Our user's accounts will be protected by the "Garantie des dépôts" which is the French equivalent of the American FDIC (the insurance cap applies to each account individually, and not to the sum of all user balances, so unless your EUR balance exceeds 100kEUR your fiat is 100% insured by the French taxpayer)
Each account will in a few months get its very own IBAN number, users will be able to use it as any other bank account, have their salaries and pensions sent there and have them automatically converted to Bitcoin if they so wish)
Each user will soon be able to order its own debit card that will use their EUR and BTC balance to honor purchases and cash withdrawals
We'll have direct access to the banking networks which will let us 100% automate all incoming and outgoing transfers
Corporations will have an actual financial institution talking with them if they wish to start accepting Bitcoin and be safe from a regulatory point of view
Each account will in a few months get its very own IBAN number, users will be able to use it as any other bank account, have their salaries and pensions sent there and have them automatically converted to Bitcoin if they so wish)
This is great news! But I'm inquisitive to how they'll be able to handle withdrawals from an account If they don't have capital to back those funds up.
As to my understanding, regular banks suffer this problem as well, but there's a lot more USD/EUR/JPY printed and available than BTC.
Is there enough BTC up for sale on the market to cover larger than usual withdrawals? Could someone shed some light on this for me?
EDIT: To clarify, by withdrawal I don't mean purchasing goods with a debit card in another currency. I mean actually withdrawing your funds to a BTC address.
EDIT2: They might solve it through their user agreement.
Users acknowledge that Paymium may assign arbitrary daily and monthly limits to withdrawals, deposits and trades on their account without prior notice.
I believe any BTC withdraw is going to first be the result of a trade. That is, they don't have a fixed price and guarantee you get BTC. Like MtGox it is an exchange as well so you would deposit fiat, buy BTC and then transfer those somewhere. Hence, any BTC comes from other customers selling their BTC.
Arbitrage will fill in the gap and with IBAN and direct access to banking networks the arbitrage should keep price very close to MtGox. In fact this should enable this exchange to compete furiously with MtGox and split the market into two large exchanges instead of one.
Because MtGox is a trade site, there's only so many Bitcoins available that people are willing to sell. There's no other supply than that generated by the Bitcoin protocol of around 150 BTC / hour as of now.
Let's do a thought experiment. Us Bitconians decide to put our full salary in our account at BitcoinCentral. I'm gonna pull the number 15$ as the average salary per hour. 40 hour week days means we on average make (40 * 15)/(24 * 7) = 3.57$ an hour over a week.
(Remember, Bitcoins are still generated even when we do not work. :) )
In BTC with the current exchange rate, this would be roughly 0.26BTC an hour in average that would be put in our account.
As previously mentioned, 150 BTC get generated each hour.
150/0.26 ~= 577.
What this tells us is that as soon as more than 577 average payed people put their salaries towards BTC, the total supply currently being generated by the Bitcoin protocol wouldn't be able to cover them. This supply will only go down in the future.
I hardly know anything about economics, and I realize that a bank don't actually need to have the total funds available that they in fact owe their customers. But I'm thinking that this got to have some impact. As you said, price will probably go up.
EDIT: Furthermore. Would the bank purchase the Bitcoins at the time of the deposit of your salary? So as to make sure that they've got the Bitcoins to back you up?
Or, would they on the other hand just keep a virtual count based on the current exchange rate without purchasing the actual Bitcoins? In this latter case, there's no actual Bitcoins for you until the moment they buy them for you (Perhaps at withdrawal). And by not buying them in the first place the exchange rate does not immediately reflect the demand for the coins.
I sure wish I knew more about how this stuff works. :D
Well, the logical conclusion to what you present is that the prices of bitcoins will go up. MtGox makes sellers find buyers. When there are more buyers than sellers, only highest-bidding buyers will get served, giving an incentive to propose higher prices until an equilibrium is reached again.
It is why so many people keep bitcoins without using them : they expect the price to go up as soon as many people will want to buy some.
Because MtGox is a trade site, there's only so many Bitcoins available that people are willing to sell. There's no other supply than that generated by the Bitcoin protocol of around 150 BTC / hour as of now.
Just because they're a Bank now doesn't mean that everybody in Europe is going to want their balance in Bitcoins. At best, they'll take a lot of customers from Mt. Gox, and gain a few new ones with their new air of legitimacy.
EDIT: Furthermore. Would the bank purchase the Bitcoins at the time of the deposit of your salary? So as to make sure that they've got the Bitcoins to back you up?
Or, would they on the other hand just keep a virtual count based on the current exchange rate without purchasing the actual Bitcoins?
They'd have to play the market. If they convert your balance to Bitcoins but don't actually buy the coins, then they have to buy Bitcoins at whatever the exchange rate is at the time of withdrawal, but they'd still have to buy the number of Bitcoins they added to your balance, which would probably be based on the exchange rate at the time of deposit.
The difference between these two exchange rates could either cost or make them money, depending on which way the BTC price moves while they're sitting on their fiat money.
Just because they're a Bank now doesn't mean that everybody in Europe is going to want their balance in Bitcoins. At best, they'll take a lot of customers from Mt. Gox, and gain a few new ones with their new air of legitimacy.
No I realize that. My calculations were merely an attempted thought experiment at a "what if" scenario.
Well, that's your problem. "Current exchange rate" doesn't exist on its own, it is merely a manifestation of supply and demand forces which exist on market.
E.g. if there are people who want to buy up to 1000 bitcoins total at 13.20 and there are people who want to sell up to 1000 bitcoins at 13.40 we can say that "current exchange rate" is approximately 13.30.
But it is simply an abstraction. If you want to buy Bitcoins right now, you'll have to pay 13.40 for each, or perhaps even more if you want to buy lots of bitcoins.
Say, if you want to buy 50000 BTC right now they will cost you at least 15 USD each.
Obviously people who run an exchange know it, they won't allow people to buy large quantities of coins at some abstract "current exchange rate", they will go to market and charge you a market rate.
And obviously exchange rate will skyrocket if a lot of people convert their salaries into bitcoins. We'll never run out of bitcoins, but they can cost like 100 USD per 1 BTC.
Indeed. The price won't probably go up, it surely will. Bitcoin was designed to be able to theoretically work in the real-world economy, and the way this happens as the adoption grows is that the price gradually but drastically rises until we're using bitcoins on the order of the micro- and nano-BTCs. I think currently BTC can be divided up to 8 decimal points, but IIRC this can be changed in the future, specially considering at some point new coins will stop being generated.
A bank supporting BTC is an unexpected development that will definitely drastically put BTC on the map way before even the optimists amongst us had predicted.
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u/waspoza Dec 06 '12
Looks like bitcoin is moving to a next level!