Zavan gets it. Drop "fractional" reserves." It's a empty phrase used as a boogeyman argument.
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From that POV, the basic problem with free banking is that for various reasons banks convinced people to swap their trust-minimized silver and gold for trust-based gold IOUs. Fractional reserve and modern fiat are both consequences of that misplaced trust.
So I set myself the challenge of using my computer science knowledge to design a trust-minimized form of digital money, and the result was bit gold.
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I hoped such money would be convenient enough that economies would return to vulnerability-minimized money. We still see the trust-the-convenient-exchange vs. hold-your-own debate today, but Bitcoin gives us a better chance to minimize the vulnerability of money than gold did.
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Nick, what are the reasons why you think BTC is less vulnerable than gold as money?
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Thanks. As I understand this, gold's main problem as a money is its physicality/locality?
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Physicality itself brings a lot of disadvantages to the table: easier to counterfeit or debase, hard to transact, harder to split, hard to guarantee fungibility.
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Besides Bitcoin's better security (with good key management), gold is much harder to validate (assay, in gold terminology). It was so costly that for the vast majority of transactions trust in a central validator was introduced by using coins instead of personally assaying.
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Got it. So, physicality and costly validation, which led to trusting centralized entities. What would you say are BTC's biggest flaws/challenges right now?
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If you don't mind, from your knowledge about the free banking era, how do you see fractional reserves without central banking? How well did it work? (how often did banks fail? How were customers reimbursed, if at all)?
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It worked a bit better than central banking, but both worked by adding a huge & irrevocable (until the release of Bitcoin) vulnerability, trust in strangers, to money. Sooner or later bankers central or otherwise defaulted on their gold IOUs,. The eventual result was modern fiat.
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That is to say free banking, in jurisdictions with unusually strong property rights and monetary laws, worked somewhat better than central banking. Both produced inferior, trust-based and fractional-reserve, forms of money.
End of conversation
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Nick, as an aside, you may be interested in our company. We pay interest on gold, in gold.https://monetary-metals.com
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Nick before bit gold and b-money, were people thinking about the idea of trust-minimized digital cash or did most just think it was impossible?
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