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Would you care to share your Econo101 knowledge? I'm not an economist, but nothing has convinced me yet that bitcoin is not the best form of money.

boringg 6y ago
Um transaction costs alone make it not the best use of money. It isn't widely used for goods that you would want to use on a day to day basis / the transaction costs of using it / energy use for bitcoin are some of the low hanging counters to why it isn't the best form of widely used currency. Are those things that can change over time? Certainly - but it hasn't happened yet.
- ballofrubber 6y ago
  These low hanging counters have been discussed over a lot. Transaction cost is pretty low in multiple views: - You can globally settle billions of dollars worth of bitcoin for less than 10$ [0] - FIAT Settlements between banks is a complicated and non-auditable process, which is internationally speaking also very slow - You can build layers on top of bitcoin, i.e. the Lightning Network or liquid, which reduces transaction costs and time by a lot (sub cent range in the lightning network) Energy usage is not tied to transaction throughput. It is vital to be very high in the future, as it secures this global and auditable settlement network. Mining is a very competitive business. Renewable and unused energy IS the cheapest energy available (without govt. subsidies), thus the most competitive miners will use them. Mining also "subsidizes" research in cheap energy, as it gives you a competitive advantage. [0] https://twitter.com/CoreFeeHelper/status/1366787351985287168 https://twitter.com/CoreFeeHelper/status/1366787351985287168
  - boringg 6y ago
    Im answering his question why bitcoin is not the best use of money: (1) Most people don't settle on large volumes (thats typically banks/states/institutionals) so small volumes have a high cost percentage making it not a good daily driver. The fact that there is any transaction cost makes it challenging to work with as a daily money vehicle for consumers. (2) It requires energy to exist and keep a ledger, it also requires energy to mine. Your comment on renewable energy isn't accurate sadly and unused energy works only if you can get access to it which isn't universally available. In some jurisdictions renewable energy beats on price but this is largely on huge projects that are bid into utility grids (At least in North America). It will get there but still needs more time. I don't see how mining subsidizes research in cheap energy. Understand they have been debated ad nasueum and the reason is that they haven't really passed muster for the use case we are talking about. Don't equate my arguments as saying bitcoin is bad - it doesn't have a good universal use case for money and it does have negative environmental benefits associated with it.
    - ballofrubber 6y ago
      (1) I think people assume that just because bitcoin exists banks will vanish. Bitcoin is the protocol that banks can use, but individuals as well. Also, micropayments on Bitcoin exist today. I encourage you to download a lightning network wallet (e.g. Breez Wallet: non-custodial and open source) and send me a "lightning-invoice" I can pay you in the sub-cent range. (2) It requires real world resources to be spend and uses the most globally available resource, energy. I see it as a feature not a bug. Renewable energy is the cheapest though[0] and thus the one that competitive miners need to use. Non-competitive miners get driven out very fast thanks to the difficulty adjustment. Any percentage of optimization you can get in your energy production you can use to outperform other miners, thus get more of the block subsidy and drive out inefficient miners. Bitcoin mining de-risks investments in energy producing facilities. You always have a buyer for your energy, which is a problem especially in renewables. [1] [0] https://en.wikipedia.org/wiki/Cost_of_electricity_by_source https://en.wikipedia.org/wiki/Cost_of_electricity_by_source [1] https://www.sciencedirect.com/science/article/abs/pii/S1364032120308054 https://www.sciencedirect.com/science/article/abs/pii/S13640...
      - arrosenberg 6y ago
        > It requires real world resources to be spend and uses the most globally available resource, energy. I see it as a feature not a bug. Such a horrific, unproductive use of energy is definitely a bug from a scientific perspective, maybe not for a financier.
        lottin 6y ago
        Proponents of Bitcoin are rarely financiers. It's clear to me that they don't understand finance.
        ballofrubber 6y ago
        I think from a scientific view, allowing and observing the experiment bitcoin is extremely interesting. Nothing like it has challenged economic thinking in the last decades. It is very productive for a large population of the world.[0] Not everyone gets paid in a stable currency or has easy access to it. [0] https://www.youtube.com/watch?v=xLYYh4aPXAM https://www.youtube.com/watch?v=xLYYh4aPXAM
  - deleted 6y ago
    [deleted]
- Mc_Big_G 6y ago
  Bitcoin has transitioned to "store of value", like gold, not "frequently transacted currency", like the dollar. There's plenty of other crypto currencies that fill that need.
  - boringg 6y ago
    Don't disagree - I am just correcting the OP comment about it being the best use case for money. It isn't the best use for money.
