accepted medium of exchange.

--[[User:PeterSurda|PeterSurda]] 08:16, 16 November 2011 (GMT)

= Bitcoin mining is a waste of energy and harmful for ecology =

IMHO this chapter is superficial. Compare Bitcoin to electronic fiat currencies. --[[User:Shrewdwatson|Shrewdwatson]] 17:57, 23 April 2011 (GMT)

How about this:

''The electricity spent in hashing is not wasted. It creates a product of value to the Bitcoin economy. The product is a supersignature on the complete list of transactions to date (the [[Block chain]]). This supersignature attesting to the chain's completeness is Bitcoin's defense against double spending.''

''Many sources of energy vary in their availability in ways that do not match the variations in demand. The law of supply and demand will require Bitcoin to soak up a lot of energy that is currently "wasted" without making a big dent in the otherwise usable energy supply. [Perhaps cite estimates of the break-even point for mining profitability that imply near zero-cost electricity.]''

[http://www.bitcoin.org/smf/index.php?topic=6459.msg98999#msg98999 More] --[[User:JohnTobey253|JohnTobey253]] 04:49, 29 April 2011 (GMT)

This paragraph is not honest. Right now the energy consumption of mining might be raletively low, but it is strongly dependant on BTC value because of economical basics. Please add something like the following:

''Energy consumption for mining has a high correlation with bitcoin exchange rate to fiat currency. Because variable costs of [[mining]] are dominated by electricity price, the economic equilibrium for the mining rate is reached when global electricity costs for mining approximate the value of [[mining]] reward plus [[transaction_fee | transaction fees]]. ''
* ''more efficient mining gear does not reduce energy use of the bitcoin network. It will only raise the network [[difficulty]]''
* ''cheaper energy linearly increases mining energy use of the bitcoin network''
* ''the same conclusions apply to all [[proof of work]] based currencies (i.e. [[Litecoin]]).''

I'v estimated that bitcoin has the potential to increase world electricity consumption by 7% if really breaking through (meaning drawing equal to the USD in market cap). If you're not convinced, please come and [https://bitcointalk.org/index.php?topic=181759.0 discuss with me]
[[User:Brenzi|Brenzi]] ([[User talk:Brenzi|talk]]) 21:12, 22 April 2013 (GMT)

==Ratio of Capital Costs versus Electrical Costs==
This interesting, but it wrongly assumes that the lifetime can be determined by amortisation time. Mining gear will be run as long as bitcoin rewards are higher than electricity cost. Amortisation is irrelevant for this aspect.

== Categories and subcategories ==

Now we have everything in one place, but it should be divided into smaller subcategories to make it easier to find interesting topic

--[[User:Zwierzak|Zwierzak]] 22:03, 13 August 2011 (GMT)

That's an excellent idea.

--[[User:Atheros|Atheros]] 03:46, 11 November 2011 (GMT)

== Early adopter advantage ==

I'd like to comment on the fact that new bitcoins are evenly and competitively distributed over a period of 140 years or so. We are still very much in the "early" stages of bitcoin and only just recently passed "the half way mark" with two more halvings in the next 8 years. The generation of 90% of all new bitcoins happens over the first 15 years or so. [[User:JulianTosh|JulianTosh]] 2012-12-11 19:18 (GMT-8)

Myths

2013-04-24T17:37:23Z

Brenzi: /* Bitcoin mining is a waste of energy and harmful for ecology */

Let's clear up some common Bitcoin misconceptions.

== Bitcoin is just like all other digital currencies; nothing new ==

Nearly all other digital currencies are centrally controlled. This means that:
* They can be printed at the subjective whims of the controllers
* They can be destroyed by attacking the central point of control
* Arbitrary rules can be imposed upon their users by the controllers

Being decentralized, Bitcoin solves all of these problems.

== Bitcoins don't solve any problems that fiat currency and/or gold doesn't solve ==

Unlike gold, bitcoins are:
* Easy to transfer
* Easy to secure
* Easy to verify
* Easy to granulate

Unlike fiat currencies, bitcoins are:
* Predictable and limited in [[Controlled_Currency_Supply|supply]]
* Not controlled by a central authority (such as [http://en.wikipedia.org/wiki/Federal_Reserve The United States Federal Reserve])
* Not debt-based

Unlike electronic fiat currency systems, bitcoins are:
* Potentially anonymous
* Freeze-proof
* Faster to transfer
* Cheaper to transfer

== Bitcoin is backed by processing power ==

It is not correct to say that Bitcoin is "backed by" processing power. A currency being "backed" means that it is pegged to something else via a central party at a certain exchange rate yet you cannot exchange bitcoins for the computing power that was used to create them. Bitcoin is in this sense not backed by anything. It is a currency in its own right. Just as gold is not backed by anything, the same applies to Bitcoin.

The Bitcoin currency is ''created'' via processing power, and the integrity of the block chain is ''protected'' by the existence of a network of powerful computing nodes from certain [[Weaknesses#Attacker_has_a_lot_of_computing_power|attacks]].

== Bitcoins are worthless because they aren't backed by anything ==

One could argue that gold isn't backed by anything either. Bitcoins have properties resulting from the system's design that allows them to be subjectively valued by individuals. This valuation is demonstrated when individuals freely exchange for or with bitcoins. Please refer to the [http://en.wikipedia.org/wiki/Subjective_theory_of_value Subjective Theory of Value].

See also: the "[[#Bitcoin_is_backed_by_processing_power|Bitcoin is backed by processing power]]" myth.

== The value of bitcoins are based on how much electricity and computing power it takes to mine them ==

This statement is an attempt to apply to Bitcoin the [http://en.wikipedia.org/wiki/Labor_theory_of_value labor theory of value], which is generally accepted as false. Just because something takes X resources to create does not mean that the resulting product will be worth X. It can be worth more, or less, depending on the utility thereof to its users.

In fact the causality is the reverse of that (this applies to the labor theory of value in general). The cost to mine bitcoins is based on how much they are worth. If bitcoins go up in value, more people will mine (because [[Mining|mining]] is profitable), thus [[difficulty]] will go up, thus the cost of mining will go up. The inverse happens if bitcoins go down in value. These effects balance out to cause mining to always cost an amount proportional to the value of bitcoins it produces.

== Bitcoins have no intrinsic value (unlike some other things) ==

It is true that bitcoins have no intrinsic value, in the [http://en.wikipedia.org/wiki/Intrinsic_value_%28numismatics%29 numismatic sense], in other words, value in any realm outside of being used as a medium of exchange.

However, while some tangible commodities do have intrinsic value, that value is generally much less than its trading price. Consider for example that gold, if it were not used as an inflation-proof store of value, but rather only for its industrial uses, would certainly not be worth what it is today, since the industrial requirements for gold are far smaller than the available supply thereof.

While historically intrinsic value, as well as other attributes like divisibility, fungibility, scarcity, durability, helped establish certain commodities as mediums of exchange, it is certainly not a prerequisite. While bitcoins lack 'intrinsic value' in this sense, they make up for it in spades by possessing the other qualities necessary to make it a good medium of exchange, equal to or better than [http://en.wikipedia.org/wiki/Commodity_money commodity money].

Value is ultimately determined by what people are willing to trade for - by supply and demand.

== Bitcoins are illegal because they're not legal tender ==
In March 2013, the U.S. [http://en.wikipedia.org/wiki/Financial_Crimes_Enforcement_Network Financial Crimes Enforcement Network] issues a new set of guidelines on "de-centralized virtual currency", clearly targeting Bitcoin. Under the new guidelines, "a user of virtual currency is not a Money Services Businesses (MSB) under FinCEN's regulations and therefore is not subject to MSB registration, reporting, and record keeping regulations." [[Mining|Miners]] on the other hand, might need to register, if they sell bitcoins for "real currency or its equivalent".<ref>[http://arstechnica.com/tech-policy/2013/03/us-regulator-bitcoin-exchanges-must-comply-with-money-laundering-laws/ US regulator: Bitcoin exchanges must comply with money-laundering laws | Ars Technica]</ref>

In general, there are a [http://en.wikipedia.org/wiki/Local_currency number of currencies] in existence that are not official government-backed currencies. A currency is, after all, nothing more than a convenient unit of account. While national laws may vary from country to country, and you should certainly check the laws of your jurisdiction, in general trading in any commodity, including digital currency like Bitcoin, [http://en.wikipedia.org/wiki/BerkShares BerkShares], game currencies like WoW gold, or Linden dollars, is not illegal.

== Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency ==

According to [http://en.wikipedia.org/wiki/Definitions_of_terrorism#United_States the definition of terrorism in the United States], you need to do violent activities to be considered a terrorist for legal purposes. Recent off-the-cuff remarks by politicians have no basis in law or fact.

Also, Bitcoin isn't domestic to the US or any other country. It's a worldwide community, as can be seen in this [https://bitcointalk.org/?topic=2346.0 map of Bitcoin nodes].

== Bitcoin will only enable tax evaders which will lead to the eventual downfall of civilization ==

Cash transactions hold the same level of anonymity but are still taxed successfully. It is up to you to follow the applicable state laws in your home country, or face the consequences.

While it may be easy to transfer bitcoins anonymously, ''spending'' them anonymously on tangibles is just as hard as spending any other kind of money anonymously. Tax evaders are often caught because their lifestyle and assets are inconsistent with their reported income, and not necessarily because government is able to follow their money.

== Bitcoins can be printed/minted by anyone and are therefore worthless ==

Bitcoins are not printed/minted. Instead, [[Blocks]] are computed by miners and for their efforts they are awarded a specific amount of bitcoins and transaction fees paid by others. See [[Mining]] for more information on how this process works.

== Bitcoins are worthless because they're based on unproven cryptography ==

SHA256 and ECDSA which are used in Bitcoin are well-known industry standard algorithms. SHA256 is endorsed and used by the US Government and is standardized (FIPS180-3 Secure Hash Standard). If you believe that these algorithms are untrustworthy then you should not trust Bitcoin, credit card transactions or any type of electronic bank transfer. Bitcoin has a sound basis in well understood cryptography.

== Early adopters are unfairly rewarded ==

Early adopters are rewarded for taking the higher risk with their time and money. This argument is akin to saying that people who buy stock at a company IPO (Initial Public Offering) are unfairly rewarded. This argument also depends on bitcoin early adopters using bitcoins to store rather than transfer value. The daily trade on the exchanges (as of Jan 2012) indicates that smaller transactions are becoming the norm, indicating trade rather than investment.

In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be agreed upon by a large population. Establishing "fairness" is no goal of Bitcoin, as this would be impossible.

By starting to mine or acquire bitcoins today, you too can become an early adopter.

== 21 million coins isn't enough; doesn't scale ==

One Bitcoin is divisible down to eight decimal places. There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the bitcoin design.

The value of "1 BTC" represents 100,000,000 of these. In other words, each is divisible by up to 10^8.

As the value of the unit of 1 BTC grows too large to be useful for day to day transactions, people can start dealing in smaller [[Units|units]], such as milli-bitcoins (mBTC) or micro-bitcoins (μBTC).

== Bitcoins are stored in wallet files, just copy the wallet file to get more coins! ==

No, your wallet contains your secret keys, giving you the rights to spend your bitcoins. Think of it like having bank details stored in a file. If you give your bank details (or bitcoin wallet) to someone else, that doesn't double the amount of money in your account. You can spend your money or they can spend your money, but not both.

== Lost coins can't be replaced and this is bad ==

Bitcoins are divisible to 0.00000001, so there being fewer bitcoins remaining is not a problem for the currency itself. If you lose your coins, all other coins will go up in value a little. Consider it a donation to all other bitcoin users.

A related question is: Why don't we have a mechanism to replace lost coins? The answer is that it is impossible to distinguish between a 'lost' coin and one that is simply sitting unused in someone's wallet.

== It's a giant ponzi scheme ==
In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. In a ponzi scheme, early adopters can only profit at the expense of late adopters, and the late adopters always lose. Bitcoin has an expected win-win outcome. Early and present adopters profit from the rise in value as Bitcoins become better understood and in turn demanded by the public at large. All adopters benefit from the usefulness of a reliable and widely-accepted decentralized peer-to-peer currency.

== Finite coins plus lost coins means deflationary spiral ==
As deflationary forces may apply, economic factors such as hoarding are offset by human factors that may lessen the chances that a [[Deflationary spiral]] will occur.

== Bitcoin can't work because there is no way to control inflation ==

Inflation is simply a rise of prices over time, which is generally the result of the devaluing of a currency. This is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks.

Given the fact that Bitcoin is a distributed system of currency, if demand were to decrease to almost nothing, the currency would be doomed anyway.

The key point here is that Bitcoin as a currency can't be inflated by any single person or entity, like a government, as there's no way to increase supply past a certain amount.

Indeed, the most likely scenario, as Bitcoin becomes more popular and demand increases, is for the currency to increase in value, or deflate, until demand stabilizes.

== The Bitcoin community consists of anarchist/conspiracy theorist/gold standard 'weenies' ==

The members of the community vary in their ideological stances.

== Anyone with enough computing power can take over the network ==

CONFIRMED, see [[Weaknesses]].

That said, as the network grows, it becomes harder and harder for a single entity to do so. Already the Bitcoin network's computing power is quite ahead of the world's fastest supercomputers, together.

What an attacker can do once the network is taken over is quite limited. Under no circumstances could an attacker create counterfeit coins, fake transactions, or take anybody else's money. An attacker's capabilities are limited to taking back their own money that they very recently spent, and preventing other people's transactions from receiving confirmations. Such an attack would be very costly in resources, and for such meager benefits there is little rational economic incentive to do such a thing.

Furthermore, this attack scenario would only be feasible for as long as it was actively underway. As soon as the attack stopped, the network would resume normal operation.

== Bitcoin violates governmental regulations ==

There is no known governmental regulation which disallows the use of Bitcoin.

See also: the "[[#Bitcoins_are_illegal_because_they.27re_not_legal_tender|Bitcoins are illegal because they're not legal tender]]" myth.

== Fractional reserve banking is not possible ==

It is possible. See the main article, [[Fractional Reserve Banking and Bitcoin]]

== Point of sale with bitcoins isn't possible because of the 10 minute wait for confirmation ==

It is true that transactions [[FAQ#Why_do_I_have_to_wait_10_minutes_before_I_can_spend_money_I_received.3F|can]] sometimes take tens of minutes to become ''confirmed''. Despite this, retailers can accept unconfirmed transactions with very little risk by simply 'listening' on the network for a double-spend transaction, or partnering with a company that provides this service. After a head start of merely several seconds, the original transaction would reach so much of the Bitcoin network that a fraudulent double-spend transaction would almost certainly be fruitless. An attacker would have to commit easily-detectable fraud, in person, several hundred or several thousand times, before one of these low-value double-spend attempts would likely succeed.

An attacker could work around the necessity of sending out a second fraudulent transaction to the Bitcoin network by attempting to [[Mining|solo-mine]] an attack block containing the attack transaction himself - temporarily withholding the block with the rest of the network - and then execute the fraudulent purchase within seconds, or minutes at most, of mining the attack block, before broadcasting the attack block. However, the cost of such an activity would dramatically outweigh the value of anything typically offered without a confirmation wait for several reasons.

First, mining a block (attack or otherwise) entitles the miner to a valuable block reward, and because the attack involves temporarily withholding the block from the network, the attacker would put himself in the likely position of his block becoming [[Stale block|stale]], which would result in forfeiture of the entire reward. Most solo miners solve less than one block per month, so this would represent the loss of proceeds of potentially several weeks of mining.

Second, it is not possible for a solo miner to know exactly when his mining activity will yield a block, and because the attack must be carried out within seconds or minutes of successfully mining a block, the attacker will not be able to know or plan in advance the brief window when the attack would be likely to succeed. While it may be easy for a determined attacker to get low-value items that are sold and delivered online instantly without waiting for confirmations (such as downloads), this unpredictability and the briefness of the opportunity would make it extremely difficult to commit any kind of fraud where real-life interaction is required, such as visiting a merchant or taking possession of goods. Petty shoplifting would be far simpler. Even if an attacker went forward with this attack, the retailer would be notified of the fraud the moment the attack block is released seconds later.

In short, the 10-minute wait for confirmation is only practically necessary when delivering goods of value that significantly exceed the block reward an attacker would have to risk to perform an attack and where recourse after delivery is practically nonexistent, such as money transfers.

== After 21 million coins are mined, no one will generate new blocks ==

When operating costs can't be covered by the block creation bounty, which will happen some time before the total amount of BTC is reached, miners will earn some profit from [[transaction fees]]. However unlike the block reward, there is [http://bitcoin.stackexchange.com/questions/876/how-much-will-transaction-fees-eventually-be/895#895 no coupling between transaction fees and the need for security], so there is less of a guarantee that the amount of [[Mining|mining]] being performed will be sufficient to maintain the network's security.

== Bitcoin has no built-in chargeback mechanism, and this isn't good ==

'''Why some people think this is bad''': Chargebacks are useful for limiting fraud. The person handling your money has a responsibility to prevent fraud. If you buy something on eBay and the seller never ships it, PayPal takes funds from the seller's account and gives you back the money. This strengthens the eBay economy, because people recognize that their risk is limited and are more willing to purchase items from risky sellers.

'''Why it's actually a good thing''': Bitcoin is designed such that your money is yours and yours alone. Allowing chargebacks implies that it is possible for another entity to take your money from you. You can have either total ownership rights of your money, or fraud protection, but not both. That said, nothing inherent in the dollar or euro or any other currency is necessary for chargebacks to be possible, and likewise, nothing prevents the creation of PayPal-like services denominated in Bitcoin that provide chargebacks or fraud protection.

The statement "The person handling your money has a responsibility to prevent fraud" is still true; the power has been shifted into your own hands. Fraud will always exist. It's up to you to only send bitcoins to trusted entities. It is possible to trust an online identity without ever knowing their physical identity; see the [http://wiki.bitcoin-otc.com/wiki/OTC_Rating_System OTC Web of Trust].

== Quantum computers would break Bitcoin's security ==

While ECDSA is indeed not secure under quantum computing, quantum computers don't yet exist and probably won't for a while.
The DWAVE system often written about in the press is, even if all their claims are true, not a quantum computer of a kind that could be used for cryptography.
Bitcoin's security, when used properly with a new address on each transaction, depends on more than just ECDSA: Cryptographic hashes are much stronger than ECDSA under QC.
Bitcoin's security was designed to be upgraded in a forward compatible way and could be [http://en.wikipedia.org/wiki/Post-quantum_cryptography upgraded] if this were considered an imminent threat.

See the implications of quantum computers on public key cryptography here http://en.wikipedia.org/wiki/Quantum_computer#Potential

The ''risk'' of quantum computers is also there for financial institutions, like banks, because they heavily rely on cryptography when doing transactions.

== [[Mining|Bitcoin mining]] is a waste of energy and harmful for ecology ==
This might become true once bitcoin value rises to a globally significant level. See [[weaknesses]].

Today: No more so than the wastefulness of mining gold out of the ground, melting it down and shaping it into bars, and then putting it back underground again. Not to mention the building of big fancy buildings, the waste of energy printing and minting all the various fiat currencies, the transportation thereof in armored cars by no less than two security guards for each who could probably be doing something more productive, etc.

As far as mediums of exchange go, Bitcoin is actually quite economical of resources, compared to others.

'''Economic Argument 1'''

[[Mining|Bitcoin mining]] is a highly competitive, dynamic, almost [http://en.wikipedia.org/wiki/Perfect_market perfect], market. Mining rigs can be set up and dismantled almost anywhere in the world with relative ease. Thus, market forces are constantly pushing mining activity to ''places'' and ''times'' where the marginal price of electricity is low or zero. These electricity products are cheap for a reason. Often it’s because the electricity is difficult (and wasteful) to transport, difficult to store, or because there is low demand and high supply. Using electricity in this way is a lot less wasteful than simply plugging a mining rig into the mains indiscriminately.

