Bitcoin has no "bank" equivalent.
I'm also fairly sure there are several brands trying to provide a "bitcoin banking service".
WHY would you implement the digital version of cash, as it seems you just stated -- WHY would you create a digital currency with no ability to really track and disable and refund?
The US government won't let you leave with more than $10k in physical cash without "declaring" it, but declaring exposes you to likely theft by the government in the form of civil forfeiture or tax seizure, as does carrying it past TSA. Your bank won't let you wire-transfer large amounts without having to file a bunch of CTRs, again exposing you to potential legal liability. Making transactions in smaller amounts to avoid notice of the big amounts - even if you're doing so to avoid private thieves - is a federal crime called "structuring". Credit card companies solve some of the problem but can randomly "put a hold" on your funds without your consent.
Digital cash is trying to fill the role that cash used to fill before the War On Some Drugs made everything insane. Back when the government printed $500 bills and $1000 bills and it wasn't deemed "suspicious" to use them. In the modern age, digital cash promises to let us buy things around the world, "no questions asked", without banks and governments and other middlemen getting in the way.
More interestingly: are the features that let you set up a dollar-denominated bank features or bugs?
(Obviously I'm simplifying, your money gets pooled with others and deposits and withdrawls happen from a pool of money, you don't get your own money back when you withdraw, but lets compare two hypothetical banks with only 1 customer each)
A dollar denominated bank takes your money and invests it. They use it for mortgages, or they put it in bond markets or equity markets. They make a profit. Some of that profit gets returned to you as interest. They also provide for safe keeping of the money. With interest rates near zero, we forget this, but thats the real reason for a bank. If it was just a safe place to keep money, we'd be paying them.
A Bitcoin bank couldn't work. You give them some Bitcoins. They transfer them to dollars, make some investments. Now you go to withdraw some money and they have to sell the investments. Since Bitcoins are deflationary, they can not make you whole without incurring a loss. There is no money to be made in operating a Bitcoin bank and giving interest so long as the exchange rate of Bitcoins to the real world keeps going the way its going. Everyone should just sit on their bitcoins and hold them.
Now if you just want to make a safe deposit box for Bitcoins, that's would work. And you would have to pay a fee. But there is a difference between a bank account and a safe deposit box, and I don't see bank accounts working with bitcoin any more so than they would have worked based on tulip bulbs in the 80s.
It should work just fine if they do the investments in Bitcoins.
Below is an entertaining, albeit slightly alarmist, educational video on how the money system works today. This should be required viewing for anyone considering using money:
In particular, banks do not lend out deposits, at least not in any meaningful way, and the so-called money multiplier is non-existent.
To get up to speed on such things, I would recommend the blogs of economics professor Bill Mitchell. His style is a bit rambling without much polish, since he writes one entry every day, but I found it very worthwhile for getting a deeper understanding. Consider looking for entries with "money multiplier" in the title in the index here: http://bilbo.economicoutlook.net/blog/?page_id=1667
What most people don't realize is that banks don't have to actually have the money they lend out. That's the basis for our monetary system and while it has nice qualities, like spurring innovation, there are some undeniable drawbacks.
- 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?
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.
If I'm not mistaken, there is an eventual limit on the amount of bitcoins that can ever be created.
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.
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.
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.
There were banks before the FDIC and people trusted them. The threat of insolvency can (but doesn't always) keep them honest.
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.
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.
And following the train of logic, what prevents you from regulating a bitcoin bank?
Crypto-currency is kind of like cash. Yes, you're a fool to try and run an entire economy with cash, but that doesn't mean it should disappear!
http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corpo...