toto444 6y ago
> I'm not an economist, but nothing has convinced me yet that bitcoin is not the best form of money. Contrary to the Bitcoin crow I don't spend my days thinking about it so my argument may seem weak. You mention bitcoin being 'the best form of money'. Assuming there is a hierarchy of forms of money, from what I understand the main advantage of Bitcoin is that Government can not manipulate its quantity. I wonder if a world where there is no possibility for governments to use monetary policy in times of trouble to stabilize the economy is desirable.
- ballofrubber 6y ago
  I would say that it shouldn't be the role of a government to govern over money. The economy is very complicated. There are no models that can predict the output of changing its parameters. It wasn't possible before to have the properties in money that we have with bitcoin (a gold standard was easily removable by a powerful government). The current central banking system is an experiment as much as anything before it and anything that will follow. I see it like this. I want my economic output to be measured in something that is: - salabale over time (1 btc is always 1/21 million of the monetary base) - salabale over space (i want to work remote) - understandable and auditable (the bitcoin concept can be understood by everyone, the code is auditable by mid-level developers)
  - Nursie 6y ago
    > (1 btc is always 1/21 million of the monetary base) Why is that good? Why should I, if I have 1 bitcoin, always have ownership of a fixed proportion of the entire societal monetary base? This seems like a great deal for someone who has a bitcoin, and a terrible situation for new workers and the economy as a whole. If the economy expands, your fixed proportion of the monetary base sees you profit off the backs of others for nothing more than sitting on currency. Not investing, not even speculating, just sitting on it.
    - ballofrubber 6y ago
      As an employee I would rather have the lever in renegotiations. I also would like to be able to save without having to put my economic output at risk. If you don't invest your bitcoin in productive assets you will be behind peers who do that, however they carry a risk. Today you carry risk if you don't invest your savings. However with low-income you can't, as you need emergency funds.
Retric 6y ago
For Bitcoin specifically. You can use a different token backed up by Bitcoin, but the actual implementation has these issues. Transaction rates - Artificially kept low to profit miners. Privacy - Every Bitcoin transactions is on a public blockchain. Transaction fees - Using Bitcoin for even one transaction a day gets expensive. Online only - Unlike cash only works with network access. Conformation Time - Failing to wait for conformation in effect allows double spend attacks. Think 10 people buying computer equipment from different stores at the same time. Assuming the implementation was changed to support wider adoption, a fixed currency has significant economic issues. For example, making or taking a loan in a currency that’s gaining value quickly becomes untenable. PS: Of course all of this could be changed, but acknowledging issues is the first step in selecting a new set of tradeoffs.
- cyphertruck 6y ago
  First off, thank you for making fair criticisms. Unfortunately some of your information is old. You don’t need a bitcoin backed token, lightning does it. Transaction rates are not artificially kept low. In fact most the vast majority of the time bitcoin has excess capacity. Privacy- this is a legitimate concern but it is improving, slowly. Taoroot and Lightning are both privacy improvements. So your daily transactions aren't meant for bitcoin. A distributed ledger that replicates all data globally for eternity is not an appropriate method for recording coffee purchases. Though I have done it. Bitcoin makes sense for settlement, and lightning is appropriate for coffee. That said, I regularly clear bitcoin transactions for $1 or less in fees, and it is cheaper then every other form of payment in the world. You may think a SWIFT transaction is “free”, but its merely the cost is hidden. And don’t forget the inflation tax, that is a global wealth tax on any money held in an inflating currency. So compared to that, $1 to send $100 is cheap. Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is. Lightning allows speed without double spend problems. Personally when moving large (for me) amounts of money I font mind waiting an hour for the confirmations. I certainly won’t trust a payment without them. But bitcoin is voluntary, it doesn't have to be perfect in every regard.
  - Retric 6y ago
vishnugupta 6y ago
This[1] is an insightful article from an economist who has experienced the real world economics from very close quarters. I don't have any opinion about Bitcoin one way or another, though through these fascinating arguments I gain new insight about the money and its relationship with geopolitics, human civilisation and other aspects. [1] https://www.yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-fantasy-of-apolitical-money/ https://www.yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-da...
- cyphertruck 6y ago