For example, Iceland produces an excess of cheap electricity from renewable sources, but it has no way of exporting electricity because of its remote location. It is conceivable that at some point in future Bitcoin mining will only be profitable in places like Iceland, and unprofitable in places like central Europe, where electricity comes mostly from nuclear and fossil sources.

Market forces could even push mining into innovative solutions that have an effective electricity consumption of ''zero''. Mining always produces heat equivalent to the energy consumed - for example, 1000 watts of mining equipment produces the same amount of heat as a 1000 watt heating element used in an electric space heater, hot tub, water heater, or similar appliance. Someone already in a willing position to incur the cost of electricity for its heat value alone could run mining equipment specially designed to mine bitcoins while capturing and utilizing the heat produced, without incurring any energy costs beyond what they already intended to spend on heating.

'''Economic Argument 2'''

When the environmental costs of mining are considered, they need to be weighed up against the benefits. If you question Bitcoin on the grounds that it consumes electricity, then you should also ask questions like this: Will Bitcoin promote economic growth by freeing up trade? Will this speed up the rate of technological innovation? Will this lead to faster development of green technologies? Will Bitcoin enable new, border crossing [http://en.wikipedia.org/wiki/Smart_grid smart grid] technologies? …

Dismissal of Bitcoin because of its costs, while ignoring its benefits, is a dishonest argument. In fact, any environmental argument of this type is dishonest, not just pertaining to Bitcoin. Along similar lines, it could be argued that wind turbines are bad for the environment because making the steel structure consumes energy.

== Shopkeepers can't seriously set prices in bitcoins because of the volatile exchange rate ==

Your assumption is that bitcoins must be sold immediately to cover operating expenses. If the shopkeeper's back-end expenses were transacted in bitcoins as well, then the exchange rate would be irrelevant. Larger adoption of Bitcoin would make prices [http://en.wikipedia.org/wiki/Sticky_%28economics%29 sticky]. Future volatility is expected to decrease, as the size and depth of the market grows.

In the meantime, many merchants simply regularly pull the latest market rates from the exchanges and automatically update the prices on their websites. Also you might be able to buy a put option in order to sell at a fixed rate for a given amount of time. This would protect you from drops in price and simplify your operations for that time period.

== Like Flooz and e-gold, bitcoins serve as opportunities for criminals and will be shut down ==

* Visa, MasterCard, PayPal, and cash all serve as opportunities for criminals as well, but society keeps them around due to their recognized net benefit.
* Hopefully Bitcoin will grow to the point where no single organization can disrupt the network, or would be better served by helping it.
* Terrorists fly aircraft into buildings, but the governments have not yet abolished consumer air travel. Obviously the public good outweighs the possible bad in their opinion.
* Criminal law differs between jurisdictions.

== Bitcoins will be shut down by the government just like Liberty Dollars were ==

Liberty Dollars started as a commercial venture to establish an alternative US currency, including physical banknotes and coins, backed by precious metals. This, in and of itself, is not illegal. They were prosecuted under counterfeiting laws because the silver coins allegedly resembled US currency.

Bitcoins do not resemble the currency of the US or of any other nation in any way, shape, or form. The word "dollar" is not attached to them in any way. The "$" symbol is not used in any way.

Bitcoins have no representational similarity whatsoever to US dollars.

Of course, actually 'shutting down' Liberty Dollars was as easy as arresting the head of the company and seizing the offices and the precious metals used as backing. The decentralized Bitcoin, with no leader, no servers, no office, and no tangible asset backing, does not have the same vulnerability.

== Bitcoin is not decentralized because the developers can dictate the software's behavior ==

The Bitcoin protocol was originally defined by Bitcoin's inventor, [[Satoshi Nakamoto]], and this protocol has now been widely accepted as the standard by the community of miners and users.

Though the developers of the original Bitcoin client still exert influence over the Bitcoin community, their power to arbitrarily modify the protocol is very limited. Since the release of Bitcoin v0.3, changes to the protocol have been minor and always in agreement with community consensus.

Protocol modifications, such as increasing the block award from 25 to 50 BTC, are not compatible with clients already running in the network. If the developers were to release a new client that the majority of miners perceives as corrupt, or in violation of the project’s aims, that client would simply not catch on, and the few users who do try to use it would find that their transactions get rejected by the network.

There are also other [[:Category:Clients|Bitcoin clients made by other developers]] that adhere to the Bitcoin protocol. As more developers create alternative clients, less power will lie with the developers of the original Bitcoin client.

== Bitcoin is a pyramid scheme ==

Bitcoin is nearly opposite of a pyramid scheme in a mathematical sense. Because Bitcoins are algorithmically made scarce, no exponential benefit is derived from introducing new users to use of it. There is a quantitative benefit in having additional interest or demand, but this is in no way exponential.

== Bitcoin was hacked ==

In the history of Bitcoin, there has never been an attack on the [[block chain]] that resulted in stolen money from a confirmed output. Neither has there ever been a reported theft resulting directly from a vulnerability in the [[Original Bitcoin client|original Bitcoin client]], or a vulnerability in the protocol. Bitcoin is secured by standard cryptographic functions. These functions have been peer reviewed by cryptography experts and are considered unlikely to be breakable in the foreseeable future.

It is safe to say that the currency itself has never been 'hacked'. However, several major ''websites'' using the currency have been hacked, often resulting in high profile Bitcoin heists. These heists are misreported in some media as hacks on Bitcoin itself. An analogy: Just because someone stole US dollars from a supermarket till, doesn’t mean that the US dollar as a currency has been 'hacked'.

Most bitcoin thefts are the result of inadequate [[Securing your wallet|wallet security]]. In response to the wave of thefts in 2011 and 2012, the community has developed risk-mitigating measures such as [[Wallet_encryption|wallet encryption]], support for [[BIP_0011|multiple signatures]], [[How_to_set_up_a_secure_offline_savings_wallet|offline wallets]], [[Paper_wallet|paper wallets]], and [[Hardware_wallet|hardware wallets]]. As these measures gain adoption by merchants and users, it is expected that the number of thefts will drop.

==References==
<references/>

[[de:Mythen]]

Weaknesses

2013-04-23T22:38:23Z

Brenzi: Energy consumption

== Might be a problem ==
=== Wallet Vulnerable To Theft ===

The [[wallet]] is stored unencrypted, by default, and thus becomes a valuable target for theft. Recent releases of the Bitcoin client now supports encryption to protect the wallet data, though the user must opt-in.

==== New wallets vulnerable with old passwords via backups ====

An old copy of a wallet with its old password is often easily retrievable via an existing backup facility (particularly Apple Time-Machine): draining that old wallet, with its old password, drains the current wallet with the current password -- this is contrary to most non-technical users expectation of what 'change the password on your wallet' should mean following password compromise.

An initial solution is to mandate (either in code or as expressed policy) that changing a wallet's password causes (or asks the user to cause) the creation of a new wallet with new addresses, and the sending of existing sums to them. Backed-up copies of the original wallet with the original password would then be empty, should they be compromised. On the downside, the password-changing process would potentially take much longer, cost a transaction fee or more, and - intially at least - the new wakllet is no longer backed up. On the upside, non-technical users won't find their wallets drained from security compromises they believed they had closed, nor be required to locate existing backups of a wallet in order to destroy them.

=== Tracing a coin's history ===
Tracing a coin's history can be used to connect identities to addresses. [[Anonymity|More info]].

=== Cancer nodes ===
It's trivial for an attacker to fill the network with clients controlled by him. This might be helpful in the execution of other attacks.

For example, an attacker might connect 100,000 IP addresses to the IRC bootstrap channel. You would then be very likely to connect only to attacker nodes. This state can be exploited in (at least) the following ways:
* The attacker can refuse to relay blocks and transactions from everyone, disconnecting you from the network.
* The attacker can relay only blocks that he creates, putting you on a separate network. You're then open to [[double-spending]] attacks.
* If you rely on transactions with 0 confirmations, the attacker can just filter out certain transactions to execute a double-spending attack.
* Low-latency encryption/anonymization of Bitcoin's transmissions (With Tor, JAP, etc.) can be defeated relatively easy with a timing attack if you're connected to several of the attacker's nodes and the attacker is watching your transmissions at your ISP.

Bitcoin makes these attacks more difficult by only making an outbound connection to one IP address per /16 (x.y.0.0). Incoming connections are unlimited and unregulated, but this is generally only a problem in the anonymity case, where you're probably already unable to accept incoming connections.

Looking for suspiciously low network hash-rates may help prevent the second one.

=== No authentication for IP transfers ===
Since there's no authentication when sending to an [[IP address]] (as opposed to a [[Address|Bitcoin address]]), executing a man-in-the-middle attack and stealing the sent BitCoins is trivial. This attack is downright ''likely'' if you're using Tor. For this reason, IP transfers are disabled by default in modern Bitcoin clients, though the feature can be enabled with a command line argument if desired.

=== Packet sniffing ===
Someone who can see all of your Internet traffic can easily see when you send a transaction that you didn't receive (which means that it's yours). This would be made more difficult (but not impossible) if node-to-node encryption was used.

=== Denial of Service (DoS) attacks ===
Sending lots of data to a node may make it so busy it cannot process normal Bitcoin transactions. Bitcoin has some denial-of-service prevention built-in, but is likely still vulnerable to more sophisticated denial-of-service attacks.

These are the current Bitcoin Satoshi client protections to deter DoS attacks, as of version 0.7.0:

# Does not forward orphan transactions/blocks
# Does not forward double-spend transactions
# Does not forward the same block, transaction or alert twice to the same peer.
# Continuous rate-limit of free transactions to mitigate 'penny-flooding'
# Keeps a DoS score of each connected peer and disconnects from a peer that send messages that fail to comply with the rules.
# Bans IP addresses that misbehave for a time lapse (24 hours default)
# Limits the number of stored orphan transactions (10000 by default)
# Uses a signature cache to prevent attacks that try to continuously trigger the re-verification of stored orphan transactions (protects from https://bitcointalk.org/index.php?topic=136422.0 attack)
# Limits the number of stored signatures in the signature cache (50000 signatures by default)
# Tries to catch all possible errors in transactions before the signature verifications take place, to avoid DoS attacks on CPU usage.
# Penalizes peers that send lots of duplicate/expired/invalid-signature/whatever alerts, so they eventually get banned.
# In orphan/signature caches, when removing an item, evicts a random entry.
# Data structures are specially chosen to avoid loops in which the number of iterations can be controlled by an attacker that result in exponential complexity.
# Ignores big orphan transactions, to avoid a send-big-orphans memory exhaustion attack.
# In RPC: Only sends a HTTP 403 response if it's not using SSL to prevent a DoS during the SSL handshake.
# In RPC: Sleeps some time if authorization fails to deter brute-forcing short passwords.
# In GUI: Limits URI length to prevent a DoS against the QR-Code dialog
# Considers non-standard signature scripts with size greater than 500 bytes.
# Considers non-standard signature scripts that contain operations that are not PUSHs.
# Does not forward nor process non-standard transactions

These are protocol rules built to prevent DoS:

# Restricts the block size to 1 megabyte.
# Restricts the maximum number of signature checks a transaction input may request
# Limits the size of each script (up to 10000 bytes)
# Limits the size of each value pushed while evaluating a a script (up to 520 bytes)
# Limits the number of expensive operations in a script (up to 201 operations). All but pushs are considered expensive. Also each key argument of signature checking in multi-signature checking (OP_CHECKMULTISIG) is considered an additional operation.
# Limits the number of key arguments OP_CHECKMULTISIG can use (up to 20 keys)
# Limits the number of the stack elements that can be stored simultaneously (up to 1000 elements, in standard and alt stacks together)
# Limits the number of signature checks a block may request (up to 20000 checks)

These are the Satoshi client protections added in version 0.8.0:

# Transactions greater than 100 Kbytes are considered non-standard (protects from variations of the https://bitcointalk.org/index.php?topic=140078.0 attack).
# Only the UXTO (Unspent Transaction Output Set) is stored in memory, the remaining data is stored on disk.
# When processing a transaction, before fetching transaction inputs from disk to memory, the client checks that all the inputs are unspent (protects from the Continuous Hard Disk Seek/Read Activity (https://bitcointalk.org/index.php?topic=144122.0) DoS attack)

Satoshi client does not directly limit peer bandwidth nor CPU usage.

=== Forcing clock drift against a target node ===

See [http://culubas.blogspot.com/2011/05/timejacking-bitcoin_802.html Timejacking] for a description of this attack. It can be fixed by changing how nodes calculate the current time.

=== Illegal content in the block chain ===
It is illegal in some countries to possess/distribute certain kinds of data. Since arbitrary data can be included in Bitcoin transactions, and clients must normally have a copy of all unspent transactions, this could cause legal problems.

=== Security Vulnerabilities and bugs ===
It's possible but unlikely that a newly discovered bug or security vulnerability in the standard client could lead to a block chain split, or the need for every node to upgrade in a short time period. For example, a single malformed message tailored to exploit a specific vulnerability, when spread from node to node, could cause the whole network to shutdown in a few hours. Bugs that break user anonymity, on the contrary, have been found, since the pseudo-anonymity property of Bitcoin has been analyzed less.
Starting from version 0.7.0, Bitcoin client can be considered a mature project. The security critical sections of the source code are updated less and less frequently and those parts have been reviewed by many computer security experts. Also Bitcoin Satoshi client has passed the test of being on-line for more than 3 years, without a single vulnerability being exploited ''in the wild''.
See [[Common_Vulnerabilities_and_Exposures]] for a detailed list of vulnerabilities detected and fixed.

=== Energy Consumption ===
Energy consumption for mining has a high correlation with bitcoin value (exchange rate). Because variable costs of [[mining]] are dominated by electricity price, the economic equilibrium for the mining rate is reached when global electricity costs for mining approximate the value of [[mining]] reward plus [[transaction_fee | transaction fees]].

So the higher the value of one bitcoin, the higher the value of mining rewards and transaction fees, the higher the energy consumption of the bitcoin network in the long run.

* more efficient mining gear does not reduce energy use of the bitcoin network. It will only raise the network [[difficulty]]
* cheaper energy linearly increases mining energy use of the bitcoin network
* the same conclusions apply to all [[proof of work]] based currencies (i.e. [[Litecoin]]).

== Probably not a problem ==

===Breaking the cryptography===
SHA-256 and ECDSA are considered very strong currently, but they might be broken in the far future. If that happens, BitCoin can shift to a stronger algorithm. [https://bitcointalk.org/index.php?topic=191.msg1585#msg1585 More info].

===Scalability===
BitCoin can easily scale beyond the level of traffic VISA sees globally today. See the discussion on the [[scalability]] page for more information.

===Segmentation===
If there is even a "trickle" of a connection between two sides of a segmented network, things should still work perfectly. When block chains are combined, all of the non-generation transactions in the shorter chain are re-added to the transaction pool -- they'll start over at 0/unconfirmed, but they'll still be valid. No mature transactions will be lost unless the segmentation persists for longer than ~120 blocks. Then generations will start to mature, and any transactions based on those generations will become invalid when recombined with the longer chain. [https://bitcointalk.org/index.php?topic=241.msg2071#msg2071 More info].

=== Attacking all users ===
The IP addresses of most users are totally public. You can use Tor to hide this, but the network won't work if everyone does this. BitCoin requires that ''some'' country is still free.

=== Dropping transactions ===
Nodes that generate blocks can choose not to include a transaction in their blocks. When this happens, the transaction remains "active" and can be included in a later block. Two things discourage this:
* Nodes only hash a fixed-size ''header'', so there is no speed advantage to dropping transactions.
* [[Satoshi]] has [https://bitcointalk.org/index.php?topic=165.msg1595#msg1595 communicated] that he will write code to stop this kind of thing if it becomes a problem.

=== Attacker has a lot of computing power ===
An attacker that controls more than 50% of the network's computing power can, for the time that he is in control, exclude and modify the ordering of transactions. This allows him to:
* Reverse transactions that he sends while he's in control. This has the potential to [[Double-spending#51.25_attack|double-spend transactions]] that previously had already been seen in the block chain.
* Prevent some or all transactions from gaining any confirmations
* Prevent some or all other miners from mining any valid blocks
The attacker ''can't'':
* Reverse other people's transactions
* Prevent transactions from being sent at all (they'll show as 0/unconfirmed)
* Change the number of coins generated per block
* Create coins out of thin air
* Send coins that never belonged to him

With less than 50%, the same kind of attacks are possible, but with less than 100% rate of success.
For example, someone with only 40% of the network computing power can overcome a 6-deep confirmed transaction with a 50% success rate.

It's much more difficult to change historical blocks, and it becomes exponentially more difficult the further back you go. As above, changing historical blocks only allows you to exclude and change the ordering of transactions. It's impossible to change blocks created before the last checkpoint.

Since this attack doesn't permit all that much power over the network, it is expected that no one will attempt it. A profit-seeking person will always gain more by just following the rules, and even someone trying to destroy the system will probably find other attacks more attractive. However, if this attack is successfully executed, it will be difficult or impossible to "untangle" the mess created -- any changes the attacker makes might become permanent.

=== Spamming transactions ===

It is easy to send transactions to yourself repeatedly. If these transactions fill blocks to the maximum size (1MB), other transactions would be delayed until the next block.

This is made expensive by the [[transaction fee|fees]] that would be required after the 50KB of free transactions per block are exhausted. An attacker will eventually eliminate free transactions, but Bitcoin fees will always be low because raising fees above 0.01 BTC per KB would require spending transaction fees. An attacker will eventually run out of money. Even if an attacker wants to waste money, transactions are further prioritized by the time since the coins were last spent, so attacks spending the same coins repeatedly are less effective.

=== The [[Double-spending#Finney_attack|Finney attack]] ===
Named for Hal Finney, who first described this variation of a double-spend attack involving accepting [http://www.bitcointalk.org/index.php?topic=3441.msg48384#msg48384 0-confirmation transactions]. Accepting 0-confirmation large-value transactions is problematic; accepting them for low-value transactions (after waiting several seconds to detect an ordinary double-spend attempt) is probably safe.

===Rival/malicious client code===
Any rival client must follow Bitcoin's rules or else all current BitCoin clients will ignore it. You'd have to actually get people to ''use'' your client. A better client that pretends to follow the same rules, but with an exception known only to the author (possibly by making it closed source), might conceivably be able to gain widespread adoption. At that point, its author could use his exception and go largely unnoticed.

== Definitely not a problem ==

===Coin destruction===
Bitcoin has 2.1 quadrillion raw units, making up 8 decimals of BTC precision, so the entire network could potentially operate on much less than the full quantity of Bitcoins. If deflation gets to the point where transactions of more than 10 BTC are unheard of, clients can just switch to another unit so that, for example, it shows 10 mBTC rather than 0.01 BTC.

The maximum number of raw units might not be enough if the ''entire world'' starts using BTC, but it would not be too difficult to increase precision in that case. The transaction format and version number would be scheduled to change at some particular block number after a year or two, and everyone would have to update by then.

===Generating tons of addresses===
Generating an address doesn't touch the network at all. You'd only be wasting your CPU resources and disk space.

Also, a collision is highly unlikely.

Keys are 256 bit in length and are hashed in a 160 bit address.(2^160th power)
Divide it by the world population and you have about 215,000,000,000,000,000,000,000,000,000,000,000,000 addresses per capita.(2.15 x 10^38)[http://www.wolframalpha.com/input/?i=2^160+%2F+world+population]

===Everyone calculates at the same rate===
If everyone began with identical blocks and started their nonce at 1 and incremented, the fastest machine would always win. However, each block contains a new, random public key known only to you in the list of transactions. The 256-bit "Merkle tree" hash of this is part of the block header.

So everyone begins with slightly different blocks and everyone truly has a random chance of winning (modified by CPU power).

===Generate "valid" blocks with a lower difficulty than normal===
Using unmodified Bitcoin code, an attacker could segment himself from the main network and generate a long block chain with a lower difficulty than the real network. These blocks would be totally valid for his network. However, it would be impossible to combine the two networks (and the "false" chain would be destroyed in the process).

