# Lifestyles & Discussion > Bitcoin / Cryptocurrencies >  Is Bitcoin really inflation-proof?

## willwash

What about fractional reserve Bitcoin banking?  If it can be done on a gold standard, it can be done on a Bitcoin standard

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## juleswin

> What about fractional reserve Bitcoin banking?  If it can be done on a gold standard, it can be done on a Bitcoin standard


Seeing as there is a fixed number of bitcoins in the world, the currency cannot be inflated by anyone. It may lose or gain value but it won't be because of inflation

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## presence

> What about fractional reserve Bitcoin banking?  If it can be done on a gold standard, it can be done on a Bitcoin standard


How are you going to pay a merchant with BTC that doesn't exist?   What you're proposing is impossible.   Fractional reserve fiat banking is possible because the .gov and .bank can collude to create money out of nothing.  That's not possible in the bitcoin protocol.  Either you mine them, earn them, or you buy them.


If anything bitcoin is deflationary.  Every day coins are lost on hard drives etc and they'll never be found again.   There are fixed number of coins.

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## Zippyjuan

Price inflation depends on supply and demand- not just of money but goods too.  Relative supply and demand.  Price inflation can happen with any kind of money.

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## juleswin

> Price inflation depends on supply and demand- not just of money but goods too.  Relative supply and demand.  Price inflation can happen with any kind of money.


That is not inflation, its just demand and supply of good and services and it will have the same effect on every currency. He is talking about inflation in terms of bitcoin which shouldn't be a thing if it really has a fixed amount that exists.

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## Zippyjuan

Fractional reserve banking is also possible no matter what you use for currency.  Fractional reserve banking means a bank keeps a fraction of their deposits in reserve and makes loans with the rest of it. The other option is a bank which doesn't loan out any of its deposits (or all of their deposits).

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## presence

I suppose a large BTC exchange would be in a position to make loans in BTC covered by customers holdings held on the exchange.  That would be "fractional reserve" and represent an "inflation" of the money supply.

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## willwash

> I suppose a large BTC exchange would be in a position to make loans in BTC covered by customers holdings held on the exchange.  That would be "fractional reserve" and represent an "inflation" of the money supply.


Isn't that basically what Mt. Gox was doing, and once people found out it became a good old fashioned 1929 style run on the bank?

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## presence

> Isn't that basically what Mt. Gox was doing, and once people found out it became a good old fashioned 1929 style run on the bank?


What exactly mtgox was doing or failing to do the world may never know.

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## muh_roads

> What about fractional reserve Bitcoin banking?   If it can be done on a gold standard, it can be done on a Bitcoin  standard


It can be done on a gold standard because gold  doesn't have a blockchain.  And trying to tie something in the physical  world to a blockchain will always involve counterparty risk.

The purpose of the blockchain is to keep all supply accounted for.




> Isn't that basically what Mt. Gox was doing, and once people found out it became a good old fashioned 1929 style run on the bank?


Exchanges (and probably poker sites) use their own blockchain internally that are not part of the main bitcoin blockchain.  Yes they could theoretically create as much BTC as they want internally.  But once you want it sent to you, it wouldn't work.  Top exchanges now like Bitstamp & Bitfinex go through numerous transparent audits.

Now, why Karpeles is roaming free without an ankle bracelet...I'm not sure.  Apparently Japan is soft.

At the end of the day, just like metals in your own safe, if you don't hold the private keys you don't own the bitcoin.

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## nayjevin

> I suppose a large BTC exchange would be in a position to make loans in BTC covered by customers holdings held on the exchange.  That would be "fractional reserve" and represent an "inflation" of the money supply.


True I think, and I think a derivative(?) like GBTC could be in the same way it's claimed gold paper exceeds physical supply, in theory.  Or a sidechain can be resold, like MasterCoin.  Also doesn't effective inflation occur if altcoins gain market cap?

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## heavenlyboy34

> What about fractional reserve Bitcoin banking?  If it can be done on a gold standard, it can be done on a Bitcoin standard


In an environment of competing currencies, it's not as big a deal IMHO.  As others have said, there's the possibility of price inflation with any medium.  I suspect most people would prefer PMs, but BTC would be a good option.

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## presence

> doesn't effective inflation occur if altcoins gain market cap?


To some degree that's like saying gold experiences inflation when silver gains market cap.   On the other hand crypto is an "asset class".   There will always be one dominant crypto currency with others competing for second.  Right now BTC is the dominant coin, so its convenient to speak in terms of BTC inflation.   Ultimately you're looking at the total market cap of the dominant vs the sum of alts.   Historically that's better than 5:1 ratio.   When if some coin comes to overtake BTC and the ratio of BTC to all other coins shifts to something like 1:2... this would represent not "inflation" or "expansion" in money supply but a lack of demand and resultant devaluation of BTC as a specific instrument.   But this is not to be confused with "inflation" of total BTC shares (coins) available.

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## kfarnan

Lending out a fixed supply of money isn't inflationary.  It's not depositor's savings  being loaned.  It is credit/currency created from nothing on a ledger.  Increasing the supply of currency creates the inflation.

They are lawfully creating currency from nothing.

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## brandon

Fractional reserve banking doesn't increase the money supply.

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## Paul Or Nothing II

> Fractional reserve banking doesn't increase the money supply.


+1

Yeah, FRB doesn't increase the amount of "money" in the economy, no matter what that "money" is, ("moneysupply" is a loaded term as per mainstream economics so I try to avoid it ); it's so obvious, & should be very obvious to those who support gold-standard. For example, if a person deposits 100 ounces in a bank (or 100 bitcoins or whatever) & the bank issues a loan of 90 ounces then the bank didn't just create more gold so obviously no new "money" was created! Of course, after making the loan available, the bank has liabilities worth 190 ounces even though they are holding only 100 ounces of gold (+ 90 ounces worth of loans to balance liabilities & assets) so that obviously means that they mayn't be able to immediately honor their obligations to both of their account-holders but that still doesn't mean any new "money" was created. It just means that the bank could run into a liquidity problem but then it may not if the contract permits the bank to temporarily freeze withdrawals (& pay a higher interest for the period to compensate for the inconvenience caused to the account-holders).

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## kfarnan

> What about fractional reserve Bitcoin banking?  If it can be done on a gold standard, it can be done on a Bitcoin standard


The gold standard pegged the dollar at 35/oz..  It's easy to manipulate paper of unknown quantity.

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## Tinnuhana

http://static01.nyt. com/images/2015/05/03/magazine/03bitcoin1/03bitcoin1-jumbo-v2.jpg

Just saw this. To open, delete the space before com
Subject: Bitcoin in Argentina

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## stuntman stoll

> Fractional reserve banking is also possible no matter what you use for currency.  Fractional reserve banking means a bank keeps a fraction of their deposits in reserve and makes loans with the rest of it. The other option is a bank which doesn't loan out any of its deposits (or all of their deposits).


A non-fractional bank would make loans, but only with the money in cd's, that are not "demand deposits"

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## Zippyjuan

That means they are loaning out a fraction of deposits- the fraction in time deposits. By definition, that is a form of fractional reserve banking. To be truely non- fractional reserve they either must be able to loan out 100% of deposits (doesn't mean they will) or they must have a 100% reserve requirement which means no lending of any deposits.

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