  That article is from 2013 and so we must grade it on a curve. He makes several wrong assumptions about how bitcoin works because he’s thinking it is based on trust, and he is an inflationist. I have yet to have an economist explain to me why deflation us bad- computers getting cheaper is good, fixed income people being able to afford things us good. Inflation mainly allows government to hand out money yo wall street in exchange for bribes at the expense of everyone else. That’s not good.
  - luhn 6y ago
    If you don't like the Fed throwing money at rich people, you should probably be rooting for inflation. The historically low inflation of the past decade has them handing out money like candy.
    - cyphertruck 6y ago
      We have not had low monetary inflation since at least the Ford presidency. You are confusing the consumer price index for “inflation”. It’s understandable, this lie is one of the earlier examples of fake news. When the fed prints money it goes to wall street and politically connected people. (This is quite literally the definition of fascism- a private economy run by government) Wall Street profits from the inflation, but the rest of the people get poorer.
      - luhn 6y ago
betterunix2 6y ago
The collective energy spent by Bitcoin miners equals the energy consumption of Argentina, yet the Bitcoin network only processes a small fraction of the number of transactions per day that Visa processes. For reference, Visa itself consumes only a small fraction as much energy as Argentina. In other words, you must cover the cost of vastly more energy per Bitcoin transaction compared to the mainstream financial system. Environmental concerns aside, that amounts to a huge tax on every transaction that reduces the economic efficiency of the system. Note also that this is a per-transaction tax, regardless of transaction size, making Bitcoin less useful for small transactions. There is also the fact that such a high energy cost per transaction causes the value of Bitcoin to be more strongly correlated with the price of energy. Energy prices are notoriously volatile; hence Bitcoin's value will also be volatile. Volatility makes a currency less useful (it introduces risk into every transaction and disincentives investment) and a very volatile currency will eventually be abandoned entirely. It should surprise nobody that the overwhelming majority of merchants who "accept cryptocurrency" as payment do so via services that immediately convert that cryptocurrency payment into their local fiat currency, because the majority of the world's fiat currencies have very stable values (compared to Bitcoin etc.). I could go on but to be honest the technical objections to Bitcoin outweigh the economic objections, at least in my opinion. Happy to get into those objections as well if anyone is interested.
- shawnz 6y ago
  Western Union has a lower transaction rate than Visa, so does that make it necessarily less useful or valuable (either absolutely or per-kilowatt)? Also, as you noted the energy usage is correlated with the value, not the transaction rate. Transaction rate limits could be changed arbitrarily without affecting the energy usage of the coin. However you have the causal relationship backwards: The value of the coin determines what level of electricity spending is profitable for miners. The electricity spending of miners doesn't determine the value.
  - betterunix2 6y ago
    "Western Union has a lower transaction rate than Visa, so does that make it necessarily less useful or valuable (either absolutely or per-kilowatt)?" The transaction rate is not what matters; what matters is the energy spent per transaction. Visa process many more transactions for much less energy than Bitcoin, and is therefore more efficient. I suspect Western Union's energy consumption is roughly in proportion to Visa's, but I have no data (the Visa example comes right out of their annual report, which covers both the number of transactions and amount of energy consumed). "The electricity spending of miners doesn't determine the value." The energy cost determines the transaction fees. Higher transaction fees make Bitcoin less valuable by imposing a greater burden on using the system. Yes, there are other factors that determine price of Bitcoin, but if nothing else changed ("all things being equal") then volatility in energy prices would trigger volatility in transaction fees and thus volatility in Bitcoin's overall value.
deleted 6y ago
[deleted]
Aunche 6y ago
Aside from its transaction costs, which may be mitigated by the lightning network, Bitcoin is still a lousy currency. One important function of money is the creation of credit. If you have a large quantity of money that you don't want to spend in the short term, the money is better put to use by loaning it to a small business or couple purchasing their first house. Without regulation or FDIC insurance, very few people would be willing to give their bitcoins to a bank so that it could be lent out to people who have a better use for it. Even if a Bitcoin bank could exist, an economic downturn could cause a liquidity crisis, where everyone tries to withdraw their Bitcoin at once. The banks would have no way of returning the Bitcoins to many of their customers. Because there is no central bank that can print out Bitcoin, the entire Bitcoin financial system would be in ruin following the crisis.

