Satoshi created bitcoin to handle two important issues:
1. You’ll be able to’t belief the one who challenge your cash (within the case of governments printing their very own foreign money into hyperinflation)
2. You’ll be able to’t belief the one who preserve your cash (within the case of financial institution working fractional reserve lending out your cash for questionable initiatives)
What we see in the previous couple of days with FTX is an instance of downside #2. Many individuals discuss this, saying this is the reason they will’t belief crypto. Few know that their very own banks run fractional reserve as effectively. FTX is claimed to have 1 billion of reserve towards 9 billion of liabilities (individuals’s cash), the reserve ratio is 11.11%.
The authorized required reserve ratio for banks within the UK is 12%, 10% for mortgage finance. For US banks, it was once 3%, now it’s 0%. For Vietnam, it’s 3%.
What 3% reserve imply in a simplified instance: for each $1000 you retain in your financial institution, the financial institution is required to maintain solely $30 in reserve, they will lend out $970 to pocket revenue, relying on the truth that not all individuals will withdraw cash all of sudden.
Typically, the cash is lent to excessive leverage initiatives, with low requirements, resulting in more cash printing or use of taxpayers cash to bail out bancrupt banks. (2008 monetary disaster).
FTX saved about 11% of reserve and make reckless “funding” on customers fund, relying on the hope that the majority customers will preserve their crypto on exchanges. As soon as there was a financial institution run the place many individuals withdraw directly, they had been toasted.
Are you aware what your financial institution reserve % is? Is it higher/worse than FTX a month in the past?
Supply:
UK required reserve ratio: https://www.bankofengland.co.uk/-/media/boe/recordsdata/quarterly-bulletin/1971/reserve-ratios-further-definitions.pdf
Central banks required reserve ratio globally : http://www.centralbanknews.data/p/reserve-ratios.html?m=1
Never trust an exchange. Do not leave Bitcoin on other people’s equipment.
Bitcoin makes it possible and relatively easy to do self custody. There is no good reason to trust anybody else to do that for you.
Meanwhile, “crypto” means *alt coin scams*, which should never be trusted under any circumstances.
>What 3% mean is: for every $1000 you keep in your bank, the bank only keep $30 in reserve, they lend out $970 to pocket profit
You need to learn how banks work. Banks don’t lend your money. They create it via loans.
Any money you have is someone else’s debt. “All money is debt”
This is such an inaccurate representation of how banks work that I don’t know where to begin to start.
Yes, but at most western banks investors money (deposits) are guaranteed by the government (up to a maximum), so it doesn’t matter
Bank disappeared overnight due to too many bad loans or banksters running off with funds? Lovely government will just print you some fresh, new, crispy paper with numbers on it, and you will be happy. Everyone wins! /s
You’re missing part of the picture on how banks work.
This is the best short video that will show you how it works:
https://youtu.be/iFDe5kUUyT0 (Inflation: The Biggest Scam In The History Of Mankind)