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  • May 1st, 2011 @ 5:44pm

    BitCoin Banking

    I hope BitCoin or some evolution based on the basic technology succeeds. I believe some forms of BitCoin banking will be necessary to enable that success. Some might be concerned that the whole point of the system was to make money distributed. Right now the wallet performs certain functions of a banking system. But not the most important function.

    As correctly pointed out above, banks create money (out of nothing, or thin air as often pointed out). That seems at odds with BitCoin where you need a GPU, electricity and some cooling to create BitCoins. But a BitCoin Bank could create new BitCoins by lending. In reality Banks do not create money out of completely nothing, they back it by claims on the assets of the borrower who demanded its creation in the first place. This capability would also allow the BTC supply to expand to meet demand, one of the reasons why the exchange prices are so unstable at the moment. It may solve a number of problems in the system.

    The genius of BitCoin was solving the problems of conterfeiting, double spending and online exchange using distributed P2P computing. There is nothing to say those mechanisms could not be used by a BTC banking system.