boringg 6y ago

Um transaction costs alone make it not the best use of money. It isn't widely used for goods that you would want to use on a day to day basis / the transaction costs of using it / energy use for bitcoin are some of the low hanging counters to why it isn't the best form of widely used currency. Are those things that can change over time? Certainly - but it hasn't happened yet.

ballofrubber 6y ago
These low hanging counters have been discussed over a lot. Transaction cost is pretty low in multiple views: - You can globally settle billions of dollars worth of bitcoin for less than 10$ [0] - FIAT Settlements between banks is a complicated and non-auditable process, which is internationally speaking also very slow - You can build layers on top of bitcoin, i.e. the Lightning Network or liquid, which reduces transaction costs and time by a lot (sub cent range in the lightning network) Energy usage is not tied to transaction throughput. It is vital to be very high in the future, as it secures this global and auditable settlement network. Mining is a very competitive business. Renewable and unused energy IS the cheapest energy available (without govt. subsidies), thus the most competitive miners will use them. Mining also "subsidizes" research in cheap energy, as it gives you a competitive advantage. [0] https://twitter.com/CoreFeeHelper/status/1366787351985287168 https://twitter.com/CoreFeeHelper/status/1366787351985287168
- boringg 6y ago
  Im answering his question why bitcoin is not the best use of money: (1) Most people don't settle on large volumes (thats typically banks/states/institutionals) so small volumes have a high cost percentage making it not a good daily driver. The fact that there is any transaction cost makes it challenging to work with as a daily money vehicle for consumers. (2) It requires energy to exist and keep a ledger, it also requires energy to mine. Your comment on renewable energy isn't accurate sadly and unused energy works only if you can get access to it which isn't universally available. In some jurisdictions renewable energy beats on price but this is largely on huge projects that are bid into utility grids (At least in North America). It will get there but still needs more time. I don't see how mining subsidizes research in cheap energy. Understand they have been debated ad nasueum and the reason is that they haven't really passed muster for the use case we are talking about. Don't equate my arguments as saying bitcoin is bad - it doesn't have a good universal use case for money and it does have negative environmental benefits associated with it.
  - ballofrubber 6y ago
    (1) I think people assume that just because bitcoin exists banks will vanish. Bitcoin is the protocol that banks can use, but individuals as well. Also, micropayments on Bitcoin exist today. I encourage you to download a lightning network wallet (e.g. Breez Wallet: non-custodial and open source) and send me a "lightning-invoice" I can pay you in the sub-cent range. (2) It requires real world resources to be spend and uses the most globally available resource, energy. I see it as a feature not a bug. Renewable energy is the cheapest though[0] and thus the one that competitive miners need to use. Non-competitive miners get driven out very fast thanks to the difficulty adjustment. Any percentage of optimization you can get in your energy production you can use to outperform other miners, thus get more of the block subsidy and drive out inefficient miners. Bitcoin mining de-risks investments in energy producing facilities. You always have a buyer for your energy, which is a problem especially in renewables. [1] [0] https://en.wikipedia.org/wiki/Cost_of_electricity_by_source https://en.wikipedia.org/wiki/Cost_of_electricity_by_source [1] https://www.sciencedirect.com/science/article/abs/pii/S1364032120308054 https://www.sciencedirect.com/science/article/abs/pii/S13640...
    - arrosenberg 6y ago
      > It requires real world resources to be spend and uses the most globally available resource, energy. I see it as a feature not a bug. Such a horrific, unproductive use of energy is definitely a bug from a scientific perspective, maybe not for a financier.
      - lottin 6y ago
        Proponents of Bitcoin are rarely financiers. It's clear to me that they don't understand finance.
      - ballofrubber 6y ago
        I think from a scientific view, allowing and observing the experiment bitcoin is extremely interesting. Nothing like it has challenged economic thinking in the last decades. It is very productive for a large population of the world.[0] Not everyone gets paid in a stable currency or has easy access to it. [0] https://www.youtube.com/watch?v=xLYYh4aPXAM https://www.youtube.com/watch?v=xLYYh4aPXAM
- deleted 6y ago
  [deleted]
Mc_Big_G 6y ago
Bitcoin has transitioned to "store of value", like gold, not "frequently transacted currency", like the dollar. There's plenty of other crypto currencies that fill that need.
- boringg 6y ago
  Don't disagree - I am just correcting the OP comment about it being the best use case for money. It isn't the best use for money.