* Even though your network's difficulty can be less than the real difficulty, this doesn't give you any advantage over the real network. You'll gain ground when the real network is taking more than 10 minutes to generate a block, but you'll lose ground when the network takes less than 10 minutes.
* Every few releases of Bitcoin, a recent block hash is hardcoded into the source code. Any blocks before that point can't be changed. An attacker starting at that point would have to reduce the difficulty, but this would require him to generate blocks at a much slower rate than once per 10 minutes. By the time he finally gets to a difficulty of 1, a new version of Bitcoin with an updated hardcoded block will probably have been released.
* "Block chain length" is calculated from the combined difficulty of all the blocks, not just the number of blocks in the chain. The one that represents the most CPU usage will win.

==See Also==

* [[Double-spending]]
* [http://bitcoin.stackexchange.com/questions/10025/where-can-i-find-well-written-criticism-about-bitcoin Stack Exchange]

[[Category:Technical]]

Talk:Myths

2013-04-22T21:23:33Z

Brenzi: /* Bitcoin mining is a waste of energy and harmful for ecology */

= Terrorism =
From the linked Wikipedia page:
:The USA PATRIOT Act defines terrorism activities as "activities that (A) involve acts dangerous to human life that are a violation of the criminal laws of the U.S. or of any state, that (B) appear to be intended (i) to intimidate or coerce a civilian population, (ii) to influence the policy of a government by intimidation or coercion, or (iii) to affect the conduct of a government by mass destruction, assassination, or kidnapping, and (C) occur primarily within the territorial jurisdiction of the U.S."

This definition is broad enough that it could probably be applied to the Bitcoin system. IANAL but I imagine lawyers could pretty easily demonstrate that Bitcoin is 'dangerous to human life' because the Four Horsemen can use it for evil [drug-dealers, money-launderers, terrorists, and pedophiles.] It can 'influence the policy of a government by coercion' by removing options such as Federal Reserve dollars. (C) might be tricky to prove.
[[User:PLATO|PLATO]] 22:34, 23 March 2011 (GMT)

: besides the one attorney general that made a snide remark about terrorism in the LibertyDollar case, i don't think that this is in any way a 'common misconception', so i'd question whether we need to have the 'terrorism' section at all.--[[User:Nanotube|Nanotube]] 04:02, 24 March 2011 (GMT)

I agree. All yes for removing terrorist stuff? [[User:EvanR|EvanR]] 00:10, 30 March 2011 (GMT)

= Fractional Reserve Banking =

I'd like to suggest a change here (translation: I fundamentally disagree with the tenor of the article). Credit Unions/Building Societies could quite easily be created, and this would increase the apparent amount of BTCs in existance, but it probably wouldn't exceed twice the original number.

However, a bank functions differently: it creates a distinction between "hard money" (bank notes+coins) and "credit money" (money in bank accounts). So, in a bank I may deposit some real money (notes) but the bank effectively may lend some of that money to others AND I may also spend that money "in" my account by transferring it via a cheque or e-transfer to another person's account. (Building socities don't allow you to do that.)

Now if I were to make a _BTC_ deposit into a "bank", then I wouldn't be able to spend the money in my "account" using conventional BTC trading (confirmations etc). No, what the bank would have to do is to set up a "virtual BTC" (vBTC) trading system, whereby they would manage accounts and transactions, and banks would owe each other v-BTCs depending on how their clients were deciding to spend/borrow their money. Banks could issue huge (virtually infinitie) amounts of v-BTCs depending on how risky they felt that morning.

But then we'd be back to the present situation with fiat currencies, banks, treasury bills, etc etc. I guess it could be a new kind of "gold standard" - a "BTC standard". But the banks would still rule the world, and I thought we sought a way out of that....

...maybe the ability of the user to transact BTC independently of any "fractional reserve banks" would keep a check on their potentially enormous power. But then if the number of v-BTCs was much more than real BTCs (as seems very likely if FRB took off - currently then ratio of v-GBPs to real GBPs is 20:1) then BTCs might end up so scarce in comparison that user trading in BTCs would no longer take place: it would all be in v-BTCs. All this make me think actually v-BTCs wouldn't work in the conventional way, and therefore that fraction reserve banking might not generate any more than 21m v-BTCs. I'd welcome help here.

So my simple answer to the "Myth" question would be "FRB is possible, but "virtual BTCs" would be created, not real BTCs. [[User:Lawrence18uk|Lawrence18uk]] 19:47, 8 September 2011 (GMT)

No no.. No v-BTCs are necessary for Fractional Reserve Banking at all. You can read how Fractional Reserve Banking works on [http://en.wikipedia.org/wiki/Fractional_reserve_banking#How_it_works Wikipedia]. Pay special attention to the "Example of deposit multiplication" section.

--[[User:Atheros|Atheros]] 03:02, 11 November 2011 (GMT)

= Fractional reserve banking with Bitcoin is fundamentally different =

'''--------PeterSurda said the following-------'''

My edit was removed only because someone disagrees with it, although they did not provide counterarguments. I did not claim that FRB is impossible, I claimed it is unlikely, due to lack of demand for Bitcoin substitutes. Without substitutes, FRB is impossible. '''Supply of Bitcoins cannot be increased beyond 21 million.''' The only thing that can be increased is the amount of Bitcoin substitutes, which are incompatible with Bitcoins. Demand for lending does not increase demand for Bitcoin substitutes. The argument presented by the author of the current text on the wiki is erroneous. It is impossible for a bank to accept a Bitcoin demand deposit and lend it simultaneously. It requires a creation of a Bitcoin-subsitute, for which there is no demand, because Bitcoins can exist in forms that other money, such as gold or fiat, require substitutes. [[User:PeterSurda|PeterSurda]] 09:28, 7 November 2011 (GMT)

I rewrote FRB, hopefully it is more understandable now. I found the explanation of Atheros in my talk page so I was able to address it. [[User:PeterSurda|PeterSurda]] 23:44, 7 November 2011 (GMT)

'''--------Atheros Response-------'''

I (Atheros) have responded on your talk page and I will respond here as well.

You are confused because you are confusing money supply with currency supply. Indeed, you are only using the word "supply". The currency supply is limited to 21 million bitcoins. The money supply is not. MtGox could tomorrow start lending out the hundreds of thousands of bitcoins they have in cold storage without adjusting the amount of bitcoins presented to users as available for withdrawal. They would maintain a reserve for the people who do withdraw bitcoins. We would then instantly have Fractional Reserve Banking. You need to give up this idea of substitutes that you keep using. Substitutes which are fundamentally different from Bitcoins are not necessary for fractional reserve banking. You've said several times on several talk pages that "Without substitutes, FRB is impossible" but need to explain what you mean by substitutes in the first place. The Wikipedia article on FRB, despite being very detailed, does not talk about substitutes.

You said on my talk page that "With fiat dollars, the base money are the reserves the commercial banks have with the central bank"

Why must the reserves be held at a central bank? I see no reason that this is necessary.

You said: "Only the central bank can create the reserves. "

What does this mean? If a commercial bank holds money in an account from which they do not lend out any money, then that money is held in reserve. No central bank is needed.

You said: "With gold, banks take in gold bullion or coins, and provide either bank notes, account balances or cheques as substitutes. The banks in case of gold money cannot create more gold any more than in case of fiat money commercial banks cannot create more reserves."

Ok, suppose they did not provide cheques or bank notes. Suppose that they only provided an account balance. I suppose you could call this account balance a substitute, but I've never heard it called such a thing. No one calls their bank account balance their "substitute dollars". For all intents and purposes, they consider their balance to be as good as dollars- indeed they can ''demand'' dollars at any time which is why the deposits made with the bank are called demand deposits.

In response to the rest of your post on my talk page, you seem to be saying that because Bitcoin has no substitutes, then there cannot be FRB. My response is to say, first of all, that I'm just barely going along with your idea of a substitute anyway. I still don't see why having or not having substitutes has anything to do with FRB. But I will respond to your paragraph anyway because it contains a contradiction which makes winning this argument easy. You have previously defined that account balances (along with things like cheques) are substitutes, correct? And Bitcoins can be put in accounts, right? So then the user would be presented with an account balance, for example their MtGox balance, right? So there is your substitute! You have said that "The only way to do FRB is to present an alternative, a substitute, which of course is incompatible with Bitcoin". Thus we have a clear contradiction in your logic.

I will now respond to your sentence: "Bitcoin Substitutes are required. Please explain how otherwise you can expand the supply without using magic."

It is important to recognize the difference between Currency Supply and Money Supply. The currency supply of bitcoins is limited to 21 million. Money supply is higher because it includes demand deposits. Let us take an example:
Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. The total money supply of Bitcoins at this point is 180. You can see that there is no magic required. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. The money supply of bitcoin is now 100+80+64 = 244 bitcoins. Supposing all banks put 20% in reserves for safe keeping, and suppose everyone uses banks (as opposed to keeping them in a wallet on their computer) then the money supply of bitcoin will max out at 500 bitcoins. Obviously because some people will hold their own bitcoins and because they will be used out in the world for transactions, the money supply wouldn't reach 500 bitcoins, but it can easily exceed 100.

An obvious response is 'Well what happens when Gavin takes his bitcoins out of the bank!?'
The answer is that that is what the reserves are for. '''Although not reflected in this example, the actual reserves held by a bank would be vastly greater than the amount held in any individual customer's account'''.

And that is how Fractional Reserve Banking works.

To avoid an edit war on the wiki page, I have put in a temporary message which I believe is neutral.

--[[User:Atheros|Atheros]] 02:55, 11 November 2011 (GMT)

'''--------PeterSurda Response-------'''

<blockquote>You are confused because you are confusing money supply with currency supply.</blockquote>
Your alleged distinction between "money supply" and "currency supply" is bogus. Please look at the wikipedia page about Money supply: http://en.wikipedia.org/wiki/Money_supply

<blockquote>MtGox could tomorrow start lending out the hundreds of thousands of bitcoins they have in cold storage without adjusting the amount of bitcoins presented to users as available for withdrawal.</blockquote>
You fail to address my point that this requires that these balances need to be accepted as if they were real bitcoin. That's not the case. It is explained in the wikipedia page: http://en.wikipedia.org/wiki/Metal_as_money :

<blockquote>Money must be a tangible asset while a money substitute may be only a claim on a tangible asset. Either money or a money substitute may circulate as currency.</blockquote>

This matches exactly your descriptions of fictional FRB-Mt. Gox activies: they provide to borrowers claims on bitcoin: Mt.Gox account balances. Only if someone else accepts these balances instead of Bitcoin, would the FRB have an effect on the money supply.

<blockquote>Why must the reserves be held at a central bank? I see no reason that this is necessary.</blockquote>
The reason why commercial banks cannot create fiat reserves is that it's illegal: only central banks are permitted to do that. They allow commercial banks to use these reserves and issue substitutes (e.g. bank account balances) upon that. The physical currency (notes and coins) is, in case of fiat, merely a distraction. Typically, the bank notes and coins are also issued only by the central bank, but in small exceptions, private banks are allowed to do that too (e.g. Scotland, Northern Ireland, Hong Kong). In the latter case, these are however also only substitutes: the issuing bank must redeem them to legal tender upon request. Please read the wikipedia page on Reserve requirements: http://en.wikipedia.org/wiki/Reserve_requirement . Of course, a commercial bank can create their own fiat currency, let's call them Rothbards. But that's not the case we are discussing.

<blockquote>No one calls their bank account balance their "substitute dollars"</blockquote>
Economists do.

<blockquote>For all intents and purposes, they consider their balance to be as good as dollars- indeed they can demand dollars at any time which is why the deposits made with the bank are called demand deposits.</blockquote>
However, they only do this because they know that if they use EFT or cheque, the recipient will accept it as if it was money proper. There is no way of creating cheques or bank account balances with fiat money or gold that does not involve substitutes, and because these have sometimes lower transaction costs, this creates demand for these substitutes. With Bitcoin, the requirement for such substitutes is absent (or, better said, limited).

<blockquote>you seem to be saying that because Bitcoin has no substitutes, then there cannot be FRB.</blockquote>
I did not say FRB or substitutes with Bitcoin are impossible, on the contrary, I provided examples of both FRB and substitutes as such. I just explained why it is difficult to conduct in in a profitable manner, unlike with fiat and gold.

<blockquote>My response is to say, first of all, that I'm just barely going along with your idea of a substitute anyway.</blockquote>
Money substitutes are not "my idea", these are terms by many economic schools and even the legal system. I merely merged various facts into a unique arrangement.

<blockquote>I still don't see why having or not having substitutes has anything to do with FRB.</blockquote>
Let's say I have 100 BTC. How can I increase the money supply to 200? Only by promising to my customers "I will redeem up to 200 BTC". This is a claim they have on me, i.e. a money substitute I issued. If these claims are accepted as if they were money proper, they can circulate, and increase the money supply. If they do not circulate, they cannot increase money supply, they can only make me bankrupt (or a rich scammer).

<blockquote>You have previously defined that account balances (along with things like cheques) are substitutes, correct? And Bitcoins can be put in accounts, right?</blockquote>
Poor choice of words on my part I am afraid. I said that "Bitcoin is the equivalent of a bank deposit". I should have written rather something like "Bitcoin is functionally similar to a bank account".

<blockquote>So then the user would be presented with an account balance, for example their MtGox balance, right?</blockquote>
Bitcoin Mt.Gox balance is a substitute: it is an entry in their database that represents a claim on their reserves, an actual Bitcoin wallet. You cannot transfer this substitute outside of Mt.Gox' systems, i.e. they do not circulate. Even withdraw methods like green addresses and redeemable codes are Bitcoin rather than substitutes.

<blockquote>They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. The total money supply of Bitcoins at this point is 180.</blockquote>
The total account balances indeed list 180. However, this only increases money supply if someone is willing to accept these fractional balances as if they were real Bitcoin. But you can't do anything with them. In order to use them, you need an account in Bank Alpha. For people that do not have an account with Bank Alpha, these balances are not only worth less, they are unusable (incompatible with Bitcoin network). And even if there was Bank Beta that accepted it, these two banks would need to agree upon a way of settling these balances, and promise not to redeem other banks' deposits against real Bitcoin. This works with fiat and gold because there is no alternative to these settlements, and it can increase banks profits. With Bitcoin, it would just increase the costs so banks cannot gain anything in participating in something like this.

<blockquote>And that is how Fractional Reserve Banking works.</blockquote>
You omit the point where the substitutes need to be accepted as if they were money proper, which is the basis of argument.

<blockquote>To avoid an edit war on the wiki page, I have put in a temporary message which I believe is neutral.</blockquote>
Thank you, I prefer to have it clarified instead of an edit war too.

Let's say I store Bitcoins and instead provide you "Surdas", which will be denominated in BTC. You can only use Surdas in my "bank". Bitcoin users cannot send or receive Surdas because they are incompatible with their systems. Let's say I collect 100BTC from you, and issue you a trillion Surdas. Will that increase the money supply of the Bitcoin economy?

--[[User:PeterSurda|PeterSurda]] 10:15, 11 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>Let's say I collect 100BTC from you, and issue you a trillion Surdas. Will that increase the money supply of the Bitcoin economy?</blockquote>

No. The money supply would be the number-of-bitcoins-in-existance + 1 Trillion Surdas.

<blockquote>Your alleged distinction between "money supply" and "currency supply" is bogus. Please look at the wikipedia page about Money supply: http://en.wikipedia.org/wiki/Money_supply"</blockquote>

Why? You did not say why. I am very familiar with Money supply. Perhaps instead of currency supply, I should say monetary base since there is a Wikipedia article on "Monetary Base".

<blockquote>You fail to address my point that this requires that these balances need to be accepted as if they were real bitcoin. That's not the case. It is explained in the wikipedia page: http://en.wikipedia.org/wiki/Metal_as_money </blockquote>

The Wikipedia article "Metal as Money" is garbage, as evidenced by all the tags at the top. The article does not cite any sources. I see now why you keep talking about money substitutes.

The balances to not need to be accepted by anyone except the holder of the account. The balances to not need to be transferred by cheque or EFT.

<blockquote>Gox activies: they provide to borrowers claims on bitcoin: Mt.Gox account balances. Only if someone else accepts these balances instead of Bitcoin, would the FRB have an effect on the money supply. </blockquote>

No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins.

<blockquote>I said "Why must the reserves be held at a central bank? I see no reason that this is necessary."

You responded: "The reason why commercial banks cannot create fiat reserves is that it's illegal: only central banks are permitted to do that."</blockquote>

You and I are using the word reserves differently. You are using it to mean a reserve of the monetary base. But that is not what reserves means in the context of Fractional Reserve Banking. Reserves can and often are held by commercial banks. Even the top of the "Reserve Requirements" Wikipedia page to which you link says that "It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank." If you want to talk about holding gold or even fiat money in reserves at a central bank, you can, but that is not what reserves are in the context of Fractional Reserve Banking.

<blockquote>I said: "No one calls their bank account balance their "substitute dollars""
You said: "Economists do."</blockquote>

No they don't. Economists call them [http://en.wikipedia.org/wiki/Demand_deposit Demand deposits].

<blockquote>However, they only do this because they know that if they use EFT or cheque, the recipient will accept it as if it was money proper.</blockquote>

No, people consider the money in their bank account to be as good as dollars in their hands because they can access the money on demand. Cheques and EFTs need not be involved.

<blockquote>Money substitutes are not "my idea", these are terms by many economic schools and even the legal system.</blockquote>

It is not mainstream. The one article that talks about substitutes to which you linked on Wikipedia is slanted, unbalanced, disputed, contains original research, and lacks citations.

<blockquote>"If these claims are accepted as if they were money proper, they can circulate, and increase the money supply. If they do not circulate, they cannot increase money supply"</blockquote>

False. Money does not need to be in circulation to increase the money supply. It can be stored in bank accounts. Bank accounts contain demand deposits. Demand deposits are included in the money supply. It annoys me that you wouldn't know this despite telling ''me'' to read the article on money supply. Here are the very first two lines: "In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)."

<blockquote>You said: "The total account balances indeed list 180. However, this only increases money supply if someone is willing to accept these fractional balances as if they were real Bitcoin."</blockquote>

No, you misunderstand. When I said that Bank Alpha lends out Bitcoins, I meant it. Bank Alpha does not lend out Bitcoin Substitutes, they lend out Bitcoins.

You have admitted that the account balances in the example total 180. Therefore you have admitted that demand deposits are equal to at least 180 bitcoins. Money supply is defined as "currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)." Therefore Money supply is greater than or equal to 180 bitcoins at that point in the example.

I have countered your claims and answered your questions. I have provided an example of Fractional Reserve Banking with Bitcoins. Fractional Reserve Banking with Bitcoins is possible.

--[[User:Atheros|Atheros]] 18:32, 11 November 2011 (GMT)

'''--------PeterSurda Response-------'''
<blockquote>No. The money supply would be the number-of-bitcoins-in-existance + 1 Trillion Surdas.</blockquote>
Exactly. The issue of Surdas would have no effect on the Bitcoin economy, unless someone accepted Surdas instead of Bitcoins. That's my whole point.

<blockquote>Why? You did not say why. I am very familiar with Money supply. Perhaps instead of currency supply, I should say monetary base since there is a Wikipedia article on "Monetary Base".</blockquote>
You first need to define these two terms in a coherent manner, which has not happened.

<blockquote>The Wikipedia article "Metal as Money" is garbage, as evidenced by all the tags at the top. The article does not cite any sources. I see now why you keep talking about money substitutes.</blockquote>
That does not disprove my point. I could have just as well quoted Mises' Human Action or Theory of Money and Credit, http://mises.org/books/Theory_Money_Credit/Part1_Ch3.aspx

<blockquote>The balances to not need to be accepted by anyone except the holder of the account. The balances to not need to be transferred by cheque or EFT.</blockquote>
In order to increase the money supply, they do. You admitted this yourself in my example with Surdas vs. Bitcoins. Now, lets' get one step back and ask ourselves, why would the account holder accept such a weird instrument in the first place if he knew noone would accept it? It provides him no advantage over what he already has.

