Re: [bitcoin-dev] Proof of reserves - recording

["Eric Voskuil" <eric@voskuil.org>]

>> You can prove that in your own wallet. All other scenarios imply lending (which is what is implied by “reserve”) and lending cannot be 100% reserve.

>You're using terms in non-standard ways. Putting money into a bank is not considered "lending" to the bank.

What people consider is irrelevant, all that matters is what is correct. A bank account as you are referring to it is indistinguishable from a money market (investment) fund in all aspects but federal reserve membership and regulatory controls. Interest (and offset expenses) derives directly from their earnings on this *investment*. Describing it otherwise is either an error (leading to false conclusions) or a lie.

> You may make a case that you're lending to a bank, and that they legally owe you repayment of that money on demand limited by the terms you mentioned. But regardless of a case that can be made there, pretty much no one considers that "lending". Since you you like defining things legally, depositing money in a bank is legally not defined as lending to the bank.

Please don’t bother to try and use statue as if it was at all relevant regarding economic concepts.

> So no, all other scenarios do not imply lending. You can have your coins in custody with someone else, and that someone else can keep 100% reserves if they choose (or agreed to) and can prove it to you via the method I described or the methods others have linked to. 

That’s what Rothbard calls a “warehouse” - in order to distinguish it from investment. I’ve already made this distinction. Easier to prove with your own wallet, as I said. You are conflating this with banking, which should be obvious.

>> They are time deposits, read your bank agreement.

> You are https://www.investopedia.com/terms/t/timedeposit.asp#:~:text=A%20time%20deposit%20is%20an,pre%2Dset%20date%20of%20maturity.&text=Time%20deposits%20generally%20pay%20a,of%20investment%20is%20term%20deposit.. https://www.slsp.sk/en/personal/faq/what-is-the-difference-between-a-term-deposit-and-savings-account if you don't believe me. The only way you would be correct is if banks were committing fraud and calling something a "savings account" when it isn't in fact a savings account.

No, I am not wrong. It's not a question of believing you, it's a question of understanding the concepts. You will find this language in your deposit agreement (as required by statute):

"9. Our right to require advance notice of withdrawals
For all savings accounts and all personal interest-bearing checking accounts, we reserve the right to require seven days’ prior written notice of withdrawal."
https://www.chase.com/content/dam/chasecom/en/checking/documents/deposit_account_agreement.pdf

"When a man deposits goods at a warehouse, he is given a receipt and pays the owner of the warehouse a certain sum for the service of storage. He still retains ownership of the property; the owner of the warehouse is simply guarding it for him. When the warehouse receipt is presented, the owner is obligated to restore the good deposited. A warehouse specializing in money is known as a "bank.""
- Rothbard

As you can see, he is not talking about what you are talking about when it comes to colloquial use of the term "bank", he is clear to define what he means by "bank".

"Someone else's property is taken by the warehouse and used for its own money-making purposes. It is not borrowed, since no interest is paid for the use of the money."
- Rothbard

Any expectation of interest implies *borrowing*, in other words, a *loan* to the bank.

"Whether saved capital is channeled into investments via stocks or via loans is unimportant. The only difference is in the legal technicalities. Indeed, even the legal difference between the creditor and the owner is a negligible one."
- Rothbard

> You're using terms in non-standard ways. Putting money into a bank is not considered "lending" to the bank.

I think it's quite clear that Rothbard considers it lending. I'm not big on appeal to authority, but sometimes it helps open minds. Links here:

https://github.com/libbitcoin/libbitcoin-system/wiki/Full-Reserve-Fallacy

>> money markets have had no reserve requirement and have a nearly spotless record of satisfying their obligations.

> Lol, money markets are so new that they've had no opportunity to show their true risk.

1971, 50 years.
https://en.wikipedia.org/wiki/Money_market_fund

> In the finance world, things work fine for a long time until they fail spectacularly, losing more than the gain they made in the first place. This is a regular occurence. Its the reason bitcoin was created.

regular occurrence...

"Buck breaking has rarely happened. Up to the 2008 financial crisis, only three money funds had broken the buck in the 37-year history of money funds... The first money market mutual fund to break the buck was First Multifund for Daily Income (FMDI) in 1978, liquidating and restating NAV at 94 cents per share"

An investment loss of 6%.

"The Community Bankers US Government Fund broke the buck in 1994, paying investors 96 cents per share."

An investment loss of 4%.

"This was only the second failure in the then 23-year history of money funds and there were no further failures for 14 years... No further failures occurred until September 2008, a month that saw tumultuous events for money funds."

It was a "tumultuous" month for nearly all investments. The feds of course doled out the pork, and the funds had to take it (as if their competition did and they didn't they would fail due to higher relative capital costs and thereby lower rates). In the past, absent pork, they had raised money where necessary to maintain their NAV (just as banks do, but they go to the taxpayer, and just as all business do from time to time).

