How do the incentives behind layer two NOT lead to fractional reserve?
Discussion
Fractional reserve on it's face isn't terrible when you know the bank you're using is doing it and accept the terms and risk. The issue is when the money itself is completely debt.
With free banking, you can choose your own level of risk. With Bitcoin as the underlying and proof of reserves being possible, you can better assess the risk of any given bitcoin banks ecash. Lightning itself is full reserve by design. Ecash requires trust, but the nature of there being multiple interoperable mints provides some level of check.
Fractional reserver always bad. Layered solutions are NOT fractional reserve. They are actually the opposite. When sats are "reserved" in LN they are LOCKED UP for a time actually reducing monetary supply.
You and the other guy here sound like you are spending time around shit coiners and absorbing fud at different rates.
While things like Ecash require trust the do not inflate the total monetary supply. It is like you two don't have a clue what fractional reserve is.
You should learn what fractional reserve is FIRST because neither of you seem to know.
I think if you read what I wrote again, we're saying nearly the exact same thing. Ecash mint printing more tokens to lend out deposits is exactly the fractional reserve possibility we're both describing. Sounds like you got triggered by my first sentence and stopped reading, because I totally agree with everything you wrote 😝
L2 will not scale to mass adoption, as the block size has a limit on the number of channels it can support. Scaling will require L3 such as ecash and the like for regular plebes. This is nothing more than a paper IOU. The game theory leads to fractional reserve minting, as custodians lower fees and offer more incentives to compete for customers. Watch what happens to the market when mint runs start snowballing.
First "iT wOn'T sCaLe" is more BCH/BSV retard fud. It will scale for a hell of a long time before any further scale is required. We are nowhere near "hYpeRbiTcOiNiZatiON" and we will not be for a very very long time.
Second eCash is for small amounts, I DGAF that I could lose a few hundred bucks at most and frankly with tech like ARK coming you are talking may be 48 hours of even that risk.
And once again like so many, when your bullshit is corrected you are changing the debate.
What the fuck is it with people's need for logical fallacy when they are losing a debate, lose and learn go together.
The discussion here was not about risk of loss it was simply is L2 and L3 fractional reserve?
The answer to that is either,
1. No, full stop. No explanation needed.
2. Yes, meaning you don't know either what fractional reserve is or you don't know shit about how L2 and L3 work, take your pick. Either way you are wrong.
Fractional reserve is about LENDING MONEY INTO EXISTENCE. Not that you trust a third party. There are many ways to trust without lending and without inflation.
How about you either show me how L2/L3 inflates available sats or you admit you are full of shit?
Otherwise let's lay some money on this. 🤷
I mean just stop with the red hearing bullshit here. We stated out talking about fractional reserve and ended up discussing trust and scaling. Typical shitcoiner 🐂 💩.
I just smell a stack of Dodge or BSV on you. 😂
nostr:npub1h8nk2346qezka5cpm8jjh3yl5j88pf4ly2ptu7s6uu55wcfqy0wq36rpev dig this shit. I bet you get this nonsense a LOT more than I do. 👆
Who said I was losing, lol. Looks like you can't handle the difficult questions. I came here to learn. Rather than trying to dunk, maybe you could try to educate rather than score points. Triggered 🤣
Ecash is cool if you respect the risks, but just because you don't care about small amounts (others might care + small amounts for you might be a lot for someone else in the world + others could have more than small amounts on it + many small amounts still equals a lot of Bitcoin to temp the mint) doesn't remove the potential for mints to fractionally reserve.
All that requires is printing/lending out more ecash than Bitcoin that is backing it.
Layers are the only way to scale a networking system. Every previous monetary and networking structure in history has done this same thing.
There is no reason L2 or L-whatever has to be an IOU. Sure people will use them because trust is the foundation of society. There isn’t anything wrong with IOUs, the problem is **systemic, fraudulent IOUs** that are counterfeit into the market indistinguishable from the money itself.
Fractional reserve is a systemic structure of our money. Fractional reserve in a bitcoin world is explicitly external to the money. MtGox was fractional reserve. FTX was fractional reserve.
It’s not a matter of “we’re gonna get fractional reserve.” We’ve had it from the very beginning, and we have seen the results 100 times. They implode and go out of business. The systemic problem of fiat is that they do NOT impose, but grow like a cancer because the money itself is cheated to keep them alive.