<blockquote>No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins.</blockquote>
In that case, they need to provide the claims (=substitute) to the lender. It's logically impossible to provide real bitcoins in excess of the reserves.

<blockquote>You are using it to mean a reserve of the monetary base. But that is not what reserves means in the context of Fractional Reserve Banking.</blockquote>
Of course it does. Wikipedia page on Bank reserves, http://en.wikipedia.org/wiki/Bank_reserves , says:

<blockquote>Bank reserves are banks' holdings of deposits in accounts with their central bank (for instance the European Central Bank or the Federal Reserve, in the latter case including federal funds), plus currency that is physically held in the bank's vault (vault cash).</blockquote>
And, since the currency is also issued by the central banks, that closes the circle.

<blockquote>Reserves can and often are held by commercial banks.</blockquote>
This has no effect on my claim.

<blockquote>Even the top of the "Reserve Requirements" Wikipedia page to which you link says that "It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank." If you want to talk about holding gold or even fiat money in reserves at a central bank, you can, but that is not what reserves are in the context of Fractional Reserve Banking.</blockquote>
This does not negate the fact that both cash and central bank deposits are, in fact, created by the central bank.

<blockquote>No they don't. Economists call them Demand deposits.</blockquote>
Demand deposits are a subset of money substitutes. Read the aforementioned chapter from Mises' book.

<blockquote>No, people consider the money in their bank account to be as good as dollars in their hands because they can access the money on demand. Cheques and EFTs need not be involved.</blockquote>
If they do not deposit the money in the bank, then it is also accessible on demand. Therefore, if your argument was correct, there would be no demand for bank deposits in the first place and banks would not exist. Your reasoning is therefore erroneous.

<blockquote>It is not mainstream.</blockquote>
The term might not be mainstream, but the concepts are. Even the article about Demand deposits you reference explains what it is. It says "These account balances are usually considered money and form the greater part of the money supply of a country." (emphasis added). However, it does not explain why. I provide an explanation. You just assume that there's some magic behind this, yet don't provide an explanation.

<blockquote>Money does not need to be in circulation to increase the money supply.</blockquote>
You phrase it wrongly. If it is not in circulation, it is not money in the first place. It is just some financial instrument. Like my Surdas.

<blockquote>Demand deposits are included in the money supply.</blockquote>
Wrong. Even the article you quote says "usually". You just assume that this is always true for some magical reason. It isn't, but until Bitcoin, it was not apparent. I explained the reason: the deposits are accepted as a method of payment, because there are situations where they provide lower transaction costs than the money proper, and with fiat/gold, this requires substitutes.

<blockquote>It annoys me that you wouldn't know this despite telling me to read the article on money supply.</blockquote>
And it annoys me that you miss the big gap in your reasoning, although I have been pointing to it since my first edit.

<blockquote>Here are the very first two lines: "In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)."</blockquote>
(emphasis added) Again, you miss the gap in your reasoning. Even here, it says "usually". You just jump to the conclusion that it is always like this. It's not and I explained several times why.

<blockquote>When I said that Bank Alpha lends out Bitcoins, I meant it. Bank Alpha does not lend out Bitcoin Substitutes, they lend out Bitcoins.</blockquote>
In that case, it is the lender that receives the substitute, which noone accepts. So he has no reason to deposit the money in the first place and Bank Alpha would not come to existence.

<blockquote>Money supply is defined as "currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)." Therefore Money supply is greater than or equal to 180 bitcoins at that point in the example.</blockquote>
Again, gap in reasoning, I already explained it several times. Merely because demand deposits form money supply with gold and fiat, it does not follow it works the same way with Bitcoin. You do not understand why economists include them in the definition of money supply in the first place.

<blockquote>I have countered your claims and answered your questions.</blockquote>
You make systematic errors in your claims. You also fail to answer the core question, why are money substitutes such as demand deposits considered a part of the money supply in the first place.

<blockquote>I have provided an example of Fractional Reserve Banking with Bitcoins. Fractional Reserve Banking with Bitcoins is possible.</blockquote>
For the last time, I did not claim FRB with Bitcoin was impossible. I even provided actual empirical evidence of it, unlike you. You have obviously no idea what you're talking about.

--[[User:PeterSurda|PeterSurda]] 21:07, 11 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>"Exactly. The issue of Surdas would have no effect on the Bitcoin economy, unless someone

accepted Surdas instead of Bitcoins. That's my whole point."</blockquote>

But this isn't Fractional Reserve Lending. I just answered your question to be polite.

<blockquote>"You first need to define these two terms in a coherent manner, which has not happened. "</blockquote>

'''Money supply''' is amount of currency in circulation plus demand deposits (depositors' easily

accessed assets on the books of financial institutions).

Apparently you do not accept this definition (more on this below).

The '''monetary base''' is highly liquid money that consists of coins, paper money (both as

bank vault cash and as currency circulating in the public), and commercial banks' reserves.

In the case of Bitcoin, this would be ''real'' Bitcoins which are limited to 21 million.

Do you accept this definition?

Here is a helpful table. Monetary Base is MB and Money Supply is M1.
{| class="wikitable" border="1"
|-
! Type of money
! M0
! MB
! M1
! M2
! M3
! MZM
|-
| Notes and coins (currency) in circulation (outside Federal Reserve Banks, and the vaults of depository institutions)
| V<ref name="dollardaze.org">http://dollardaze.org/blog/?post_id=00565</ref>
| V
| V
| V
| V
| V
|-
| Notes and coins (currency) in bank vaults
| V<ref name="dollardaze.org"/>
| V
|
|
|
|
|-
| Federal Reserve Bank credit (minimum reserves and [[excess reserves]])
|
| V
|
|
|
|
|-
| traveler's checks of non-bank issuers
|
||
| V
| V
| V
| V
|-
| [[demand deposit]]s
|
|
|V
|V
|V
|V
|-
| other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts.
|
|
|V<ref>http://research.stlouisfed.org/fred2/series/M1</ref>
|V
|V
|V
|-
| [[savings deposit]]s
|
|
|
|V
|V
|V
|-
| [[time deposits]] less than $100,000 and money-market deposit accounts for individuals
|
|
|
|V
|V
|
|-
| large time deposits, institutional money market funds, short-term repurchase and other larger liquid assets<ref>http://www.investopedia.com/terms/m/m3.asp</ref>
|
|
|
|
|V
|
|-
|all money market funds
|
|
|
|
|
|V
|}

<blockquote>I said: "No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins."

You said: "In that case, they need to provide the claims (=substitute) to the lender."</blockquote>

Who needs to provide claims to the lender? Who is the lender, Bank Alpha for example? And
what do you mean by ''claims''? Can you please rewrite your statement so that I can understand?

<blockquote>"It's logically impossible to provide real bitcoins in excess of the reserves. "</blockquote>

Fortunately no one needs to.

<blockquote>"Of course it does. Wikipedia page on Bank reserves,

http://en.wikipedia.org/wiki/Bank_reserves , says:..."</blockquote>

Ok, suppose Satoshi puts 100 bitcoins in Bank Alpha and Bank Alpha puts a fraction of the
deposit (20 bitcoins) in a special account and does nothing with them. They then lend out 80
bitcoins. Can we say that the 20 bitcoins are held in reserve by the bank?

<blockquote>"This has no effect on my claim. "</blockquote>

Great. I am happy that we are starting to show some signs of agreement.

<blockquote>"If they do not deposit the money in the bank, then it is also accessible on demand.
Therefore, if your argument was correct, there would be no demand for bank deposits in the first place and banks would not exist. Your reasoning is therefore erroneous."</blockquote>

I can give you two examples that currently or formerly exist that show that people do demand bank deposits despite not having substitutes like cheques and EFTs: MyBitcoin and MtGox. People hold/held quite a bit of money in these services. There would be further demand for deposit accounts if banks offer a bit of interest payment. Did you really think that there couldn't possibly be other advantages to having money in a bank besides being able to write cheques and use EFTs with it?

<blockquote>I said: "Demand deposits are included in the money supply."

You said: "Wrong. ..."</blockquote>

So do you assert that demand deposits are not included in the money supply as it applys to bitcoin? Edit: You stated this clearly in the rest of your post. I'm glad we are close to identifying the reason we disagree. I will address this in my next post after you respond.

<blockquote>You said "In that case, it is the lender that receives the substitute, which no one accepts. So he has no reason to deposit the money in the first place and Bank Alpha would not come to existence."</blockquote>

Why would Bank Alpha receive substitutes? As I explained in the example, Bank Alpha receives Bitcoins!

<blockquote>"You do not understand why economists include them in the definition of money supply in the first place."</blockquote>

Ok, Why is that? And why would it be any different for Bitcoin?

<blockquote>"For the last time, I did not claim FRB with Bitcoin was impossible. I even provided actual empirical evidence of it, unlike you. You have obviously no idea what you're talking about."</blockquote>

I provided an example of Fractional Reserve Banking above! You didn't say that FRB is impossible but you did say that "Without demand for Bitcoin-substitutes, FRB is not possible." You also said, "If someone tried Bitcoin FRB, they would produce Bitcoin-substitutes: digital services or physical goods incompatible with the Bitcoin network, fiat money or gold. Who would accept something like that for payment?"

Doesn't that clearly suggest that FRB with Bitcoin isn't realistically happening?

I have asked several questions (this last one being the least important). I look forward to hearing your response.

--[[User:Atheros|Atheros]]

'''--------PeterSurda Response-------'''

Let's put our arguments into a formal structure.

Issue 1: definition of money supply:

* Atheros: Zero maturity is a necessary and sufficient condition for a claim to be considered a part of the money supply.
* PeterSurda: Both parts are incorrect. The necessary and sufficient condition is acceptance of the claim as a means of payment instead of the base.

Proof:
* there are claims which have zero maturity, and are not considered a part of the money supply. The best example I could think of are casino chips. They are zero maturity, but do not increase money supply regardless of whether they are backed by full or fractional reserves. Mt. Gox accounts are the equivalent of the casino chips: you can use them to exchange against other currencies on Mt.Gox' systems, and you can withdraw BTC. Other example I found are certain promissory notes.
* even demand deposits do not always have zero maturity. Banks typically request a prior notice if you want to withdraw larger amount of cash, however require no such notice if you just want to transfer money out via EFT.

Issue 2: application of the definition of money supply:

* Atheros: money supply is cash (including one held by public and bank reserves) and demand deposits. Money supply increases when banks lend reserves.
* PeterSurda: these two claims contradict each other.

Proof:
{| border="1"
|+ Money supply calculation
| Stage || Cash held by public || Demand deposits || Bank reserves || Money supply if demand deposit is not acceptable for payment || Money supply if demand deposit is acceptable for payment || Sum (cash + demand deposits)
|-
| Prior to deposit || 100||0||0||100||100||100
|-
| Creation of deposit ||0||100||100||100||100||200
|-
| Fractional reserve lending ||80||100||20||100||180||200
|-
| Creation of another deposit ||0||180||100||100||180||280
|-
| Additional fractional reserve lending ||60||180||40||100||240||280
|}

Clearly, the sums in last two columns are different. So either your description of FRB is wrong, our your definition of money supply.

Issue 3: Usage of services:

*Atheros: People deposit money into Mt. Gox. or mybitcoin (well, at least until it went belly up). These balances are demand deposits and therefore considered part of the money supply.
*PeterSurda: Being a demand daposit does not mean it increases the money supply. Only if they circulate. As far as I know, Mt.Gox does not even support P2P payments outside of the BTC network, and I think mybitcoin did, but of course this only works among mybitcoin customers. Flexcoin supports this too, but I think Strongcoin does not. Furthermore, acording to your definition of the money supply (see previous table), if Satoshi deposited a million Bitcoins into Mt.Gox, that act of depositing would increase the money supply of bitcoins by about 13%, regardless of what Mt.Gox did with their reserves! Clearly there is something fishy about this.

Issue 4: Effect of FRB on Bitcoin:

*Atheros: PeterSurda claims that FRB with Bitcoin won't happen.
*PeterSurda: I claim that FRB with Bitcoin has very little effect on money supply and is unprofitable.

--[[User:PeterSurda|PeterSurda]] 12:30, 12 November 2011 (GMT)

'''--------Atheros Response-------'''

Issue 1: definition of money supply:

I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions). The only reason casino chips aren't part of "the money supply" is because you haven't defined "the money supply". If by "the money supply" you mean "the money supply of casino chips" then casino chips are indeed part of the money supply (of casino chips).

Your definition of money supply: "The necessary and sufficient condition is acceptance of the claim as a means of payment '''instead''' of the base." (emphasis added)

What does this 'instead of the base' mean? Bitcoins are the monetary base of Bitcoin. Doesn't your definition mean that Bitcoins are not part of money supply?

Issue 3: Usage of services (related to issue 1):

I think it is goofy that you say that "being a demand deposit does not mean it increases the money supply". Let us suppose you have 100 bitcoins in your computer wallet and 100 bitcoins in MtGox in case you want to trade them some day. Wouldn't you say that you own 200 bitcoins? Wouldn't any reasonable person say that they own 200 bitcoins? Why, then, should the money supply be only 100 bitcoins? Why on Earth would the money supply go down when you move bitcoins from your computer to MtGox?

In reply to your "fishy" comment- As I've said, the money supply is currency in circulation plus demand deposits. If Satoshi moves a million Bitcoins from his wallet (which are 'in circulation') to a demand deposit, the money supply stays the same.

Issue 2: application of the definition of money supply:

There are problems with your table.
*The reason the last two columns are not equal is because you added bank reserves in your sum. Bank reserves are not included in M1 (money supply) which you can see in my table above in the ''minimum reserves and excess reserves'' row.
*Demand deposits are never accepted as payment so having two columns to address this doesn't make sense. That said, the values you have in the column ''Money supply if demand deposit is acceptable for payment'' are correct. The only thing that is accepted in the case of Bitcoin is bitcoins. A person can either withdraw the bitcoins himself and give them to someone else, or he can instruct his bank to move the bitcoins from his account to someone else's. Here is the corrected table:

{| border="1"
|+ Money supply calculation
| Stage || Cash held by public || Demand deposits || Bank reserves || Money supply
|-
| Prior to deposit || 100||0||0||100
|-
| Creation of deposit ||0||100||100||100
|-
| Fractional reserve lending ||80||100||20||180
|-
| Creation of another deposit ||0||180||100||180
|-
| Additional fractional reserve lending ||60||180||40||240
|}

--[[User:Atheros|Atheros]] 19:05, 12 November 2011 (GMT)

'''--------PeterSurda Response-------'''
<blockquote>I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions).</blockquote>
No, that's not what you said, you also included bank reserves. You also quoted sources that include bank reserves as money supply, including the description and the tables. You contradict that now.

<blockquote>The only reason casino chips aren't part of "the money supply" is because you haven't defined "the money supply".</blockquote>
According to your justification for demand deposits being a part of money supply (zero maturity claim), casino chips should also be a part of the money supply. Can you address this?

<blockquote>If by "the money supply" you mean "the money supply of casino chips" then casino chips are indeed part of the money supply (of casino chips).</blockquote>
The question is not what I mean, but what you mean.

<blockquotE>What does this 'instead of the base' mean?</blockquote>
I've been talking about this since the beginning, it looks like you're finally coming around to confront it. It means that whoever you are sending money to is willing to accept this claim instead of accepting Bitcoins. Like cheque or EFT instead of cash, or (on gold standard) banknote instead of a gold coin.

<blockquote> Bitcoins are the monetary base of Bitcoin. Doesn't your definition mean that Bitcoins are not part of money supply?</blockquote>
Read what I wrote. I did not say that the base (Bitcoin) is not the part of money supply, I wrote that claims on Bitcoin are only a part of the money supply if they are an accepted method of payment.

<blockquote>I think it is goofy that you say that "being a demand deposit does not mean it increases the money supply".</blockquote>
I think it's regrettable that you still don't understand this.

<blockquote>Let us suppose you have 100 bitcoins in your computer wallet and 100 bitcoins in MtGox in case you want to trade them some day. Wouldn't you say that you own 200 bitcoins?</blockquote>
You own 100 bitcoins and a claim on 100 bitcoins. This claim is only a part of money supply if you can use it for payment. At the moment, you can't. While it is hypothetically possible to use this claim as a method of payment in the future, there is no demand for it, unlike the situation with fiat and gold.

<blockquote>Why, then, should the money supply be only 100 bitcoins?</blockquote>
I already explained it several times: for the same reason that owning 100 USD's worth of casino chips is not a part of the money supply of USD: they are not acceptable for payment. The "reserves" of the casino, however, in the absence of FRB, are a part of the money supply. So in your case the money supply is 200 BTC: 100 Bitcoins in your own wallet plus 100 Bitcoins as Mt.Gox reserves. The account balance you have with Mt.Gox does not appear in the equation.

<blockquote>Why on Earth would the money supply go down when you move bitcoins from your computer to MtGox?</blockquote>
They money supply does not go down, because Mt. Gox keeps reserves in the nominal value equivalent to your deposit.

<blockquote>As I've said, the money supply is currency in circulation plus demand deposits.</blockquote>
That's not what you said. Go back and read your own words. You also included bank reserves. In fact, you complained about me not including cash reserves in my definition of fiat FRB.

<blockquote>If Satoshi moves a million Bitcoins from his wallet (which are 'in circulation') to a demand deposit, the money supply stays the same.</blockquote>
In that case, your prior definition of money supply is wrong and your whole argument collapses.

<blockquote>The reason the last two columns are not equal is because you added bank reserves in your sum.</blockquote>
Go back and read what you wrote. You wrote several times that bank reserves are a part of the money supply. Look at the definition you quoted, and at the table you copied from the wikipedia article.

You still have failed to address the question why are demand deposits a part of the money supply in the first place, whereas casino chips aren't (at least I hope you do not claim that casino chips are a part of the money supply).

--[[User:PeterSurda|PeterSurda]] 20:41, 12 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>I said: "I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions)." </blockquote>

<blockquote> You said: "No, that's not what you said"</blockquote>

Not only did I say it, I said it three times!

<blockquote>"...you also included bank reserves. You also quoted sources that include bank reserves as money supply, including the description and the tables. You contradict that now." (and) "Go back and read your own words. You also included bank reserves. In fact, you complained about me not including cash reserves in my definition of fiat FRB." </blockquote>

I just searched this thread for every occurrence of 'reserve' and read each paragraph and couldn't find where I claimed money supply includes bank reserves. Could you point it out for me?
Concerning the table, I said that "Money Supply is M1". Note that M1 doesn't have a tick mark in the ''minimum reserves and excess reserves'' row.

<blockquote>"According to your justification for demand deposits being a part of money supply (zero maturity claim), casino chips should also be a part of the money supply. Can you address this?" </blockquote>

If we are talking about the money supply of dollars, then casino chips, bitcoins, gold bars, and chickens are all not part of the money supply (of dollars). Only ''dollars'' are. If we are talking about casino chips, then casino chips are included in the money supply of casino chips but those other things are not.

Is this statement correct? ''PeterSurda says that the Money Supply of Bitcoin is the total value of claims on Bitcoins which are an accepted method of payment.'' If that isn't correct, can you fix it?

I would like to be able to calculate the money supply. Is this statement correct? ''PeterSurda says that Money Supply is the amount of money in circulation plus bank reserves.'' If that isn't correct, can you fix it? Thank You.

<blockquote>"You own 100 bitcoins and a claim on 100 bitcoins. " </blockquote>

>99% of the population doesn't see it like that. They see the money in their bank account and money in their hand as basically the same thing. Certainly I admit that they aren't the same, but if you ask people how much money they have, nearly everyone is going to take the number of dollars (or euros, etc.) in their wallet and add the number of dollars (or euros) in their bank account, and tell you that number. They will also behave as if they have that number of dollars/euros. This is why demand deposits are included in the money supply. This is why my definition of money supply is useful.