toto444 6y ago

> I'm not an economist, but nothing has convinced me yet that bitcoin is not the best form of money. Contrary to the Bitcoin crow I don't spend my days thinking about it so my argument may seem weak. You mention bitcoin being 'the best form of money'. Assuming there is a hierarchy of forms of money, from what I understand the main advantage of Bitcoin is that Government can not manipulate its quantity. I wonder if a world where there is no possibility for governments to use monetary policy in times of trouble to stabilize the economy is desirable.

ballofrubber 6y ago
I would say that it shouldn't be the role of a government to govern over money. The economy is very complicated. There are no models that can predict the output of changing its parameters. It wasn't possible before to have the properties in money that we have with bitcoin (a gold standard was easily removable by a powerful government). The current central banking system is an experiment as much as anything before it and anything that will follow. I see it like this. I want my economic output to be measured in something that is: - salabale over time (1 btc is always 1/21 million of the monetary base) - salabale over space (i want to work remote) - understandable and auditable (the bitcoin concept can be understood by everyone, the code is auditable by mid-level developers)
- Nursie 6y ago
  > (1 btc is always 1/21 million of the monetary base) Why is that good? Why should I, if I have 1 bitcoin, always have ownership of a fixed proportion of the entire societal monetary base? This seems like a great deal for someone who has a bitcoin, and a terrible situation for new workers and the economy as a whole. If the economy expands, your fixed proportion of the monetary base sees you profit off the backs of others for nothing more than sitting on currency. Not investing, not even speculating, just sitting on it.
  - ballofrubber 6y ago
    As an employee I would rather have the lever in renegotiations. I also would like to be able to save without having to put my economic output at risk. If you don't invest your bitcoin in productive assets you will be behind peers who do that, however they carry a risk. Today you carry risk if you don't invest your savings. However with low-income you can't, as you need emergency funds.

Retric 6y ago

For Bitcoin specifically. You can use a different token backed up by Bitcoin, but the actual implementation has these issues. Transaction rates - Artificially kept low to profit miners. Privacy - Every Bitcoin transactions is on a public blockchain. Transaction fees - Using Bitcoin for even one transaction a day gets expensive. Online only - Unlike cash only works with network access. Conformation Time - Failing to wait for conformation in effect allows double spend attacks. Think 10 people buying computer equipment from different stores at the same time. Assuming the implementation was changed to support wider adoption, a fixed currency has significant economic issues. For example, making or taking a loan in a currency that’s gaining value quickly becomes untenable. PS: Of course all of this could be changed, but acknowledging issues is the first step in selecting a new set of tradeoffs.

cyphertruck 6y ago
First off, thank you for making fair criticisms. Unfortunately some of your information is old. You don’t need a bitcoin backed token, lightning does it. Transaction rates are not artificially kept low. In fact most the vast majority of the time bitcoin has excess capacity. Privacy- this is a legitimate concern but it is improving, slowly. Taoroot and Lightning are both privacy improvements. So your daily transactions aren't meant for bitcoin. A distributed ledger that replicates all data globally for eternity is not an appropriate method for recording coffee purchases. Though I have done it. Bitcoin makes sense for settlement, and lightning is appropriate for coffee. That said, I regularly clear bitcoin transactions for $1 or less in fees, and it is cheaper then every other form of payment in the world. You may think a SWIFT transaction is “free”, but its merely the cost is hidden. And don’t forget the inflation tax, that is a global wealth tax on any money held in an inflating currency. So compared to that, $1 to send $100 is cheap. Online Only- I don’t think there is a solution to this criticism, but not sure what the issue is. Lightning allows speed without double spend problems. Personally when moving large (for me) amounts of money I font mind waiting an hour for the confirmations. I certainly won’t trust a payment without them. But bitcoin is voluntary, it doesn't have to be perfect in every regard.
- Retric 6y ago

vishnugupta 6y ago

This[1] is an insightful article from an economist who has experienced the real world economics from very close quarters. I don't have any opinion about Bitcoin one way or another, though through these fascinating arguments I gain new insight about the money and its relationship with geopolitics, human civilisation and other aspects. [1] https://www.yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-fantasy-of-apolitical-money/ https://www.yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-da...

