Banks are regulated by law and have the funds insured by FDIC. i.e even if the bank goes belly up, the FDIC will make sure the depositors get the money. With BitCoin, how do you trust a bank? Even if it's just by word-of-mouth trust, eventually the bank will be taken over or run by non-trustworthy people. The threat of federal prison keeps most real banks honest. Nothing like that exists in the BTC world.
Well, ultimately what you're saying is that you trust the FDIC more than you trust any given bank. That's nice, but it begs the question:
- Will the FDIC fulfill its obligations at all times?
- How does the FDIC have the resources to do so?
- Does the presence of the FDIC lead to better or worse behavior among banks?
It's especially interesting to look at the issue of non-trustworthy people. When S&Ls were semi-deregulated in the early 80's, they got extra FDIC protection and were allowed to lend to a wider variety of projects. Suddenly, the credit decisions of the bank didn't matter, because the FDIC backstopped their deposits. And that attracted some really non-trustworthy people.
Wikipedia says the total cleanup cost was $87.9 billion, which discounts the opportunity cost from building pointless malls and empty offices. Can you imagine a BitCoin-based system ever hitting that level of losses?
I agree that circulation of currency/commodities is necessary for a healthy economy. I don't agree that we're better off having value stolen from our currency by inflating it for the sake of "incentive".
How many joe sixpacks actually spend their money as quickly as possible because they're afraid of inflation? Hopefully it never comes to that.
> Deflationary spirals are no fun.
$5/gallon of gas and $7/gallon of orange juice are no fun either.
>If you think that is honest behavior, then bury all your money for 10 years and then try to spend it. Suprise! You've been robbed.
That does induce people to spend,invest or save(savings in banks are loaned out to others by the banks) which drives the economy.
The problem with bitcoin right now is that it's being thought of an investment to hold on to, instead of a currency that must be exchanged for goods.
Imagine if the dollar was appreciating in value big time every week and month. People would stop spending and just hog them. The economy as we know if might collapse and lead to a full blown depression.
> instead of a currency that must be exchanged for goods.
My prediction is the bitcoin market will correct itself, as markets without interference do. Bitcoins are intrinsically worthless, like the USD, unless it can be exchange for goods/services.
> Imagine if the dollar was appreciating in value big time every week and month.
As long as a central banking authority (Federal Reserve) can legally make dollars from thin air, this will never happen.
The problem is that people are using BitCoin as a 'Get Rich Quick' scheme instead of a currency. While this does drive adoption, some lives may be destroyed on the way because of market manipulation by malicious parties. How many legitimate transactions are happening compared to transactions with an intent to hoard BitCoins for future gains?
> Banks are regulated by law and have the funds insured by FDIC. i.e even if the bank goes belly up, the FDIC will make sure the depositors get the money. With BitCoin, how do you trust a bank?
There were banks before the FDIC and people trusted them. The threat of insolvency can (but doesn't always) keep them honest.
True, but atleast the banks were real physical places with real people at the helm. It is really hard to trust anything over the internet these days,except if one of the big financial players like Citibank or someone like Amazon starts a bitcoin bank.
AFAIK any of the online banks could be running out of a hole in the wall in Ukraine or Nigeria. Even paying online sites with credit cards is risky these days with the rampant fraud etc, I wouldn't trust anything online only enough to entrust my money unless backed by a big player.
> except if one of the big financial players like Citibank or someone like Amazon starts a bitcoin bank.
That's part of how the market solves this sort of problem, traditionally. When trustworthiness is especially valuable, brands develop that have it. One way to bootstrap the process is to start with an existing brand that has it, like American Express. Companies that want to be seen as trustworthy can also do things like offering money-back guarantees and putting money aside in an escrow account held by a third party.