<blockquote>"So in your case the money supply is 200 BTC: 100 Bitcoins in your own wallet plus 100 Bitcoins as Mt.Gox reserves. The account balance you have with Mt.Gox does not appear in the equation. " </blockquote>

Excellent- I understand what you are saying. You claim that money supply does include bank reserves but not demand deposits, correct?

(I may not be able to continue responding until Monday evening. We need a break anyway.)

--[[User:Atheros|Atheros]] 05:54, 13 November 2011 (GMT)

'''--------PeterSurda Response-------'''

<blockquote>Not only did I say it, I said it three times!</blockquote>
I apologise, you used confusing terminology and I though that's what you're saying. Nevertheless, why did you pick M1 rather than M2 or MZM? You said that zero maturity is the reason why demand deposits are a part of the money supply.

Let me address the two definitions you provide, monetary base and money supply.

Monetary base is the money itself. In case of gold, it's the gold in existence. In case of fiat, it's very muddled: whatever the central bank produces (coins, banknotes, commercial bank deposits), to a certain extent other things, such as gold deposited in the CB, are also acceptable. In case of Bitcoin, it is Bitcoin. Claims on money are not a part of this.

Money supply is all the base money, plus claims on money that people accept as a means of payment, minus reserves of the issuers of those claims.

<blockquote>If we are talking about the money supply of dollars,</blockquote>
Casino chips (in US) are denominated in dollars, just like demand deposit accounts. Why are they not a part of the money supply, while demand deposits are?

<blockquote>Is this statement correct?</blockquote>
No.

<blockquote>If that isn't correct, can you fix it?</blockquote>
See above.

<blockquote>I would like to be able to calculate the money supply.</blockquote>
See above.

<blockquote>99% of the population doesn't see it like that.</blockquote>
There is a reason why economists use the definitions they use, and you still do not understand this reasoning. You use "money supply of dollars" when addessing casino chips, but what does it actually mean? Do you understand that?

<blockquote>They see the money in their bank account and money in their hand as basically the same thing.</blockquote>
And the reason why they do this is that they can use it as a payment method instead of using cash printed by the central bank: e.g. cheque, EFT, debit card. That's also the reason why they do not see casino chips as money: they cannot use it as a payment method instead of the dollars (or euros or whatever). That's also the reason why economists include demand deposits in fiat world in the money supply. This reason is absent with Bitcoin, and there's little reason for it to change.

See aforementioned Mises:

<blockquote>Technically, and in some countries legally as well, the transfer of a banknote scarcely differs from that of a coin. The similarity of outward appearance is such that those who are engaged in commercial dealings are usually unable to distinguish between those objects that actually perform the function of money and those that are merely employed as substitutes for them. The businessman does not worry about the economic problems involved in this; he is only concerned with the commercial and legal characteristics of coins, notes, checks, and the like. To him, the facts that banknotes are transferable without documentary evidence, that they circulate like coins in round denominations, that no fight of recovery lies against their previous holders, that the law recognizes no difference between them and money as an instrument of debt settlement, seem good enough reason for including them within the definition of the term money, and for drawing a fundamental distinction between them and cash deposits, which can be transferred only by a procedure that is much more complex technically and is also regarded in law as of a different kind. This is the origin of the popular conception of money by which everyday life is governed. No doubt it serves the purposes of the bank official, and it may even be quite useful in the business world at large, but its introduction into the scientific terminology of economics is most undesirable.</blockquote>

In 1912 when he wrote it, he saw a difference between the cash deposit and a bank note. In the meantime, the difference has vanished, because it became much easier to do these transfers (e.g. cheque/debit card/EFT). With Bitcoin, you cannot transfer these balances among each other outside of closed systems, you need to perform a withdrawal as a part of the procedure.

Once again, the reason why demand deposits are included in the supply of money is not that they are redeemable on demand, but because they are an accepted method of payment. That's the purpose of the term money supply too: to measure the amount of whatever is usable for payment. That is why casino chips and Surdas are not included in it, and that is why balances of claims-issuing companies like Mt.Gox and flexcoin should not be included in it either, as long as they are not used as a method of payment without conversion into "native" Bitcoin. That is also why economists use the definitions they use: the amount of things that are usable as payment is what they analyse, not the maturity of claims.

--[[User:PeterSurda|PeterSurda]] 07:45, 13 November 2011 (GMT)

One link to support my definition of money supply: http://wiki.mises.org/wiki/True_Money_Supply :

<blockquote>Algebraically, TMS = Standard Money (held by the public) + Money Substitutes</blockquote>

And here is Rothbard in Austrian Definitions of the Supply of Money, http://mises.org/rothbard/austrianmoneysupply.pdf , confirming my analysis:

<blockquote>It is important to recognize that demand deposits are not automatically part of the money supply by virtue of their very existence; they continue as equivalent to money only so long as the subjective estimates of the sellers of goods on the market think that they are so equivalent and accept them as such in exchange.</blockquote>

--[[User:PeterSurda|PeterSurda]] 12:00, 13 November 2011 (GMT)

'''--------Atheros Response-------'''

I picked M1 because that is what all the mainstream textbooks say. I believe they say that because the things in M1 are the things most people consider to be their ''money''. Certainly that definition of money isn't useful for all situations which is why those other M's are shown. This is why the word ''usually'' appears in the description of money supply on Wikipedia which you pointed out earlier.

Concerning casino chips, I didn't know casino chips were valued in dollars. Now that I know that: Whether we consider casino chips part of the money supply or not has no effect on the size of the money supply; the money supply will remain the same. The reason is that supposing we consider casino chips to be money, then when we put 1 dollar into the casino's vault, that dollar is removed from the money supply, and one dollar in the form of a casino chip is added to the money supply. '''Notice that we are still talking about the money supply of dollars.''' (Chickens, Bitcoins, and Gold are not included.) The money supply remains equal to what is was earlier, but an additional dollar is now held in reserve. If you don't like this and don't want to say that casino chips are money; that's fine. In that case, the dollars in the vault are still part of the money supply and the chips simply represent a claim to retrieve them.

<blockquote>"You use "money supply of dollars" when addressing casino chips, but what does it actually mean? Do you understand that?" </blockquote>

Did my above paragraph answer this? If no, can you please restate?

<blockquote>"That's also the reason why they do not see casino chips as money: they cannot use it as a payment method instead of the dollars (or euros or whatever). " </blockquote>

Except that people ''do'' use casino chips as a payment method in cities like Las Vegas. You can pay a hooker or tip a waitress in a restaurant with the casino chips. If casinos were in every city, then you could use the casino chip anywhere as a payment method. Also, if you can't use a cash dollar as a method of payment in the jungle, wouldn't you have to admit that under your definition, tourists remove their dollars from the money supply when they visit the jungle?

Concerning your quotes from Mises and Rothbard, and really your views at-large: This is the Austrian school of thought. This isn't mainstream. Your definition of money supply is not in textbooks taught in very many schools. Your definition of Fractional Reserve Banking thus doesn't match what most economists consider it to be.

--[[User:Atheros|Atheros]] 04:15, 15 November 2011 (GMT)

'''--------PeterSurda Response-------'''

Regarding casino chips: I think we're making some progress. You argue that the reason why casino chips do not affect the money supply is not that they are not used as a general medium of exchange, but because the issuers thereof do not overissue them (FRB). How do you know they do not overissue?

Use of chips as a payment method: please look at wikipedia page of Money: http://en.wikipedia.org/wiki/Money:
<blockquote>Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.</blockquote>
(emphasis added) Are chips generally accepted? No, they are only accepted within a very narrow geographical area, and only for certain services. Similarly as vouchers, coupons, bus tickets and so on. So why do you think they should be reflected in the money supply? More importantly though, balances on Mt.Gox, flexcoin and so on are used as a medium of exchange even less: in the hypothetical scenario of transferring Bitcoins from Mt.Gox to flexcoin, rather than exchanging the balances, the Bitcoins are withdrawn from Mt.Gox, sent over the Bitcoin network, flexcoin stores them in their "reserve" wallet and issues new claims (balance) to the recipient. So even if we omitted the requirement for general acceptance, it still would not support your argument.

As your example with jungle and uselessness of dollars, I admit that the definition is fuzzy, I have my own problems with it. But hopefully we can agree that unless you accept something as a means of payment, the change of supply of it has no effect on our spending decisions, correct? If Walmart issues vouchers in the value of, say, one trillion dollars, unless you intend to shop at Walmart, this has no effect on your purchasing decisions, correct?

Most importantly though, you still haven't address the core issues. Why economists use the definitions they use? Why do the definitions of M1 say that it usually includes demand deposit, but not always? What does money supply measure? If you disagree with Austrians, what is your alternative explanation?

While it isn't as clear from wikipedia as from the Rothbard quote, here it what it says about money supply: http://en.wikipedia.org/wiki/Money_supply :
<blockquote>In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.</blockquote>
and
<blockquote>Money is used as a medium of exchange, in final settlement of a debt, and as a ready store of value.</blockquote>
Are account balances on Mt. Gox or flexcoin used for any of this? Maybe for the last one. But they are rarely a medium of exchange or a final settlement of debt. The wikipedia article continues:
<blockquote>Narrow measures include only the most liquid assets, the ones most easily used to spend...</blockquote>
(emphasis added) Are Mt.Gox / flexcoin balances used to spend? In general, no, they are redeemed into Bitcoins in order to spend them.

Mt.Gox offers the following methods of transferring Bitcoins:

* redeemable Mt.Gox code
* Green address
* Bitcoin address

Only the first one is a claim, the others are native Bitcoin. The claim is only usable for other Mt.Gox users.

Flexcoin offers the following methods of transferring Bitcoins:

* another flexcoin ID
* an e-mail address
* an external bitcoin address

The first two are claims (I think, I am not sure about the inner workings of flexcoin). The claim is only usable for other flexcoin users.

The only people who are affected by (hypothetically) inflated balances of Mt. Gox or flexcoin are those that accept those claims. From this perspective, both functionally and scope-wise, this is similar to the aforementioned casino chips, vouchers and so on. It does not have an effect on the money supply any more than an overissue of casino chips has effect on the purchasing decisions of people other than the casino guests, aforementioned hookers and waiters.

--[[User:PeterSurda|PeterSurda]] 08:00, 15 November 2011 (GMT)

'''--------Atheros Response-------'''

I assumed that casinos weren't over issuing chips. I've just done some research and found that they are allowed to do this legally. So they are probably doing it. So they are increasing the money supply of dollars.

We could argue all day about what things are 'generally accepted'. 100 bills aren't generally accepted at gas stations. We shouldn't read too much into that particular phrase. Casino chips wouldn't be ''money'' far away from a casino, but they are money in Las Vegas. I have a Chinese 2 unit bill around here somewhere. It isn't money to me.

<blockquote>"If Walmart issues vouchers in the value of, say, one trillion dollars, unless you intend to shop at Walmart, this has no effect on your purchasing decisions, correct? "</blockquote>

If everyone in a 'community' of some sort shops at Walmart, then the vouchers would start to be traded like money among the members of the community for goods and services for a period of time before making their way back to Walmart.

<blockquote>"Why economists use the definitions they use?"</blockquote>

Because their definitions are the most useful.

<blockquote>"Why do the definitions of M1 say that it usually includes demand deposit, but not always?"</blockquote>

You are confused. The definition of M1 always includes demand deposits. The definition of money is usually M1. The definition of money is usually M1 because in most situations when you ask someone how much money they have, they add up the things in M1.

<blockquote>"What does money supply measure?"</blockquote>

I've answered this six times.

<blockquote>"If you disagree with Austrians, what is your alternative explanation? "</blockquote>

[http://en.wikipedia.org/wiki/Economics Mainstream Economics]

Concerning Fractional Reserve Banking in particular, [http://en.wikipedia.org/wiki/Fractional_reserve_banking this].

Here is [http://en.wikipedia.org/wiki/Money_supply Money supply].

<blockquote>"Narrow measures include only the most liquid assets, the ones most easily used to spend... "</blockquote>

So are you telling me that money stops being money when you put it in a bank, or MtGox? Because you are telling me that money in MtGox isn't sufficiently easy to spend because their transfers naturally aren't accepted by everyone.

<blockquote>"It does not have an effect on the money supply any more than an overissue of casino chips has effect on the purchasing decisions of people other than the casino guests, aforementioned hookers and waiters. "</blockquote>

No no; because the money supply increases as I described above, the value of each dollar goes down slightly which affects everyone.

I would like you to respond to this example:

Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. Despite the fact that Satoshi, Gavin, and Cameron only have claims to bitcoins, isn't the fact that they collectively know they can access 244 bitcoins significant to note and measure? This means that each bitcoin will be nearly 1/3rd as valuable as before Fractional Reserve Banking. How is that not significant?

--[[User:Atheros|Atheros]] 09:31, 15 November 2011 (GMT)

'''--------PeterSurda Response-------'''

Here we have it from wikipedia ( http://en.wikipedia.org/wiki/Demand_deposit : )
<blockquote>Demand deposits are usually considered part of the money supply, as they can be used, via checks and drafts, as a means of payment for goods and services and to settle debts.</blockquote>
(emphasis added)

Another link: http://www.economicsjunkie.com/true-money-supply/ :
<blockquote>Virtually everyone accepts payment in demand deposit money. Demand deposits are thus to be included in the money supply.</blockquote>

And here we have the Federal Reserve Bank of New York, http://www.ny.frb.org/aboutthefed/fedpoint/fed49.html :
<blockquote>The money supply measures reflect the different degrees of liquidity—or spendability—that different types of money
have.</blockquote>

So what reason do you have in asserting that maturity, rather than acceptability in transactions (as seen above), is the reason for including a claim in the money supply? And what do you think money supply actually
measures?

--[[User:PeterSurda|PeterSurda]] 10:14, 15 November 2011 (GMT)

<blockquote>So are you telling me that money stops being money when you put it in a bank, or MtGox?</blockquote>
It stops being a part of the money supply if it is held as reserve for money substitutes.

<blockquote>Because you are telling me that money in MtGox isn't sufficiently easy to spend because their transfers naturally aren't accepted by everyone.</blockquote>
What this means is that these balances are not money substitutes, only claims. They are not a part of the money supply of Bitcoin, rather the "reserves" of Mt.Gox are, because these "reserves" are what circulates if people are transferring Bitcoin among themselves. It is the equivalent of gold being able to instantly teleport among vaults at negligible cost. If this was possible, bank notes, cheques and EFT would not be used for exchange of gold, and bank balances would cease to be a part of the money supply.

--[[User:PeterSurda|PeterSurda]] 10:45, 15 November 2011 (GMT)

Also, definition of money supply from Merriam-Webster http://www.merriam-webster.com/dictionary/money%20supply :

<blockquote>the total amount of money available in an economy for spending...</blockquote>

Another definition: http://www.investorwords.com/3110/money_supply.html :

<blockquote>The total supply of money in circulation in a given country's economy at a given time.</blockquote>

These quotes (and the ones from previous post) lead to the following conclusion:

* the money supply does not measure the nominal value of zero maturity instruments denominated in that currency, but the nominal value of the instruments that are accepted as media of exchange
* deposit accounts are not always, by their virtue, a part of the money supply, but only to the extent they are accepted as a method of exchange

I provided quotes by non-Austrian, mainstream sources. What is your evidence that your position is correct?

--[[User:PeterSurda|PeterSurda]] 12:12, 15 November 2011 (GMT)

'''--------Atheros Response-------'''

I've cited many sources throughout this thread. I can even take your own Fed link and see that "The Federal Reserve publishes weekly and monthly data on two money supply measures M1 and M2. ... The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds."

Your definition of money supply is not useful.

I would like you to respond to this example:

Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. Despite the fact that Satoshi, Gavin, and Cameron only have claims to bitcoins, isn't the fact that they collectively know they can access 244 bitcoins significant to note and measure? This means that each bitcoin will be nearly 1/3rd as valuable as before Fractional Reserve Banking. How is that not significant?

'''--------PeterSurda Response-------'''

Atheros, your quotes do not address my points at all, they skip over them. From this you incorrectly conclude that they disagree with my arguments.

In your example, since Gavin, Cameron and Satoshi cannot at the same time buy anything worth more than 100 Bitcoins without using their account balances as a medium of exchange (thus elevating it into a status of money substitute), it means the money supply is only 100 Bitcoins. That's the purpose of the term money supply, it measures how much can be spent.

Your is the definition that is not useful in economic theories. Money supply measures the amount that is available for payment. Not the sum of zero-maturity debt instruments. Absent the requirement to be usable as a medium of exchange, it cannot be used in calculations of inflation or money velocity. You practically invented your own economic theory.

I challenge you to pick any professional economists, who disagrees with either of these claims:
* The purpose of the money supply is to measure the nominal value of whatever is used as a medium of exchange.
* The reason why demand deposits are included in the money supply is because they are used as a generally accepted medium of exchange.

--[[User:PeterSurda|PeterSurda]] 08:16, 16 November 2011 (GMT)

= Bitcoin mining is a waste of energy and harmful for ecology =

IMHO this chapter is superficial. Compare Bitcoin to electronic fiat currencies. --[[User:Shrewdwatson|Shrewdwatson]] 17:57, 23 April 2011 (GMT)

How about this:

''The electricity spent in hashing is not wasted. It creates a product of value to the Bitcoin economy. The product is a supersignature on the complete list of transactions to date (the [[Block chain]]). This supersignature attesting to the chain's completeness is Bitcoin's defense against double spending.''

''Many sources of energy vary in their availability in ways that do not match the variations in demand. The law of supply and demand will require Bitcoin to soak up a lot of energy that is currently "wasted" without making a big dent in the otherwise usable energy supply. [Perhaps cite estimates of the break-even point for mining profitability that imply near zero-cost electricity.]''

[http://www.bitcoin.org/smf/index.php?topic=6459.msg98999#msg98999 More] --[[User:JohnTobey253|JohnTobey253]] 04:49, 29 April 2011 (GMT)

This paragraph is not honest. Right now the energy consumption of mining might be raletively low, but it is strongly dependant on BTC value because of economical basics. Please add something like the following:

''Energy consumption for mining has a high correlation with bitcoin exchange rate to fiat currency. Because variable costs of [[mining]] are dominated by electricity price, the economic equilibrium for the mining rate is reached when global electricity costs for mining approximate the value of [[mining]] reward plus [[transaction_fee | transaction fees]]. ''
* ''more efficient mining gear does not reduce energy use of the bitcoin network. It will only raise the network [[difficulty]]''
* ''cheaper energy linearly increases mining energy use of the bitcoin network''
* ''the same conclusions apply to all [[proof of work]] based currencies (i.e. [[Litecoin]]).''

I'v estimated that bitcoin has the potential to increase world electricity consumption by 7% if really breaking through (meaning drawing equal to the USD in market cap). If you're not convinced, please come and [https://bitcointalk.org/index.php?topic=181759.0 discuss with me]
[[User:Brenzi|Brenzi]] ([[User talk:Brenzi|talk]]) 21:12, 22 April 2013 (GMT)

== Categories and subcategories ==

Now we have everything in one place, but it should be divided into smaller subcategories to make it easier to find interesting topic

--[[User:Zwierzak|Zwierzak]] 22:03, 13 August 2011 (GMT)

That's an excellent idea.

--[[User:Atheros|Atheros]] 03:46, 11 November 2011 (GMT)

== Early adopter advantage ==

I'd like to comment on the fact that new bitcoins are evenly and competitively distributed over a period of 140 years or so. We are still very much in the "early" stages of bitcoin and only just recently passed "the half way mark" with two more halvings in the next 8 years. The generation of 90% of all new bitcoins happens over the first 15 years or so. [[User:JulianTosh|JulianTosh]] 2012-12-11 19:18 (GMT-8)

Talk:CryptoPayment

2013-04-22T21:15:46Z

Brenzi:

As the value of BC rose, I propose to reduce the amount.

