You don't know how fractional reserve banking works? It's quite simple. An exchange, or any institution that takes bitcoin deposits, can take a fraction of the deposited bitcoins and lend them out, so far as the depositors don't withdraw all the bitcoin deposits at the same time. As soon as this happens, the amount of bitcoins in circulation goes up by the loaned amount.
Nope. The only amount of Bitcoin in circulation is in actual wallets. Including deposits at exchanges, which are just aggregated wallets.
There's no such thing as loaning out a Bitcoin. You can loan out the fiat equivalent of it or a synthetic token (wrapped Bitcoin), but these are swaps, which is not the same thing as a supply increase. Truly loaning out BTC means moving the actual coin to the customer's wallet.
Say I run a bank that has 10 depositors that deposited 1 BTC each. My balance is 10K. Next, I assume they won't claim this BTC anytime soon so I "loan" out this 10K 10 times, for a total loan value of 100K BTC. Hence, I created 90K out of thin air.
This doesn't work. You didn't give the loaners BTC, you gave them something else. No new BTC was created. With fiat, actual new money would be created this way, not with BTC.
Wrong on all counts. Bitcoins can be lent out, just like anything else can be lent out. All you need to make a loan is a loan agreement, and any asset can be lent out with a loan agreement, including bitcoins. There's nothing magical about bitcoins that prevents them from being lent out.
You're stilling missing a very basic concept. You cannot loan out BTC that you do not have. If you have 50 BTC, you cannot loan out more than 50 BTC in actual BTC as loaning out BTC involves MOVING the BTC to me, which means you no longer own it.
Yes, you can loan out BTC. The point is that you can't loan out BTC that you do not have.
An exchange has 1000 BTC in deposits and holds 100% of the deposits as reserves. The exchange makes a loan for 500 BTC. The 500 BTC come from the reserves. Now somebody has 500 BTC. The depositors still have 1000 BTC, except that the deposits are now backed by 500 BTC, instead of 1000 BTC (hence the name "fractional reserve"). The supply of bitcoins has gone up by 500 BTC.
The supply DID NOT go up. You can do as much shadow book keeping as you like, but you didn't create a single new BTC. Nobody but miners can increase the BTC supply.
Just count how many coins everybody has before and after the loan and the only possible conclusion is that the supply has gone up. If you still maintain that that the supply has not gone up, you have a lot of explaining to do. This can't just be dismissed with a handwave.
The explanation is pretty simple actually: you created unbacked paper Bitcoin. Not a single new real Bitcoin was produced. The initial depositors no longer have the BTC they deposited, you loaned it out to somebody else. Yet you count their deposits as if they still own it, which they don't. It's a paper lie that does nothing to BTC supply.
You can write anything on a piece of paper, it doesn't affect Bitcoin supply. Miners mint new coins, nobody else.
Bank deposits are legally enforceable claims on money, which means they're... money, regardless of whether they are fully backed or partially backed by reserves. It doesn't make any difference. And the same applies to bitcoin deposits on exchanges, which are nothing more than legally enforceable claims on bitcoins. In other words bitcoins. Why are you struggling so much with this? I mean... it's pretty basic stuff.
You're the one struggling. You just agreed with what I said earlier: you did a swap from real Bitcoin (actual BTC that was mined and sits in a wallet) into a "promise" of said Bitcoin.
That doesn't increase the BTC supply. It's just shadow book keeping outside the blockchain. You made new "money", not new BTC.
Replacing an asset (reserves) with another asset (a loan) is not "shadow book keeping". But anyway... there is no such thing as actual bitcoins sitting in wallets. A bitcoin "wallet" is not a wallet but an ID. And there are no bitcoins either. There is only a transaction record of fictional tokens. These tokens (aka bitcoins) are created by appending an unbalanced transaction into the transaction record. This is shadow book keeping. But conceptually it shows that bitcoins are created with a simple bookkeeping entry. And more bitcoins can be created with the process that I described earlier known as fractional reserve banking. Again, this is all simple stuff that can be corroborated easily with minimal effort. This conversation is over as far as I'm concerned.
