So much about the claim of cryptos being limited supply... https://seekingalpha.com/article/4082979-many-bitcoins-lost-forever " while the number of bitcoins in existence will never exceed 21 million, the money supply of bitcoins can exceed 21 million due to fractional-reserve banking." "Martin YK Li, Contributor explains: "Fractional reserve banking is when banks loan out or invest with money that customers have deposited, while keeping just a fraction of that money in reserve (actually sitting in the bank vaults) in case of a bank run. This form of banking increases the money supply by a factor of x, where x is the money multiplier (http://bit.ly/2tPc0Ys). Let's look at a small microcosm of the economy, for example, a society that consists only of you, me, and the bank. For the sake of example, let's say there are only $100 that exist in our small little society, and you own all $100. You decide to give the money to the bank for safekeeping, which doesn't change the amount of money in the system; There's still only $100. However, the bank decides to let me borrow $50 of that $100. Now I have $50 to spend, and you still have $100 sitting in the bank, so there is now effectively $150 in the money supply. The actual number of Bitcoins in existence is capped at 21 million, but with fractional reserve banking, banks or exchanges can loan out Bitcoins the same way they would loan out money. It's as simple as a large bitcoin exchange lending out 10,000 bitcoins to an individual to start a business. The money supply would thus increase by 10,000 and we would instantly have fractional reserve banking. Fractional reserve banking was actually already implemented by CoinLenders.com, which is unfortunately now defunct. Seeing that the government does not regulate Bitcoin fractional reserve banking however, most consumers are wary of banking with exchanges that utilize fractional reserve banking, and most exchanges are aware of this sentiment as well. Poloniex for example makes it clear on its front page that it doesn't operate under fractional reserve banking."
BS story. None of the crypto Exchanges run fractional reserve (many of the big ones even prove their reserves once every period). Otherwise an immediate bank-run will happen (just the same as MtGox). Just FUD.
Bitfinex allows fractional banking. User A deposits 1 BTC. User B deposits 3K USD, borrows 1 BTC and sells on margin. User C buys 1 BTC with 7K USD, then withdraw 1 BTC to his cold wallet. Bitfinex has 0 BTC, 10K USD. User A Bitfinex balance is 1 BTC User B Bitfinex balance is 3K USD + 7K USD, -1 BTC User C Bitfinex balance is 0, cold wallet balance is 1 BTC So you now have 2 users owning 1 BTC and only 1 BTC in the system. User C could have lent the 1 BTC to D who sold to E, so you now have 3 users thinking they own 1 BTC, A C and E.
If it is theoretically possible (it is*), you bet your ass someone is practically doing it. Mt Gox cames to my mind... Apparently coinlenders.com also did it while it existed. *It is even in the Bitcoin Wiki: https://en.bitcoin.it/wiki/Fractional_Reserve_Banking_and_Bitcoin "Fractional Reserve Banking with Bitcoin is possible and practical. It is already implemented with CoinLenders. There is no fundamental difference between classical currencies and Bitcoin as it applies to banking. " Today You Learnt...
No, I only have $50 in the bank, and an IOU for $50 more. The only way I get my full $100 back is if the borrower is not a dead beat and pays the full amount of the loan to the bank. Sound familiar? Of course there could be a fourth person in our economy whose purpose is to print pieces of paper and say that the piece of paper is equal to $50. btw, I am a proponent for the elimination of fractional reserve banking and going to fee banking. That move would certainly slow growth in the economy, but also dampen the up and down swings as well, i.e. a less volatile economy.
Nope. Never said that. You are quoting the wrong person. On the other hand it is entirely possible for a broker who realizes that all those cash and BTC are just sitting there, to lend them out (just like a bank would do) and lose it in the process. Or suddenly customers want their money/BTC back and the broker is unable to provide them. Called run on the bank in economy class. If lending out more money is FRB for the bank, it is the same for the broker and BTC.
It's not Bitfinex itself, but the users who lend Bitcoin for a fee in USD (and take the risk). Just like how Brokers work if you want to Short a stock (Netflix). Some other client who has Netflix stocks can give them to the shortable-pool, and get a special interest for it (in USD, not in extra Netflix shares). That has nothing to do with Fractional Reserve banking.
Very different. It would be sound banking, if the Bank just used your paycheck and nothing more to lend it out for a fee. But they don't! It's Fractional reserve banking, if they multiply your paycheck amount 10 times (out of thin air), and lend that out for 10 times a fee. That's the very difference!