0.01BTC is a day's salary in certain countries. And why are you waiting for 6 confirmations if this measure is really only a spam barrier?
21:15, 22 April 2013 (GMT)

Talk:Myths

2013-04-22T21:12:03Z

Brenzi: /* Bitcoin mining is a waste of energy and harmful for ecology */

= Terrorism =
From the linked Wikipedia page:
:The USA PATRIOT Act defines terrorism activities as "activities that (A) involve acts dangerous to human life that are a violation of the criminal laws of the U.S. or of any state, that (B) appear to be intended (i) to intimidate or coerce a civilian population, (ii) to influence the policy of a government by intimidation or coercion, or (iii) to affect the conduct of a government by mass destruction, assassination, or kidnapping, and (C) occur primarily within the territorial jurisdiction of the U.S."

This definition is broad enough that it could probably be applied to the Bitcoin system. IANAL but I imagine lawyers could pretty easily demonstrate that Bitcoin is 'dangerous to human life' because the Four Horsemen can use it for evil [drug-dealers, money-launderers, terrorists, and pedophiles.] It can 'influence the policy of a government by coercion' by removing options such as Federal Reserve dollars. (C) might be tricky to prove.
[[User:PLATO|PLATO]] 22:34, 23 March 2011 (GMT)

: besides the one attorney general that made a snide remark about terrorism in the LibertyDollar case, i don't think that this is in any way a 'common misconception', so i'd question whether we need to have the 'terrorism' section at all.--[[User:Nanotube|Nanotube]] 04:02, 24 March 2011 (GMT)

I agree. All yes for removing terrorist stuff? [[User:EvanR|EvanR]] 00:10, 30 March 2011 (GMT)

= Fractional Reserve Banking =

I'd like to suggest a change here (translation: I fundamentally disagree with the tenor of the article). Credit Unions/Building Societies could quite easily be created, and this would increase the apparent amount of BTCs in existance, but it probably wouldn't exceed twice the original number.

However, a bank functions differently: it creates a distinction between "hard money" (bank notes+coins) and "credit money" (money in bank accounts). So, in a bank I may deposit some real money (notes) but the bank effectively may lend some of that money to others AND I may also spend that money "in" my account by transferring it via a cheque or e-transfer to another person's account. (Building socities don't allow you to do that.)

Now if I were to make a _BTC_ deposit into a "bank", then I wouldn't be able to spend the money in my "account" using conventional BTC trading (confirmations etc). No, what the bank would have to do is to set up a "virtual BTC" (vBTC) trading system, whereby they would manage accounts and transactions, and banks would owe each other v-BTCs depending on how their clients were deciding to spend/borrow their money. Banks could issue huge (virtually infinitie) amounts of v-BTCs depending on how risky they felt that morning.

But then we'd be back to the present situation with fiat currencies, banks, treasury bills, etc etc. I guess it could be a new kind of "gold standard" - a "BTC standard". But the banks would still rule the world, and I thought we sought a way out of that....

...maybe the ability of the user to transact BTC independently of any "fractional reserve banks" would keep a check on their potentially enormous power. But then if the number of v-BTCs was much more than real BTCs (as seems very likely if FRB took off - currently then ratio of v-GBPs to real GBPs is 20:1) then BTCs might end up so scarce in comparison that user trading in BTCs would no longer take place: it would all be in v-BTCs. All this make me think actually v-BTCs wouldn't work in the conventional way, and therefore that fraction reserve banking might not generate any more than 21m v-BTCs. I'd welcome help here.

So my simple answer to the "Myth" question would be "FRB is possible, but "virtual BTCs" would be created, not real BTCs. [[User:Lawrence18uk|Lawrence18uk]] 19:47, 8 September 2011 (GMT)

No no.. No v-BTCs are necessary for Fractional Reserve Banking at all. You can read how Fractional Reserve Banking works on [http://en.wikipedia.org/wiki/Fractional_reserve_banking#How_it_works Wikipedia]. Pay special attention to the "Example of deposit multiplication" section.

--[[User:Atheros|Atheros]] 03:02, 11 November 2011 (GMT)

= Fractional reserve banking with Bitcoin is fundamentally different =

'''--------PeterSurda said the following-------'''

My edit was removed only because someone disagrees with it, although they did not provide counterarguments. I did not claim that FRB is impossible, I claimed it is unlikely, due to lack of demand for Bitcoin substitutes. Without substitutes, FRB is impossible. '''Supply of Bitcoins cannot be increased beyond 21 million.''' The only thing that can be increased is the amount of Bitcoin substitutes, which are incompatible with Bitcoins. Demand for lending does not increase demand for Bitcoin substitutes. The argument presented by the author of the current text on the wiki is erroneous. It is impossible for a bank to accept a Bitcoin demand deposit and lend it simultaneously. It requires a creation of a Bitcoin-subsitute, for which there is no demand, because Bitcoins can exist in forms that other money, such as gold or fiat, require substitutes. [[User:PeterSurda|PeterSurda]] 09:28, 7 November 2011 (GMT)

I rewrote FRB, hopefully it is more understandable now. I found the explanation of Atheros in my talk page so I was able to address it. [[User:PeterSurda|PeterSurda]] 23:44, 7 November 2011 (GMT)

'''--------Atheros Response-------'''

I (Atheros) have responded on your talk page and I will respond here as well.

You are confused because you are confusing money supply with currency supply. Indeed, you are only using the word "supply". The currency supply is limited to 21 million bitcoins. The money supply is not. MtGox could tomorrow start lending out the hundreds of thousands of bitcoins they have in cold storage without adjusting the amount of bitcoins presented to users as available for withdrawal. They would maintain a reserve for the people who do withdraw bitcoins. We would then instantly have Fractional Reserve Banking. You need to give up this idea of substitutes that you keep using. Substitutes which are fundamentally different from Bitcoins are not necessary for fractional reserve banking. You've said several times on several talk pages that "Without substitutes, FRB is impossible" but need to explain what you mean by substitutes in the first place. The Wikipedia article on FRB, despite being very detailed, does not talk about substitutes.

You said on my talk page that "With fiat dollars, the base money are the reserves the commercial banks have with the central bank"

Why must the reserves be held at a central bank? I see no reason that this is necessary.

You said: "Only the central bank can create the reserves. "

What does this mean? If a commercial bank holds money in an account from which they do not lend out any money, then that money is held in reserve. No central bank is needed.

You said: "With gold, banks take in gold bullion or coins, and provide either bank notes, account balances or cheques as substitutes. The banks in case of gold money cannot create more gold any more than in case of fiat money commercial banks cannot create more reserves."

Ok, suppose they did not provide cheques or bank notes. Suppose that they only provided an account balance. I suppose you could call this account balance a substitute, but I've never heard it called such a thing. No one calls their bank account balance their "substitute dollars". For all intents and purposes, they consider their balance to be as good as dollars- indeed they can ''demand'' dollars at any time which is why the deposits made with the bank are called demand deposits.

In response to the rest of your post on my talk page, you seem to be saying that because Bitcoin has no substitutes, then there cannot be FRB. My response is to say, first of all, that I'm just barely going along with your idea of a substitute anyway. I still don't see why having or not having substitutes has anything to do with FRB. But I will respond to your paragraph anyway because it contains a contradiction which makes winning this argument easy. You have previously defined that account balances (along with things like cheques) are substitutes, correct? And Bitcoins can be put in accounts, right? So then the user would be presented with an account balance, for example their MtGox balance, right? So there is your substitute! You have said that "The only way to do FRB is to present an alternative, a substitute, which of course is incompatible with Bitcoin". Thus we have a clear contradiction in your logic.

I will now respond to your sentence: "Bitcoin Substitutes are required. Please explain how otherwise you can expand the supply without using magic."

It is important to recognize the difference between Currency Supply and Money Supply. The currency supply of bitcoins is limited to 21 million. Money supply is higher because it includes demand deposits. Let us take an example:
Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. The total money supply of Bitcoins at this point is 180. You can see that there is no magic required. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. The money supply of bitcoin is now 100+80+64 = 244 bitcoins. Supposing all banks put 20% in reserves for safe keeping, and suppose everyone uses banks (as opposed to keeping them in a wallet on their computer) then the money supply of bitcoin will max out at 500 bitcoins. Obviously because some people will hold their own bitcoins and because they will be used out in the world for transactions, the money supply wouldn't reach 500 bitcoins, but it can easily exceed 100.

An obvious response is 'Well what happens when Gavin takes his bitcoins out of the bank!?'
The answer is that that is what the reserves are for. '''Although not reflected in this example, the actual reserves held by a bank would be vastly greater than the amount held in any individual customer's account'''.

And that is how Fractional Reserve Banking works.

To avoid an edit war on the wiki page, I have put in a temporary message which I believe is neutral.

--[[User:Atheros|Atheros]] 02:55, 11 November 2011 (GMT)

'''--------PeterSurda Response-------'''

<blockquote>You are confused because you are confusing money supply with currency supply.</blockquote>
Your alleged distinction between "money supply" and "currency supply" is bogus. Please look at the wikipedia page about Money supply: http://en.wikipedia.org/wiki/Money_supply

<blockquote>MtGox could tomorrow start lending out the hundreds of thousands of bitcoins they have in cold storage without adjusting the amount of bitcoins presented to users as available for withdrawal.</blockquote>
You fail to address my point that this requires that these balances need to be accepted as if they were real bitcoin. That's not the case. It is explained in the wikipedia page: http://en.wikipedia.org/wiki/Metal_as_money :

<blockquote>Money must be a tangible asset while a money substitute may be only a claim on a tangible asset. Either money or a money substitute may circulate as currency.</blockquote>

This matches exactly your descriptions of fictional FRB-Mt. Gox activies: they provide to borrowers claims on bitcoin: Mt.Gox account balances. Only if someone else accepts these balances instead of Bitcoin, would the FRB have an effect on the money supply.

<blockquote>Why must the reserves be held at a central bank? I see no reason that this is necessary.</blockquote>
The reason why commercial banks cannot create fiat reserves is that it's illegal: only central banks are permitted to do that. They allow commercial banks to use these reserves and issue substitutes (e.g. bank account balances) upon that. The physical currency (notes and coins) is, in case of fiat, merely a distraction. Typically, the bank notes and coins are also issued only by the central bank, but in small exceptions, private banks are allowed to do that too (e.g. Scotland, Northern Ireland, Hong Kong). In the latter case, these are however also only substitutes: the issuing bank must redeem them to legal tender upon request. Please read the wikipedia page on Reserve requirements: http://en.wikipedia.org/wiki/Reserve_requirement . Of course, a commercial bank can create their own fiat currency, let's call them Rothbards. But that's not the case we are discussing.

<blockquote>No one calls their bank account balance their "substitute dollars"</blockquote>
Economists do.

<blockquote>For all intents and purposes, they consider their balance to be as good as dollars- indeed they can demand dollars at any time which is why the deposits made with the bank are called demand deposits.</blockquote>
However, they only do this because they know that if they use EFT or cheque, the recipient will accept it as if it was money proper. There is no way of creating cheques or bank account balances with fiat money or gold that does not involve substitutes, and because these have sometimes lower transaction costs, this creates demand for these substitutes. With Bitcoin, the requirement for such substitutes is absent (or, better said, limited).

<blockquote>you seem to be saying that because Bitcoin has no substitutes, then there cannot be FRB.</blockquote>
I did not say FRB or substitutes with Bitcoin are impossible, on the contrary, I provided examples of both FRB and substitutes as such. I just explained why it is difficult to conduct in in a profitable manner, unlike with fiat and gold.

<blockquote>My response is to say, first of all, that I'm just barely going along with your idea of a substitute anyway.</blockquote>
Money substitutes are not "my idea", these are terms by many economic schools and even the legal system. I merely merged various facts into a unique arrangement.

<blockquote>I still don't see why having or not having substitutes has anything to do with FRB.</blockquote>
Let's say I have 100 BTC. How can I increase the money supply to 200? Only by promising to my customers "I will redeem up to 200 BTC". This is a claim they have on me, i.e. a money substitute I issued. If these claims are accepted as if they were money proper, they can circulate, and increase the money supply. If they do not circulate, they cannot increase money supply, they can only make me bankrupt (or a rich scammer).

<blockquote>You have previously defined that account balances (along with things like cheques) are substitutes, correct? And Bitcoins can be put in accounts, right?</blockquote>
Poor choice of words on my part I am afraid. I said that "Bitcoin is the equivalent of a bank deposit". I should have written rather something like "Bitcoin is functionally similar to a bank account".

<blockquote>So then the user would be presented with an account balance, for example their MtGox balance, right?</blockquote>
Bitcoin Mt.Gox balance is a substitute: it is an entry in their database that represents a claim on their reserves, an actual Bitcoin wallet. You cannot transfer this substitute outside of Mt.Gox' systems, i.e. they do not circulate. Even withdraw methods like green addresses and redeemable codes are Bitcoin rather than substitutes.

<blockquote>They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. The total money supply of Bitcoins at this point is 180.</blockquote>
The total account balances indeed list 180. However, this only increases money supply if someone is willing to accept these fractional balances as if they were real Bitcoin. But you can't do anything with them. In order to use them, you need an account in Bank Alpha. For people that do not have an account with Bank Alpha, these balances are not only worth less, they are unusable (incompatible with Bitcoin network). And even if there was Bank Beta that accepted it, these two banks would need to agree upon a way of settling these balances, and promise not to redeem other banks' deposits against real Bitcoin. This works with fiat and gold because there is no alternative to these settlements, and it can increase banks profits. With Bitcoin, it would just increase the costs so banks cannot gain anything in participating in something like this.

<blockquote>And that is how Fractional Reserve Banking works.</blockquote>
You omit the point where the substitutes need to be accepted as if they were money proper, which is the basis of argument.

<blockquote>To avoid an edit war on the wiki page, I have put in a temporary message which I believe is neutral.</blockquote>
Thank you, I prefer to have it clarified instead of an edit war too.

Let's say I store Bitcoins and instead provide you "Surdas", which will be denominated in BTC. You can only use Surdas in my "bank". Bitcoin users cannot send or receive Surdas because they are incompatible with their systems. Let's say I collect 100BTC from you, and issue you a trillion Surdas. Will that increase the money supply of the Bitcoin economy?

--[[User:PeterSurda|PeterSurda]] 10:15, 11 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>Let's say I collect 100BTC from you, and issue you a trillion Surdas. Will that increase the money supply of the Bitcoin economy?</blockquote>

No. The money supply would be the number-of-bitcoins-in-existance + 1 Trillion Surdas.

<blockquote>Your alleged distinction between "money supply" and "currency supply" is bogus. Please look at the wikipedia page about Money supply: http://en.wikipedia.org/wiki/Money_supply"</blockquote>

Why? You did not say why. I am very familiar with Money supply. Perhaps instead of currency supply, I should say monetary base since there is a Wikipedia article on "Monetary Base".

<blockquote>You fail to address my point that this requires that these balances need to be accepted as if they were real bitcoin. That's not the case. It is explained in the wikipedia page: http://en.wikipedia.org/wiki/Metal_as_money </blockquote>

The Wikipedia article "Metal as Money" is garbage, as evidenced by all the tags at the top. The article does not cite any sources. I see now why you keep talking about money substitutes.

The balances to not need to be accepted by anyone except the holder of the account. The balances to not need to be transferred by cheque or EFT.

<blockquote>Gox activies: they provide to borrowers claims on bitcoin: Mt.Gox account balances. Only if someone else accepts these balances instead of Bitcoin, would the FRB have an effect on the money supply. </blockquote>

No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins.

<blockquote>I said "Why must the reserves be held at a central bank? I see no reason that this is necessary."

You responded: "The reason why commercial banks cannot create fiat reserves is that it's illegal: only central banks are permitted to do that."</blockquote>

You and I are using the word reserves differently. You are using it to mean a reserve of the monetary base. But that is not what reserves means in the context of Fractional Reserve Banking. Reserves can and often are held by commercial banks. Even the top of the "Reserve Requirements" Wikipedia page to which you link says that "It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank." If you want to talk about holding gold or even fiat money in reserves at a central bank, you can, but that is not what reserves are in the context of Fractional Reserve Banking.

<blockquote>I said: "No one calls their bank account balance their "substitute dollars""
You said: "Economists do."</blockquote>

No they don't. Economists call them [http://en.wikipedia.org/wiki/Demand_deposit Demand deposits].

<blockquote>However, they only do this because they know that if they use EFT or cheque, the recipient will accept it as if it was money proper.</blockquote>

No, people consider the money in their bank account to be as good as dollars in their hands because they can access the money on demand. Cheques and EFTs need not be involved.

<blockquote>Money substitutes are not "my idea", these are terms by many economic schools and even the legal system.</blockquote>

It is not mainstream. The one article that talks about substitutes to which you linked on Wikipedia is slanted, unbalanced, disputed, contains original research, and lacks citations.

<blockquote>"If these claims are accepted as if they were money proper, they can circulate, and increase the money supply. If they do not circulate, they cannot increase money supply"</blockquote>

False. Money does not need to be in circulation to increase the money supply. It can be stored in bank accounts. Bank accounts contain demand deposits. Demand deposits are included in the money supply. It annoys me that you wouldn't know this despite telling ''me'' to read the article on money supply. Here are the very first two lines: "In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)."

<blockquote>You said: "The total account balances indeed list 180. However, this only increases money supply if someone is willing to accept these fractional balances as if they were real Bitcoin."</blockquote>

No, you misunderstand. When I said that Bank Alpha lends out Bitcoins, I meant it. Bank Alpha does not lend out Bitcoin Substitutes, they lend out Bitcoins.

You have admitted that the account balances in the example total 180. Therefore you have admitted that demand deposits are equal to at least 180 bitcoins. Money supply is defined as "currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)." Therefore Money supply is greater than or equal to 180 bitcoins at that point in the example.

I have countered your claims and answered your questions. I have provided an example of Fractional Reserve Banking with Bitcoins. Fractional Reserve Banking with Bitcoins is possible.

--[[User:Atheros|Atheros]] 18:32, 11 November 2011 (GMT)

'''--------PeterSurda Response-------'''
<blockquote>No. The money supply would be the number-of-bitcoins-in-existance + 1 Trillion Surdas.</blockquote>
Exactly. The issue of Surdas would have no effect on the Bitcoin economy, unless someone accepted Surdas instead of Bitcoins. That's my whole point.

<blockquote>Why? You did not say why. I am very familiar with Money supply. Perhaps instead of currency supply, I should say monetary base since there is a Wikipedia article on "Monetary Base".</blockquote>
You first need to define these two terms in a coherent manner, which has not happened.

<blockquote>The Wikipedia article "Metal as Money" is garbage, as evidenced by all the tags at the top. The article does not cite any sources. I see now why you keep talking about money substitutes.</blockquote>
That does not disprove my point. I could have just as well quoted Mises' Human Action or Theory of Money and Credit, http://mises.org/books/Theory_Money_Credit/Part1_Ch3.aspx

<blockquote>The balances to not need to be accepted by anyone except the holder of the account. The balances to not need to be transferred by cheque or EFT.</blockquote>
In order to increase the money supply, they do. You admitted this yourself in my example with Surdas vs. Bitcoins. Now, lets' get one step back and ask ourselves, why would the account holder accept such a weird instrument in the first place if he knew noone would accept it? It provides him no advantage over what he already has.

<blockquote>No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins.</blockquote>
In that case, they need to provide the claims (=substitute) to the lender. It's logically impossible to provide real bitcoins in excess of the reserves.

<blockquote>You are using it to mean a reserve of the monetary base. But that is not what reserves means in the context of Fractional Reserve Banking.</blockquote>
Of course it does. Wikipedia page on Bank reserves, http://en.wikipedia.org/wiki/Bank_reserves , says:

<blockquote>Bank reserves are banks' holdings of deposits in accounts with their central bank (for instance the European Central Bank or the Federal Reserve, in the latter case including federal funds), plus currency that is physically held in the bank's vault (vault cash).</blockquote>
And, since the currency is also issued by the central banks, that closes the circle.