These are remarkably stable in terms of NAV. And people seem to be satisfied with them:

"At the end of 2011, there were 632 money market funds in operation,[19] with total assets of nearly US$2.7 trillion.[19] Of this $2.7 trillion, retail money market funds had $940 billion in Assets Under Management (AUM). Institutional funds had $1.75 trillion under management.[19]"

The point being, that this is as close to free market bank-based investing as exists in the white market. In a money market fund, the NAV is reflected in the share price, so any losses are evenly distributed - no different than when all those HODLers take a hit when Elon farts, and the reserve they maintain has been very effective in maintaining their $1/share *target* despite paying *interest* on *investments*. They are merely shifting market returns into interest, just like banks. Market returns over short periods aren't always positive. No surprise. The larger point being, BANKS ARE INVESTMENT FUNDS.

>> Irrelevant.

> It is certainly not irrelevant. People have been lead to believe that they can withdraw their money from their accounts. People expect this.

Irrelevant, people have minds and free will and can read the contracts they are actually signing. Contracts are the *actual* Law associated with non-aggression.

> Banks are doing nothing to educate people on the limitations of that fact.

Again, irrelevant. And wholly unnecessary given compulsory taxpayer deposit insurance.

> PoR would give people the ability to see quite accurately how much reserves there are and can use this knowledge to put pressure on institutions to keep the reserves those people think they should keep. 

For all of the reasons I've stated, it's a fairly pointless exercise, but people can do what they want. But if they are doing this with a deeply flawed understanding of banking to start with, they will be disappointed in the outcome.

>> Without 100% “reserve” there is no way to cryptographically demonstrate “solvency”. 

> You can show proof that you're 80% solvent, and then claim the other 20% is in other assets. This is, again, still useful. 

80% solvent ... 50% pregnant.

>>The schemes don’t preclude hacks, insider or otherwise, bankruptcy, or state seizure, no matter what the reserve

> You're right, but that's irrelevant. 

I'll leave that to the reader. The alternative is to use your own wallet.

> But it seems like you're not interested in understanding what I'm saying or discussing these things honestly.

I'm not interested in allowing flawed concepts to be perpetuated without question. This is just a drain on capital that could be put to much better use. How many times have I heard the oxymoron "full reserve banking", and how much capital has been burned on this futile exercise, simply due to a failure to understand these concepts.

> So I'm going to end my conversation with you here.

While seemingly off-topic, these are things that need to be aired in this community. Thanks for the discourse.

e

On Fri, Jul 9, 2021 at 11:32 AM Eric Voskuil via bitcoin-dev <mailto:bitcoin-dev@lists.linuxfoundation.org> wrote:

> On Jul 9, 2021, at 10:44, Billy Tetrud <mailto:billy.tetrud@gmail.com> wrote:
> 
> >  there is an unsupportable leap being made here
> 
> You think that because you're misinterpreting me. I'm in no way claiming that any solvent company can prove it, I'm simply claiming that any company can prove that they have bitcoin reserves to cover bitcoins promised as account balances. 

You can prove that in your own wallet. All other scenarios imply lending (which is what is implied by “reserve”) and lending cannot be 100% reserve.

> > Banks (lending institutions) do not operate under any such pretense
> 
> You seem to be saying that banks are under no legal obligation to serve cash on demand to customers. While you might be right,

I am, as banks are lending institutions.

> again you're misinterpreting me. Banks do in fact make claims to their customers that they'll be able to get cash out of their account on demand.

Up to the insured limit, in 7 days. This is of course true because the taxpayer has insured the bank to that level.

> They're called demand deposit accounts for a reason.

They are time deposits, read your bank agreement. Not that it makes any difference. How the contract is satisfied is not a term of the contract, just that it is. And as I pointed out, money markets have had no reserve requirement and have a nearly spotless record of satisfying their obligations.

> And certainly customers expect to be able to withdraw their cash on demand. 

Irrelevant.

> > With a 100% of investment cash hoard, there is zero lending and zero return
> 
> I did say "pretend" did I not?

See above.

> > “relate to” is a far cry from 100% “reserve”
> 
> Indeed. Again, you seem to be misunderstanding me. You're putting the words "100% reserve" in my mouth, when I never said any such thing. Proof of 80%/50%/20% reserves is still useful if that's the clear expectation for the customer/client.

Without 100% “reserve” there is no way to cryptographically demonstrate “solvency”. And even with that, investors would have to accept the promise that there are no other liabilities.

The schemes don’t preclude hacks, insider or otherwise, bankruptcy, or state seizure, no matter what the reserve.

It’s information, sure, but it’s not what people seem to think. If one wants full reserve banking, use a wallet. If one wants to invest, the money will be spent - that’s why it was raised. There can be no covenant placed on it that will ensure it’s return.

e
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