Wednesday, May 18, 2022

BTC Ideal For Backing Banknotes

BTC has high transaction costs, so you want your transactions bundled into batches. Using a bank for this is ideal. BTC-backed banknotes and bank balances allow fast and easy low-key transactions, but you can withdraw your BTC balance at any time.

Turns out "digital gold" was an even more apt moniker than you thought. 

Meanwhile, BTC does most of the fractional-reserve auditing for you. The correct fractional reserve is 1:1, because the risk of a bank run is 0 at this ratio. BTC balances are public: you can check how much BTC your bank holds at any time just by looking at their address on the blockchain. You can check yourself that you aren't issued more notes than is warranted by how much their BTC balance goes up. You can even give them special permission to invest your fraction of their BTC balance. Upside: higher interest rates for you; downside, risk of default.


Anonymous said...

Worth the risk IMO - making debasement of currency impossible should be the number one goal of any monetary policy.

Excellent idea, however.

Arqiduka said...

An ingenuous idea, but expected valuation of BTC vs dollars prevents it: who, in their right mind, would take out a loan in something that appreciates aggressively, and thus scheme is just you loaning to the bank. Paradoxically, as soo. As BTCs are no longer expected to appreciate on average, this will become feasible.