<blockquote>Reserves can and often are held by commercial banks.</blockquote>
This has no effect on my claim.

<blockquote>Even the top of the "Reserve Requirements" Wikipedia page to which you link says that "It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank." If you want to talk about holding gold or even fiat money in reserves at a central bank, you can, but that is not what reserves are in the context of Fractional Reserve Banking.</blockquote>
This does not negate the fact that both cash and central bank deposits are, in fact, created by the central bank.

<blockquote>No they don't. Economists call them Demand deposits.</blockquote>
Demand deposits are a subset of money substitutes. Read the aforementioned chapter from Mises' book.

<blockquote>No, people consider the money in their bank account to be as good as dollars in their hands because they can access the money on demand. Cheques and EFTs need not be involved.</blockquote>
If they do not deposit the money in the bank, then it is also accessible on demand. Therefore, if your argument was correct, there would be no demand for bank deposits in the first place and banks would not exist. Your reasoning is therefore erroneous.

<blockquote>It is not mainstream.</blockquote>
The term might not be mainstream, but the concepts are. Even the article about Demand deposits you reference explains what it is. It says "These account balances are usually considered money and form the greater part of the money supply of a country." (emphasis added). However, it does not explain why. I provide an explanation. You just assume that there's some magic behind this, yet don't provide an explanation.

<blockquote>Money does not need to be in circulation to increase the money supply.</blockquote>
You phrase it wrongly. If it is not in circulation, it is not money in the first place. It is just some financial instrument. Like my Surdas.

<blockquote>Demand deposits are included in the money supply.</blockquote>
Wrong. Even the article you quote says "usually". You just assume that this is always true for some magical reason. It isn't, but until Bitcoin, it was not apparent. I explained the reason: the deposits are accepted as a method of payment, because there are situations where they provide lower transaction costs than the money proper, and with fiat/gold, this requires substitutes.

<blockquote>It annoys me that you wouldn't know this despite telling me to read the article on money supply.</blockquote>
And it annoys me that you miss the big gap in your reasoning, although I have been pointing to it since my first edit.

<blockquote>Here are the very first two lines: "In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)."</blockquote>
(emphasis added) Again, you miss the gap in your reasoning. Even here, it says "usually". You just jump to the conclusion that it is always like this. It's not and I explained several times why.

<blockquote>When I said that Bank Alpha lends out Bitcoins, I meant it. Bank Alpha does not lend out Bitcoin Substitutes, they lend out Bitcoins.</blockquote>
In that case, it is the lender that receives the substitute, which noone accepts. So he has no reason to deposit the money in the first place and Bank Alpha would not come to existence.

<blockquote>Money supply is defined as "currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions)." Therefore Money supply is greater than or equal to 180 bitcoins at that point in the example.</blockquote>
Again, gap in reasoning, I already explained it several times. Merely because demand deposits form money supply with gold and fiat, it does not follow it works the same way with Bitcoin. You do not understand why economists include them in the definition of money supply in the first place.

<blockquote>I have countered your claims and answered your questions.</blockquote>
You make systematic errors in your claims. You also fail to answer the core question, why are money substitutes such as demand deposits considered a part of the money supply in the first place.

<blockquote>I have provided an example of Fractional Reserve Banking with Bitcoins. Fractional Reserve Banking with Bitcoins is possible.</blockquote>
For the last time, I did not claim FRB with Bitcoin was impossible. I even provided actual empirical evidence of it, unlike you. You have obviously no idea what you're talking about.

--[[User:PeterSurda|PeterSurda]] 21:07, 11 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>"Exactly. The issue of Surdas would have no effect on the Bitcoin economy, unless someone

accepted Surdas instead of Bitcoins. That's my whole point."</blockquote>

But this isn't Fractional Reserve Lending. I just answered your question to be polite.

<blockquote>"You first need to define these two terms in a coherent manner, which has not happened. "</blockquote>

'''Money supply''' is amount of currency in circulation plus demand deposits (depositors' easily

accessed assets on the books of financial institutions).

Apparently you do not accept this definition (more on this below).

The '''monetary base''' is highly liquid money that consists of coins, paper money (both as

bank vault cash and as currency circulating in the public), and commercial banks' reserves.

In the case of Bitcoin, this would be ''real'' Bitcoins which are limited to 21 million.

Do you accept this definition?

Here is a helpful table. Monetary Base is MB and Money Supply is M1.
{| class="wikitable" border="1"
|-
! Type of money
! M0
! MB
! M1
! M2
! M3
! MZM
|-
| Notes and coins (currency) in circulation (outside Federal Reserve Banks, and the vaults of depository institutions)
| V<ref name="dollardaze.org">http://dollardaze.org/blog/?post_id=00565</ref>
| V
| V
| V
| V
| V
|-
| Notes and coins (currency) in bank vaults
| V<ref name="dollardaze.org"/>
| V
|
|
|
|
|-
| Federal Reserve Bank credit (minimum reserves and [[excess reserves]])
|
| V
|
|
|
|
|-
| traveler's checks of non-bank issuers
|
||
| V
| V
| V
| V
|-
| [[demand deposit]]s
|
|
|V
|V
|V
|V
|-
| other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts.
|
|
|V<ref>http://research.stlouisfed.org/fred2/series/M1</ref>
|V
|V
|V
|-
| [[savings deposit]]s
|
|
|
|V
|V
|V
|-
| [[time deposits]] less than $100,000 and money-market deposit accounts for individuals
|
|
|
|V
|V
|
|-
| large time deposits, institutional money market funds, short-term repurchase and other larger liquid assets<ref>http://www.investopedia.com/terms/m/m3.asp</ref>
|
|
|
|
|V
|
|-
|all money market funds
|
|
|
|
|
|V
|}

<blockquote>I said: "No, you misunderstand. They don't provide borrowers claims on bitcoins. They provide real bitcoins."

You said: "In that case, they need to provide the claims (=substitute) to the lender."</blockquote>

Who needs to provide claims to the lender? Who is the lender, Bank Alpha for example? And
what do you mean by ''claims''? Can you please rewrite your statement so that I can understand?

<blockquote>"It's logically impossible to provide real bitcoins in excess of the reserves. "</blockquote>

Fortunately no one needs to.

<blockquote>"Of course it does. Wikipedia page on Bank reserves,

http://en.wikipedia.org/wiki/Bank_reserves , says:..."</blockquote>

Ok, suppose Satoshi puts 100 bitcoins in Bank Alpha and Bank Alpha puts a fraction of the
deposit (20 bitcoins) in a special account and does nothing with them. They then lend out 80
bitcoins. Can we say that the 20 bitcoins are held in reserve by the bank?

<blockquote>"This has no effect on my claim. "</blockquote>

Great. I am happy that we are starting to show some signs of agreement.

<blockquote>"If they do not deposit the money in the bank, then it is also accessible on demand.
Therefore, if your argument was correct, there would be no demand for bank deposits in the first place and banks would not exist. Your reasoning is therefore erroneous."</blockquote>

I can give you two examples that currently or formerly exist that show that people do demand bank deposits despite not having substitutes like cheques and EFTs: MyBitcoin and MtGox. People hold/held quite a bit of money in these services. There would be further demand for deposit accounts if banks offer a bit of interest payment. Did you really think that there couldn't possibly be other advantages to having money in a bank besides being able to write cheques and use EFTs with it?

<blockquote>I said: "Demand deposits are included in the money supply."

You said: "Wrong. ..."</blockquote>

So do you assert that demand deposits are not included in the money supply as it applys to bitcoin? Edit: You stated this clearly in the rest of your post. I'm glad we are close to identifying the reason we disagree. I will address this in my next post after you respond.

<blockquote>You said "In that case, it is the lender that receives the substitute, which no one accepts. So he has no reason to deposit the money in the first place and Bank Alpha would not come to existence."</blockquote>

Why would Bank Alpha receive substitutes? As I explained in the example, Bank Alpha receives Bitcoins!

<blockquote>"You do not understand why economists include them in the definition of money supply in the first place."</blockquote>

Ok, Why is that? And why would it be any different for Bitcoin?

<blockquote>"For the last time, I did not claim FRB with Bitcoin was impossible. I even provided actual empirical evidence of it, unlike you. You have obviously no idea what you're talking about."</blockquote>

I provided an example of Fractional Reserve Banking above! You didn't say that FRB is impossible but you did say that "Without demand for Bitcoin-substitutes, FRB is not possible." You also said, "If someone tried Bitcoin FRB, they would produce Bitcoin-substitutes: digital services or physical goods incompatible with the Bitcoin network, fiat money or gold. Who would accept something like that for payment?"

Doesn't that clearly suggest that FRB with Bitcoin isn't realistically happening?

I have asked several questions (this last one being the least important). I look forward to hearing your response.

--[[User:Atheros|Atheros]]

'''--------PeterSurda Response-------'''

Let's put our arguments into a formal structure.

Issue 1: definition of money supply:

* Atheros: Zero maturity is a necessary and sufficient condition for a claim to be considered a part of the money supply.
* PeterSurda: Both parts are incorrect. The necessary and sufficient condition is acceptance of the claim as a means of payment instead of the base.

Proof:
* there are claims which have zero maturity, and are not considered a part of the money supply. The best example I could think of are casino chips. They are zero maturity, but do not increase money supply regardless of whether they are backed by full or fractional reserves. Mt. Gox accounts are the equivalent of the casino chips: you can use them to exchange against other currencies on Mt.Gox' systems, and you can withdraw BTC. Other example I found are certain promissory notes.
* even demand deposits do not always have zero maturity. Banks typically request a prior notice if you want to withdraw larger amount of cash, however require no such notice if you just want to transfer money out via EFT.

Issue 2: application of the definition of money supply:

* Atheros: money supply is cash (including one held by public and bank reserves) and demand deposits. Money supply increases when banks lend reserves.
* PeterSurda: these two claims contradict each other.

Proof:
{| border="1"
|+ Money supply calculation
| Stage || Cash held by public || Demand deposits || Bank reserves || Money supply if demand deposit is not acceptable for payment || Money supply if demand deposit is acceptable for payment || Sum (cash + demand deposits)
|-
| Prior to deposit || 100||0||0||100||100||100
|-
| Creation of deposit ||0||100||100||100||100||200
|-
| Fractional reserve lending ||80||100||20||100||180||200
|-
| Creation of another deposit ||0||180||100||100||180||280
|-
| Additional fractional reserve lending ||60||180||40||100||240||280
|}

Clearly, the sums in last two columns are different. So either your description of FRB is wrong, our your definition of money supply.

Issue 3: Usage of services:

*Atheros: People deposit money into Mt. Gox. or mybitcoin (well, at least until it went belly up). These balances are demand deposits and therefore considered part of the money supply.
*PeterSurda: Being a demand daposit does not mean it increases the money supply. Only if they circulate. As far as I know, Mt.Gox does not even support P2P payments outside of the BTC network, and I think mybitcoin did, but of course this only works among mybitcoin customers. Flexcoin supports this too, but I think Strongcoin does not. Furthermore, acording to your definition of the money supply (see previous table), if Satoshi deposited a million Bitcoins into Mt.Gox, that act of depositing would increase the money supply of bitcoins by about 13%, regardless of what Mt.Gox did with their reserves! Clearly there is something fishy about this.

Issue 4: Effect of FRB on Bitcoin:

*Atheros: PeterSurda claims that FRB with Bitcoin won't happen.
*PeterSurda: I claim that FRB with Bitcoin has very little effect on money supply and is unprofitable.

--[[User:PeterSurda|PeterSurda]] 12:30, 12 November 2011 (GMT)

'''--------Atheros Response-------'''

Issue 1: definition of money supply:

I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions). The only reason casino chips aren't part of "the money supply" is because you haven't defined "the money supply". If by "the money supply" you mean "the money supply of casino chips" then casino chips are indeed part of the money supply (of casino chips).

Your definition of money supply: "The necessary and sufficient condition is acceptance of the claim as a means of payment '''instead''' of the base." (emphasis added)

What does this 'instead of the base' mean? Bitcoins are the monetary base of Bitcoin. Doesn't your definition mean that Bitcoins are not part of money supply?

Issue 3: Usage of services (related to issue 1):

I think it is goofy that you say that "being a demand deposit does not mean it increases the money supply". Let us suppose you have 100 bitcoins in your computer wallet and 100 bitcoins in MtGox in case you want to trade them some day. Wouldn't you say that you own 200 bitcoins? Wouldn't any reasonable person say that they own 200 bitcoins? Why, then, should the money supply be only 100 bitcoins? Why on Earth would the money supply go down when you move bitcoins from your computer to MtGox?

In reply to your "fishy" comment- As I've said, the money supply is currency in circulation plus demand deposits. If Satoshi moves a million Bitcoins from his wallet (which are 'in circulation') to a demand deposit, the money supply stays the same.

Issue 2: application of the definition of money supply:

There are problems with your table.
*The reason the last two columns are not equal is because you added bank reserves in your sum. Bank reserves are not included in M1 (money supply) which you can see in my table above in the ''minimum reserves and excess reserves'' row.
*Demand deposits are never accepted as payment so having two columns to address this doesn't make sense. That said, the values you have in the column ''Money supply if demand deposit is acceptable for payment'' are correct. The only thing that is accepted in the case of Bitcoin is bitcoins. A person can either withdraw the bitcoins himself and give them to someone else, or he can instruct his bank to move the bitcoins from his account to someone else's. Here is the corrected table:

{| border="1"
|+ Money supply calculation
| Stage || Cash held by public || Demand deposits || Bank reserves || Money supply
|-
| Prior to deposit || 100||0||0||100
|-
| Creation of deposit ||0||100||100||100
|-
| Fractional reserve lending ||80||100||20||180
|-
| Creation of another deposit ||0||180||100||180
|-
| Additional fractional reserve lending ||60||180||40||240
|}

--[[User:Atheros|Atheros]] 19:05, 12 November 2011 (GMT)

'''--------PeterSurda Response-------'''
<blockquote>I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions).</blockquote>
No, that's not what you said, you also included bank reserves. You also quoted sources that include bank reserves as money supply, including the description and the tables. You contradict that now.

<blockquote>The only reason casino chips aren't part of "the money supply" is because you haven't defined "the money supply".</blockquote>
According to your justification for demand deposits being a part of money supply (zero maturity claim), casino chips should also be a part of the money supply. Can you address this?

<blockquote>If by "the money supply" you mean "the money supply of casino chips" then casino chips are indeed part of the money supply (of casino chips).</blockquote>
The question is not what I mean, but what you mean.

<blockquotE>What does this 'instead of the base' mean?</blockquote>
I've been talking about this since the beginning, it looks like you're finally coming around to confront it. It means that whoever you are sending money to is willing to accept this claim instead of accepting Bitcoins. Like cheque or EFT instead of cash, or (on gold standard) banknote instead of a gold coin.

<blockquote> Bitcoins are the monetary base of Bitcoin. Doesn't your definition mean that Bitcoins are not part of money supply?</blockquote>
Read what I wrote. I did not say that the base (Bitcoin) is not the part of money supply, I wrote that claims on Bitcoin are only a part of the money supply if they are an accepted method of payment.

<blockquote>I think it is goofy that you say that "being a demand deposit does not mean it increases the money supply".</blockquote>
I think it's regrettable that you still don't understand this.

<blockquote>Let us suppose you have 100 bitcoins in your computer wallet and 100 bitcoins in MtGox in case you want to trade them some day. Wouldn't you say that you own 200 bitcoins?</blockquote>
You own 100 bitcoins and a claim on 100 bitcoins. This claim is only a part of money supply if you can use it for payment. At the moment, you can't. While it is hypothetically possible to use this claim as a method of payment in the future, there is no demand for it, unlike the situation with fiat and gold.

<blockquote>Why, then, should the money supply be only 100 bitcoins?</blockquote>
I already explained it several times: for the same reason that owning 100 USD's worth of casino chips is not a part of the money supply of USD: they are not acceptable for payment. The "reserves" of the casino, however, in the absence of FRB, are a part of the money supply. So in your case the money supply is 200 BTC: 100 Bitcoins in your own wallet plus 100 Bitcoins as Mt.Gox reserves. The account balance you have with Mt.Gox does not appear in the equation.

<blockquote>Why on Earth would the money supply go down when you move bitcoins from your computer to MtGox?</blockquote>
They money supply does not go down, because Mt. Gox keeps reserves in the nominal value equivalent to your deposit.

<blockquote>As I've said, the money supply is currency in circulation plus demand deposits.</blockquote>
That's not what you said. Go back and read your own words. You also included bank reserves. In fact, you complained about me not including cash reserves in my definition of fiat FRB.

<blockquote>If Satoshi moves a million Bitcoins from his wallet (which are 'in circulation') to a demand deposit, the money supply stays the same.</blockquote>
In that case, your prior definition of money supply is wrong and your whole argument collapses.

<blockquote>The reason the last two columns are not equal is because you added bank reserves in your sum.</blockquote>
Go back and read what you wrote. You wrote several times that bank reserves are a part of the money supply. Look at the definition you quoted, and at the table you copied from the wikipedia article.

You still have failed to address the question why are demand deposits a part of the money supply in the first place, whereas casino chips aren't (at least I hope you do not claim that casino chips are a part of the money supply).

--[[User:PeterSurda|PeterSurda]] 20:41, 12 November 2011 (GMT)

'''--------Atheros Response-------'''

<blockquote>I said: "I thought I gave a pretty clear definition of money supply: The amount of currency in circulation plus demand deposits (depositors' easily accessed assets on the books of financial institutions)." </blockquote>

<blockquote> You said: "No, that's not what you said"</blockquote>

Not only did I say it, I said it three times!

<blockquote>"...you also included bank reserves. You also quoted sources that include bank reserves as money supply, including the description and the tables. You contradict that now." (and) "Go back and read your own words. You also included bank reserves. In fact, you complained about me not including cash reserves in my definition of fiat FRB." </blockquote>

I just searched this thread for every occurrence of 'reserve' and read each paragraph and couldn't find where I claimed money supply includes bank reserves. Could you point it out for me?
Concerning the table, I said that "Money Supply is M1". Note that M1 doesn't have a tick mark in the ''minimum reserves and excess reserves'' row.

<blockquote>"According to your justification for demand deposits being a part of money supply (zero maturity claim), casino chips should also be a part of the money supply. Can you address this?" </blockquote>

If we are talking about the money supply of dollars, then casino chips, bitcoins, gold bars, and chickens are all not part of the money supply (of dollars). Only ''dollars'' are. If we are talking about casino chips, then casino chips are included in the money supply of casino chips but those other things are not.

Is this statement correct? ''PeterSurda says that the Money Supply of Bitcoin is the total value of claims on Bitcoins which are an accepted method of payment.'' If that isn't correct, can you fix it?

I would like to be able to calculate the money supply. Is this statement correct? ''PeterSurda says that Money Supply is the amount of money in circulation plus bank reserves.'' If that isn't correct, can you fix it? Thank You.

<blockquote>"You own 100 bitcoins and a claim on 100 bitcoins. " </blockquote>

>99% of the population doesn't see it like that. They see the money in their bank account and money in their hand as basically the same thing. Certainly I admit that they aren't the same, but if you ask people how much money they have, nearly everyone is going to take the number of dollars (or euros, etc.) in their wallet and add the number of dollars (or euros) in their bank account, and tell you that number. They will also behave as if they have that number of dollars/euros. This is why demand deposits are included in the money supply. This is why my definition of money supply is useful.

<blockquote>"So in your case the money supply is 200 BTC: 100 Bitcoins in your own wallet plus 100 Bitcoins as Mt.Gox reserves. The account balance you have with Mt.Gox does not appear in the equation. " </blockquote>

Excellent- I understand what you are saying. You claim that money supply does include bank reserves but not demand deposits, correct?

