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From: "Eric Voskuil" <eric@voskuil.org>
To: "'Billy Tetrud'" <billy.tetrud@gmail.com>
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Cc: 'Bitcoin Protocol Discussion' <bitcoin-dev@lists.linuxfoundation.org>
Subject: Re: [bitcoin-dev] Proof of reserves - recording
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>> You can prove that in your own wallet. All other scenarios imply =
lending (which is what is implied by =E2=80=9Creserve=E2=80=9D) 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=E2=80=99t 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.=20

That=E2=80=99s what Rothbard calls a =E2=80=9Cwarehouse=E2=80=9D - in =
order to distinguish it from investment. I=E2=80=99ve 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=3DA%20time%2=
0deposit%20is%20an,pre%2Dset%20date%20of%20maturity.&text=3DTime%20deposi=
ts%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=E2=80=99 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.=20

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% =E2=80=9Creserve=E2=80=9D there is no way to =
cryptographically demonstrate =E2=80=9Csolvency=E2=80=9D.=20

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

80% solvent ... 50% pregnant.

>>The schemes don=E2=80=99t preclude hacks, insider or otherwise, =
bankruptcy, or state seizure, no matter what the reserve

> You're right, but that's irrelevant.=20

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:
>=20
> >  there is an unsupportable leap being made here
>=20
> 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.=20

You can prove that in your own wallet. All other scenarios imply lending =
(which is what is implied by =E2=80=9Creserve=E2=80=9D) and lending =
cannot be 100% reserve.

> > Banks (lending institutions) do not operate under any such pretense
>=20
> 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.=20

Irrelevant.

> > With a 100% of investment cash hoard, there is zero lending and zero =
return
>=20
> I did say "pretend" did I not?

See above.

> > =E2=80=9Crelate to=E2=80=9D is a far cry from 100% =
=E2=80=9Creserve=E2=80=9D
>=20
> 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% =E2=80=9Creserve=E2=80=9D there is no way to =
cryptographically demonstrate =E2=80=9Csolvency=E2=80=9D. And even with =
that, investors would have to accept the promise that there are no other =
liabilities.

The schemes don=E2=80=99t preclude hacks, insider or otherwise, =
bankruptcy, or state seizure, no matter what the reserve.

It=E2=80=99s information, sure, but it=E2=80=99s 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=E2=80=99s why it was raised. =
There can be no covenant placed on it that will ensure it=E2=80=99s =
return.

e
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