In short, your concerns are not really relevant, because the base layer is always present to prove existence, validity, and ownership of bitcoins. That will make it behave like a global decentralized incorruptible court for who owns what.
Thus we will extremely likely (and are already doing) build 10,000 networks *on top* of #Bitcoin.
But there are a literally limitless number of way to extend the trust of the base layer, up to any and all other layers. Ark is a great example, all transactions off chain, every single user has unilateral exit ability.
Bitcoin will have no problem scaling because it’s an open, permissionless protocol. The base layer simply needs to be reliable, solid, and radically neutral, and there will be nothing that we cannot do with it.
Human ingenuity doesn’t have a hard cap.
fractional reserve doesn't equal insolvency
Thanks for the intelligent, respectful reply. My next read: https://a.co/d/0aifb9u1
Oh man, you're gonna love that one! One of my favorite audiobooks I've done. (also recommend nostr:npub1a2cww4kn9wqte4ry70vyfwqyqvpswksna27rtxd8vty6c74era8sdcw83a's Broken Money to follow. They are a good one-two punch for understanding money as a networking and record keeping system and how it all paints a much clearer picture of our history.
Also nostr:npub15879mltlln6k8jy32k6xvagmtqx3zhsndchcey8gjyectwldk88sq5kv0n is a really awesome dude when he's not frustrated having to explain something that he's explained a bajillion times already, lol (i get that way too). You should give him some slack (and vice versa 😘 ). None of this is really intuitively obvious without a ton of exploration and errors.
I climbed through the Keynesian Economic Mountain Range, then the swampy valley of MMT, and finally through the dark, casino scam Tunnel of Shitcoins to get to where I am... so I can't really judge anyone else.
In another context you guys might get along really well. 😁
a good journey 4me/ 4U2 i hope/appreciate your POW/t-y Guy & plz keep it up! nopunintended
Appreciate the references. Have already read Saifedean Ammous and Jimmy Song's work. I'm 95% on board, but still have to work out the ethos how a decentralized, hard money will will scale on BTC and still adhere to the Nakamoto vision of freedom money. Trust but verify.
Understand the ideological battle going on here. We are still in the very early days, so expect a difficult path forward. The establishment will fight tooth-and-nail against a BTC world reserve currency. Power.
In regard to winning people over, half the battle is in the approach. nostr:npub15879mltlln6k8jy32k6xvagmtqx3zhsndchcey8gjyectwldk88sq5kv0n
Operating a cashu or fedi mint with insufficient bitcoin backing isn't fractional reserve, it is theft. Fractional reserve lends out reserves, and those loans are assets held by the bank. Fractional reserve isn't technically theft because your account deposits are seen as loans to the bank.
This is what I was trying to articulate.
A mint can print more tokens into existence expanding the total amount of ecash that's supposed to be pegged to sats. Its only detectable if there's a deep enough bank run.
As mints compete with lower fees and more services, the incentives lead to lending out more ecash than available in the reserve. Yes, this is theft and will be aparent when people run off the mint all at once.
I'm making the point that "fractional reserve" isn't considered theft as long as the bank is only lending out reserves against debt that their debtors are current on their loans. This is why "free banking" technically isn't engaging in theft.
Let's find out what Rothbard thinks about "free banking:" https://nakamotoinstitute.org/static/docs/the-mystery-of-banking.pdf
I didnt say it is moral. I think free banking should be illegal
And then the operators will burn their reputation forever, be prosecuted and the market will adjust.
Do you like free markets or not?
Trying to prevent market failures is what central planners do.
Your inference is RETARDED, sounds like you are saying Bitcoin is fractional reserve, it ISN'T and anyone that says it is, is willfully ignorant or stupid.
In a fractional reserve system money is lent into existence expanding the supply.
LN and other layer two do have some risk but they do not increase supply by a single sat. In fact they REDUCE SUPPLY by tying up sats for liquidity.
It sounds to me like you have been listening to shit coiners.
If you disagree fine, I am an open minded man. Explain to me how any BTC layered solution increases the monetary supply of BTC. Go ahead.
Is that attitude how you win guests over on your podcast? I've never listened, but your leadership skills suck. Probably an ideological circle jerk 🤣