(I may not be able to continue responding until Monday evening. We need a break anyway.)

--[[User:Atheros|Atheros]] 05:54, 13 November 2011 (GMT)

'''--------PeterSurda Response-------'''

<blockquote>Not only did I say it, I said it three times!</blockquote>
I apologise, you used confusing terminology and I though that's what you're saying. Nevertheless, why did you pick M1 rather than M2 or MZM? You said that zero maturity is the reason why demand deposits are a part of the money supply.

Let me address the two definitions you provide, monetary base and money supply.

Monetary base is the money itself. In case of gold, it's the gold in existence. In case of fiat, it's very muddled: whatever the central bank produces (coins, banknotes, commercial bank deposits), to a certain extent other things, such as gold deposited in the CB, are also acceptable. In case of Bitcoin, it is Bitcoin. Claims on money are not a part of this.

Money supply is all the base money, plus claims on money that people accept as a means of payment, minus reserves of the issuers of those claims.

<blockquote>If we are talking about the money supply of dollars,</blockquote>
Casino chips (in US) are denominated in dollars, just like demand deposit accounts. Why are they not a part of the money supply, while demand deposits are?

<blockquote>Is this statement correct?</blockquote>
No.

<blockquote>If that isn't correct, can you fix it?</blockquote>
See above.

<blockquote>I would like to be able to calculate the money supply.</blockquote>
See above.

<blockquote>99% of the population doesn't see it like that.</blockquote>
There is a reason why economists use the definitions they use, and you still do not understand this reasoning. You use "money supply of dollars" when addessing casino chips, but what does it actually mean? Do you understand that?

<blockquote>They see the money in their bank account and money in their hand as basically the same thing.</blockquote>
And the reason why they do this is that they can use it as a payment method instead of using cash printed by the central bank: e.g. cheque, EFT, debit card. That's also the reason why they do not see casino chips as money: they cannot use it as a payment method instead of the dollars (or euros or whatever). That's also the reason why economists include demand deposits in fiat world in the money supply. This reason is absent with Bitcoin, and there's little reason for it to change.

See aforementioned Mises:

<blockquote>Technically, and in some countries legally as well, the transfer of a banknote scarcely differs from that of a coin. The similarity of outward appearance is such that those who are engaged in commercial dealings are usually unable to distinguish between those objects that actually perform the function of money and those that are merely employed as substitutes for them. The businessman does not worry about the economic problems involved in this; he is only concerned with the commercial and legal characteristics of coins, notes, checks, and the like. To him, the facts that banknotes are transferable without documentary evidence, that they circulate like coins in round denominations, that no fight of recovery lies against their previous holders, that the law recognizes no difference between them and money as an instrument of debt settlement, seem good enough reason for including them within the definition of the term money, and for drawing a fundamental distinction between them and cash deposits, which can be transferred only by a procedure that is much more complex technically and is also regarded in law as of a different kind. This is the origin of the popular conception of money by which everyday life is governed. No doubt it serves the purposes of the bank official, and it may even be quite useful in the business world at large, but its introduction into the scientific terminology of economics is most undesirable.</blockquote>

In 1912 when he wrote it, he saw a difference between the cash deposit and a bank note. In the meantime, the difference has vanished, because it became much easier to do these transfers (e.g. cheque/debit card/EFT). With Bitcoin, you cannot transfer these balances among each other outside of closed systems, you need to perform a withdrawal as a part of the procedure.

Once again, the reason why demand deposits are included in the supply of money is not that they are redeemable on demand, but because they are an accepted method of payment. That's the purpose of the term money supply too: to measure the amount of whatever is usable for payment. That is why casino chips and Surdas are not included in it, and that is why balances of claims-issuing companies like Mt.Gox and flexcoin should not be included in it either, as long as they are not used as a method of payment without conversion into "native" Bitcoin. That is also why economists use the definitions they use: the amount of things that are usable as payment is what they analyse, not the maturity of claims.

--[[User:PeterSurda|PeterSurda]] 07:45, 13 November 2011 (GMT)

One link to support my definition of money supply: http://wiki.mises.org/wiki/True_Money_Supply :

<blockquote>Algebraically, TMS = Standard Money (held by the public) + Money Substitutes</blockquote>

And here is Rothbard in Austrian Definitions of the Supply of Money, http://mises.org/rothbard/austrianmoneysupply.pdf , confirming my analysis:

<blockquote>It is important to recognize that demand deposits are not automatically part of the money supply by virtue of their very existence; they continue as equivalent to money only so long as the subjective estimates of the sellers of goods on the market think that they are so equivalent and accept them as such in exchange.</blockquote>

--[[User:PeterSurda|PeterSurda]] 12:00, 13 November 2011 (GMT)

'''--------Atheros Response-------'''

I picked M1 because that is what all the mainstream textbooks say. I believe they say that because the things in M1 are the things most people consider to be their ''money''. Certainly that definition of money isn't useful for all situations which is why those other M's are shown. This is why the word ''usually'' appears in the description of money supply on Wikipedia which you pointed out earlier.

Concerning casino chips, I didn't know casino chips were valued in dollars. Now that I know that: Whether we consider casino chips part of the money supply or not has no effect on the size of the money supply; the money supply will remain the same. The reason is that supposing we consider casino chips to be money, then when we put 1 dollar into the casino's vault, that dollar is removed from the money supply, and one dollar in the form of a casino chip is added to the money supply. '''Notice that we are still talking about the money supply of dollars.''' (Chickens, Bitcoins, and Gold are not included.) The money supply remains equal to what is was earlier, but an additional dollar is now held in reserve. If you don't like this and don't want to say that casino chips are money; that's fine. In that case, the dollars in the vault are still part of the money supply and the chips simply represent a claim to retrieve them.

<blockquote>"You use "money supply of dollars" when addressing casino chips, but what does it actually mean? Do you understand that?" </blockquote>

Did my above paragraph answer this? If no, can you please restate?

<blockquote>"That's also the reason why they do not see casino chips as money: they cannot use it as a payment method instead of the dollars (or euros or whatever). " </blockquote>

Except that people ''do'' use casino chips as a payment method in cities like Las Vegas. You can pay a hooker or tip a waitress in a restaurant with the casino chips. If casinos were in every city, then you could use the casino chip anywhere as a payment method. Also, if you can't use a cash dollar as a method of payment in the jungle, wouldn't you have to admit that under your definition, tourists remove their dollars from the money supply when they visit the jungle?

Concerning your quotes from Mises and Rothbard, and really your views at-large: This is the Austrian school of thought. This isn't mainstream. Your definition of money supply is not in textbooks taught in very many schools. Your definition of Fractional Reserve Banking thus doesn't match what most economists consider it to be.

--[[User:Atheros|Atheros]] 04:15, 15 November 2011 (GMT)

'''--------PeterSurda Response-------'''

Regarding casino chips: I think we're making some progress. You argue that the reason why casino chips do not affect the money supply is not that they are not used as a general medium of exchange, but because the issuers thereof do not overissue them (FRB). How do you know they do not overissue?

Use of chips as a payment method: please look at wikipedia page of Money: http://en.wikipedia.org/wiki/Money:
<blockquote>Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.</blockquote>
(emphasis added) Are chips generally accepted? No, they are only accepted within a very narrow geographical area, and only for certain services. Similarly as vouchers, coupons, bus tickets and so on. So why do you think they should be reflected in the money supply? More importantly though, balances on Mt.Gox, flexcoin and so on are used as a medium of exchange even less: in the hypothetical scenario of transferring Bitcoins from Mt.Gox to flexcoin, rather than exchanging the balances, the Bitcoins are withdrawn from Mt.Gox, sent over the Bitcoin network, flexcoin stores them in their "reserve" wallet and issues new claims (balance) to the recipient. So even if we omitted the requirement for general acceptance, it still would not support your argument.

As your example with jungle and uselessness of dollars, I admit that the definition is fuzzy, I have my own problems with it. But hopefully we can agree that unless you accept something as a means of payment, the change of supply of it has no effect on our spending decisions, correct? If Walmart issues vouchers in the value of, say, one trillion dollars, unless you intend to shop at Walmart, this has no effect on your purchasing decisions, correct?

Most importantly though, you still haven't address the core issues. Why economists use the definitions they use? Why do the definitions of M1 say that it usually includes demand deposit, but not always? What does money supply measure? If you disagree with Austrians, what is your alternative explanation?

While it isn't as clear from wikipedia as from the Rothbard quote, here it what it says about money supply: http://en.wikipedia.org/wiki/Money_supply :
<blockquote>In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.</blockquote>
and
<blockquote>Money is used as a medium of exchange, in final settlement of a debt, and as a ready store of value.</blockquote>
Are account balances on Mt. Gox or flexcoin used for any of this? Maybe for the last one. But they are rarely a medium of exchange or a final settlement of debt. The wikipedia article continues:
<blockquote>Narrow measures include only the most liquid assets, the ones most easily used to spend...</blockquote>
(emphasis added) Are Mt.Gox / flexcoin balances used to spend? In general, no, they are redeemed into Bitcoins in order to spend them.

Mt.Gox offers the following methods of transferring Bitcoins:

* redeemable Mt.Gox code
* Green address
* Bitcoin address

Only the first one is a claim, the others are native Bitcoin. The claim is only usable for other Mt.Gox users.

Flexcoin offers the following methods of transferring Bitcoins:

* another flexcoin ID
* an e-mail address
* an external bitcoin address

The first two are claims (I think, I am not sure about the inner workings of flexcoin). The claim is only usable for other flexcoin users.

The only people who are affected by (hypothetically) inflated balances of Mt. Gox or flexcoin are those that accept those claims. From this perspective, both functionally and scope-wise, this is similar to the aforementioned casino chips, vouchers and so on. It does not have an effect on the money supply any more than an overissue of casino chips has effect on the purchasing decisions of people other than the casino guests, aforementioned hookers and waiters.

--[[User:PeterSurda|PeterSurda]] 08:00, 15 November 2011 (GMT)

'''--------Atheros Response-------'''

I assumed that casinos weren't over issuing chips. I've just done some research and found that they are allowed to do this legally. So they are probably doing it. So they are increasing the money supply of dollars.

We could argue all day about what things are 'generally accepted'. 100 bills aren't generally accepted at gas stations. We shouldn't read too much into that particular phrase. Casino chips wouldn't be ''money'' far away from a casino, but they are money in Las Vegas. I have a Chinese 2 unit bill around here somewhere. It isn't money to me.

<blockquote>"If Walmart issues vouchers in the value of, say, one trillion dollars, unless you intend to shop at Walmart, this has no effect on your purchasing decisions, correct? "</blockquote>

If everyone in a 'community' of some sort shops at Walmart, then the vouchers would start to be traded like money among the members of the community for goods and services for a period of time before making their way back to Walmart.

<blockquote>"Why economists use the definitions they use?"</blockquote>

Because their definitions are the most useful.

<blockquote>"Why do the definitions of M1 say that it usually includes demand deposit, but not always?"</blockquote>

You are confused. The definition of M1 always includes demand deposits. The definition of money is usually M1. The definition of money is usually M1 because in most situations when you ask someone how much money they have, they add up the things in M1.

<blockquote>"What does money supply measure?"</blockquote>

I've answered this six times.

<blockquote>"If you disagree with Austrians, what is your alternative explanation? "</blockquote>

[http://en.wikipedia.org/wiki/Economics Mainstream Economics]

Concerning Fractional Reserve Banking in particular, [http://en.wikipedia.org/wiki/Fractional_reserve_banking this].

Here is [http://en.wikipedia.org/wiki/Money_supply Money supply].

<blockquote>"Narrow measures include only the most liquid assets, the ones most easily used to spend... "</blockquote>

So are you telling me that money stops being money when you put it in a bank, or MtGox? Because you are telling me that money in MtGox isn't sufficiently easy to spend because their transfers naturally aren't accepted by everyone.

<blockquote>"It does not have an effect on the money supply any more than an overissue of casino chips has effect on the purchasing decisions of people other than the casino guests, aforementioned hookers and waiters. "</blockquote>

No no; because the money supply increases as I described above, the value of each dollar goes down slightly which affects everyone.

I would like you to respond to this example:

Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. Despite the fact that Satoshi, Gavin, and Cameron only have claims to bitcoins, isn't the fact that they collectively know they can access 244 bitcoins significant to note and measure? This means that each bitcoin will be nearly 1/3rd as valuable as before Fractional Reserve Banking. How is that not significant?

--[[User:Atheros|Atheros]] 09:31, 15 November 2011 (GMT)

'''--------PeterSurda Response-------'''

Here we have it from wikipedia ( http://en.wikipedia.org/wiki/Demand_deposit : )
<blockquote>Demand deposits are usually considered part of the money supply, as they can be used, via checks and drafts, as a means of payment for goods and services and to settle debts.</blockquote>
(emphasis added)

Another link: http://www.economicsjunkie.com/true-money-supply/ :
<blockquote>Virtually everyone accepts payment in demand deposit money. Demand deposits are thus to be included in the money supply.</blockquote>

And here we have the Federal Reserve Bank of New York, http://www.ny.frb.org/aboutthefed/fedpoint/fed49.html :
<blockquote>The money supply measures reflect the different degrees of liquidity—or spendability—that different types of money
have.</blockquote>

So what reason do you have in asserting that maturity, rather than acceptability in transactions (as seen above), is the reason for including a claim in the money supply? And what do you think money supply actually
measures?

--[[User:PeterSurda|PeterSurda]] 10:14, 15 November 2011 (GMT)

<blockquote>So are you telling me that money stops being money when you put it in a bank, or MtGox?</blockquote>
It stops being a part of the money supply if it is held as reserve for money substitutes.

<blockquote>Because you are telling me that money in MtGox isn't sufficiently easy to spend because their transfers naturally aren't accepted by everyone.</blockquote>
What this means is that these balances are not money substitutes, only claims. They are not a part of the money supply of Bitcoin, rather the "reserves" of Mt.Gox are, because these "reserves" are what circulates if people are transferring Bitcoin among themselves. It is the equivalent of gold being able to instantly teleport among vaults at negligible cost. If this was possible, bank notes, cheques and EFT would not be used for exchange of gold, and bank balances would cease to be a part of the money supply.

--[[User:PeterSurda|PeterSurda]] 10:45, 15 November 2011 (GMT)

Also, definition of money supply from Merriam-Webster http://www.merriam-webster.com/dictionary/money%20supply :

<blockquote>the total amount of money available in an economy for spending...</blockquote>

Another definition: http://www.investorwords.com/3110/money_supply.html :

<blockquote>The total supply of money in circulation in a given country's economy at a given time.</blockquote>

These quotes (and the ones from previous post) lead to the following conclusion:

* the money supply does not measure the nominal value of zero maturity instruments denominated in that currency, but the nominal value of the instruments that are accepted as media of exchange
* deposit accounts are not always, by their virtue, a part of the money supply, but only to the extent they are accepted as a method of exchange

I provided quotes by non-Austrian, mainstream sources. What is your evidence that your position is correct?

--[[User:PeterSurda|PeterSurda]] 12:12, 15 November 2011 (GMT)

'''--------Atheros Response-------'''

I've cited many sources throughout this thread. I can even take your own Fed link and see that "The Federal Reserve publishes weekly and monthly data on two money supply measures M1 and M2. ... The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds."

Your definition of money supply is not useful.

I would like you to respond to this example:

Suppose that there are only 100 Bitcoins on Earth all owned by Satoshi. He puts all 100 in Bank Alpha. Bank Alpha puts 20 of the bitcoins (20%) in a special account and leaves them there. They then lend out 80 bitcoins to Gavin. Bank Alpha tells Satoshi on his account page that his account has 100 bitcoins in it. Now, Gavin buys some LolCat comics from Cameron for 80 bitcoins. Cameron puts his 80 bitcoins in his bank, Bank Beta. Bank Beta puts 20% in reserve (16 bitcoins) and has 64 to lend out. They lend those 64 bitcoins to someone else. Cameron's account page on Bank Beta's website says he has 80 bitcoins in his account. Despite the fact that Satoshi, Gavin, and Cameron only have claims to bitcoins, isn't the fact that they collectively know they can access 244 bitcoins significant to note and measure? This means that each bitcoin will be nearly 1/3rd as valuable as before Fractional Reserve Banking. How is that not significant?

'''--------PeterSurda Response-------'''

Atheros, your quotes do not address my points at all, they skip over them. From this you incorrectly conclude that they disagree with my arguments.

In your example, since Gavin, Cameron and Satoshi cannot at the same time buy anything worth more than 100 Bitcoins without using their account balances as a medium of exchange (thus elevating it into a status of money substitute), it means the money supply is only 100 Bitcoins. That's the purpose of the term money supply, it measures how much can be spent.

Your is the definition that is not useful in economic theories. Money supply measures the amount that is available for payment. Not the sum of zero-maturity debt instruments. Absent the requirement to be usable as a medium of exchange, it cannot be used in calculations of inflation or money velocity. You practically invented your own economic theory.

I challenge you to pick any professional economists, who disagrees with either of these claims:
* The purpose of the money supply is to measure the nominal value of whatever is used as a medium of exchange.
* The reason why demand deposits are included in the money supply is because they are used as a generally accepted medium of exchange.

--[[User:PeterSurda|PeterSurda]] 08:16, 16 November 2011 (GMT)

= Bitcoin mining is a waste of energy and harmful for ecology =

IMHO this chapter is superficial. Compare Bitcoin to electronic fiat currencies. --[[User:Shrewdwatson|Shrewdwatson]] 17:57, 23 April 2011 (GMT)

How about this:

''The electricity spent in hashing is not wasted. It creates a product of value to the Bitcoin economy. The product is a supersignature on the complete list of transactions to date (the [[Block chain]]). This supersignature attesting to the chain's completeness is Bitcoin's defense against double spending.''

''Many sources of energy vary in their availability in ways that do not match the variations in demand. The law of supply and demand will require Bitcoin to soak up a lot of energy that is currently "wasted" without making a big dent in the otherwise usable energy supply. [Perhaps cite estimates of the break-even point for mining profitability that imply near zero-cost electricity.]''

[http://www.bitcoin.org/smf/index.php?topic=6459.msg98999#msg98999 More] --[[User:JohnTobey253|JohnTobey253]] 04:49, 29 April 2011 (GMT)

This paragraph is not honest. Right now the energy consumption of mining might be raletively low, but it is strongly dependant on BTC value because of economical basics. Please add something like the following:

''Energy consumption for mining has a high correlation with bitcoin exchange rate to fiat currency. Because variable costs of [[mining]] are dominated by electricity price, the economic equilibrium for the mining rate is reached when global electricity costs for mining approximate the value of [[mining]] reward plus [[transaction_fee | transaction fees]]. ''
* ''more efficient mining gear does not reduce energy use of the bitcoin network. It will only raise the network [[difficulty]]''
* ''cheaper energy linearly increases mining energy use of the bitcoin network''
* ''the same conclusions apply to all [[proof of work]] based currencies (i.e. [[Litecoin]]).''

If you're not convinced, please come and [https://bitcointalk.org/index.php?topic=181759.0 discuss with me]
[[User:Brenzi|Brenzi]] ([[User talk:Brenzi|talk]]) 21:12, 22 April 2013 (GMT)

== Categories and subcategories ==

Now we have everything in one place, but it should be divided into smaller subcategories to make it easier to find interesting topic

--[[User:Zwierzak|Zwierzak]] 22:03, 13 August 2011 (GMT)

That's an excellent idea.

--[[User:Atheros|Atheros]] 03:46, 11 November 2011 (GMT)

== Early adopter advantage ==

I'd like to comment on the fact that new bitcoins are evenly and competitively distributed over a period of 140 years or so. We are still very much in the "early" stages of bitcoin and only just recently passed "the half way mark" with two more halvings in the next 8 years. The generation of 90% of all new bitcoins happens over the first 15 years or so. [[User:JulianTosh|JulianTosh]] 2012-12-11 19:18 (GMT-8)