cyphertruck 6y ago
That article is from 2013 and so we must grade it on a curve. He makes several wrong assumptions about how bitcoin works because he’s thinking it is based on trust, and he is an inflationist. I have yet to have an economist explain to me why deflation us bad- computers getting cheaper is good, fixed income people being able to afford things us good. Inflation mainly allows government to hand out money yo wall street in exchange for bribes at the expense of everyone else. That’s not good.
- luhn 6y ago
  If you don't like the Fed throwing money at rich people, you should probably be rooting for inflation. The historically low inflation of the past decade has them handing out money like candy.
  - cyphertruck 6y ago
    We have not had low monetary inflation since at least the Ford presidency. You are confusing the consumer price index for “inflation”. It’s understandable, this lie is one of the earlier examples of fake news. When the fed prints money it goes to wall street and politically connected people. (This is quite literally the definition of fascism- a private economy run by government) Wall Street profits from the inflation, but the rest of the people get poorer.
    - luhn 6y ago

betterunix2 6y ago

The collective energy spent by Bitcoin miners equals the energy consumption of Argentina, yet the Bitcoin network only processes a small fraction of the number of transactions per day that Visa processes. For reference, Visa itself consumes only a small fraction as much energy as Argentina. In other words, you must cover the cost of vastly more energy per Bitcoin transaction compared to the mainstream financial system. Environmental concerns aside, that amounts to a huge tax on every transaction that reduces the economic efficiency of the system. Note also that this is a per-transaction tax, regardless of transaction size, making Bitcoin less useful for small transactions. There is also the fact that such a high energy cost per transaction causes the value of Bitcoin to be more strongly correlated with the price of energy. Energy prices are notoriously volatile; hence Bitcoin's value will also be volatile. Volatility makes a currency less useful (it introduces risk into every transaction and disincentives investment) and a very volatile currency will eventually be abandoned entirely. It should surprise nobody that the overwhelming majority of merchants who "accept cryptocurrency" as payment do so via services that immediately convert that cryptocurrency payment into their local fiat currency, because the majority of the world's fiat currencies have very stable values (compared to Bitcoin etc.). I could go on but to be honest the technical objections to Bitcoin outweigh the economic objections, at least in my opinion. Happy to get into those objections as well if anyone is interested.

shawnz 6y ago
Western Union has a lower transaction rate than Visa, so does that make it necessarily less useful or valuable (either absolutely or per-kilowatt)? Also, as you noted the energy usage is correlated with the value, not the transaction rate. Transaction rate limits could be changed arbitrarily without affecting the energy usage of the coin. However you have the causal relationship backwards: The value of the coin determines what level of electricity spending is profitable for miners. The electricity spending of miners doesn't determine the value.
- betterunix2 6y ago
  "Western Union has a lower transaction rate than Visa, so does that make it necessarily less useful or valuable (either absolutely or per-kilowatt)?" The transaction rate is not what matters; what matters is the energy spent per transaction. Visa process many more transactions for much less energy than Bitcoin, and is therefore more efficient. I suspect Western Union's energy consumption is roughly in proportion to Visa's, but I have no data (the Visa example comes right out of their annual report, which covers both the number of transactions and amount of energy consumed). "The electricity spending of miners doesn't determine the value." The energy cost determines the transaction fees. Higher transaction fees make Bitcoin less valuable by imposing a greater burden on using the system. Yes, there are other factors that determine price of Bitcoin, but if nothing else changed ("all things being equal") then volatility in energy prices would trigger volatility in transaction fees and thus volatility in Bitcoin's overall value.

deleted 6y ago

[deleted]

Aunche 6y ago

Aside from its transaction costs, which may be mitigated by the lightning network, Bitcoin is still a lousy currency. One important function of money is the creation of credit. If you have a large quantity of money that you don't want to spend in the short term, the money is better put to use by loaning it to a small business or couple purchasing their first house. Without regulation or FDIC insurance, very few people would be willing to give their bitcoins to a bank so that it could be lent out to people who have a better use for it. Even if a Bitcoin bank could exist, an economic downturn could cause a liquidity crisis, where everyone tries to withdraw their Bitcoin at once. The banks would have no way of returning the Bitcoins to many of their customers. Because there is no central bank that can print out Bitcoin, the entire Bitcoin financial system would be in ruin following the crisis.