Nothing could keep them from doing that, except the unwillingness of users to use the government paper money instead of the real thing.
Gold has to be "converted" to paper to be practical. Bitcoin is already a whole lot more practical than almost any aspect of the modern money infrastructure, so there's no "killer app" for Bitcoin-backed currency.
Banks extend credit money which is backed by reserve currencies. Money may start out as value-based (gold, bitcoins) but eventually a whole credit based economy springs up around it, and we're just where we started.
The "killer app" isn't being able to pay someone quicker. It's going to be the ability to borrow money!
(Although paying someone quicker is already the main reason two people use blockchain.info or something similar to transfer money instantly instead of waiting for a few confirmations. In small amounts you'll see "banking" like this, and then those banks will start lending money on the reserves they have.)
In other words, the same cycle always happens:
1) A value (scarcity) based currency is widely acepted
2) People store it when they aren't using it. They want to earn returns on it.
3) It is lent out by the "banks" to others, keeping a fraction on reserve
4) Governments regulate these reserve requirements and set up central banks which pay interest on the reserves
Now with Bitcoin right now the biggest thing stopping it from being used as a currency and 1-4 to happen is th massive price inflation. Who wants to spend a bitcoin when they can hoard it? Lots of people but apparently more people want to hoard it. Which is understandable because metcalfe's law is going to make ALMOST ALL the cryptocurrencies grow in value.
The good news is that this will make even more merchants accept bitcoin and once its price settles down (it might reach a saturation point only when many many merchants accept it, would be at least $100k a coin by then) then it can be used as a real currency that people really spend.
Bitcoin cannot be fractionally loaned out - if a bank has BTC in reserve and loans it, the transaction goes through and the bank has that much less in reserve. Say they have 100BTC in reserve, and I want a 10BTC loan: they can't just issue a piece of paper saying "here's 10BTC" and only reserve 1BTC (10%) to cover it, they have to transfer the actual amount. So, they can't loan out 10x what they have and profit from the multiplier when collecting interest. They can't pyramid-scheme their way into a major financial bubble. I love this aspect of bitcoin, it neuters the parasites.
> So, they can't loan out 10x what they have and profit from the multiplier when collecting interest.
Sorry, you don't know how a bank works. The bank will borrow from someone else - depositors, other banks. The reserve requirements is how much of their own money they need to have to cover loans, and is a protection against risks, it does not imply that the rest of the money they hand out have been created out of the blue.
Yes, they will collect based on leveraging their capital, borrowing money at lower interest, and profiting from the multiplier.
But as to your scenario where the bank just hands out papers saying "here's 10BTC": In fact, you can already speculate on margin, on Bitcoin by buying Bitcoin CFD's (Contracts for Difference). CFD's means you're never actually owning the underlying security at all (and in fact there's no technical reason why the company you enter a contract with needs to ever own any at all either; whether there are legal reasons may depend on jurisdiction) - you're just, as it says, entering into a contract where you're putting up some cash now to be paid the difference in value over a time period.
I have an account with a company that would me buy Bitcoin CFD's with a 15% margin if I'd like. Meaning for $15, I "get" $100 worth of "here's some bitcoin" "paper" - if those $100 worth of BTC increase to $110, I can sell and get $25 back. Conversely, if they drop to $50, I'd get a nasty margin call to pay the $35 difference.
Gold has survived for thousands of years as a store of wealth. It has intrinsic properties, it is one of nature's unique elements. It cannot be synthetically created.
Bitcoin's scarcity is based on a completely fictional and arbitrary hard limit of 21 million which can be changed in a trivial fork such as Litecoin.
Furthermore, given that there is no intrinsic physical difference between a Litecoin, Freicoin, Bitcoin etc. there is an argument that a P2P currency is the ultimate fiat. The printing presses have just been handed to the public rather than being held by a select few.
Bitcoin is a great electronic currency, and a real challenge to money transmitters like Western Union, but it is not a store of wealth (in my opinion).
Saying that bitcoin isn't scarce because someone could fork the blockchain is like saying that gold isn't scarce because everyone in the world could suddenly agree to start using silver instead.
Limited resource physical commodities vs. a few bytes on your filesystem? This is a ridiculous comparison.
But what people mean when they say you could fork libcoin or something like that is not that Bitcoin isn't scarce. It's more along the lines of "We are in no way beholden to this psychotic black market pyramid scheme currency. We can just start anew with a better dispersement/capping scheme."
> Bitcoin is a great electronic currency, and a real challenge to money transmitters like Western Union, but it is not a store of wealth (in my opinion).
You can store your wealth in any commodity. I can store my value in stocks, gold or BitCoin to hedge against inflation. Just because something doesn't have physical intrinsic properties does not mean it somehow stops being a store of value.
Anything that someone wants to buy and someone wants to sell, that can be stored and transferred, can be a store of value.
>Bitcoin's scarcity is based on a completely fictional and arbitrary hard limit of 21 million which can be changed in a trivial fork such as Litecoin.
Changed in a fork? Yes. Trivial? Not even close. Remember, you have to convince a lot of people to go along with your fork, due to the network effects required to get a new currency off the ground.
The triviality is not bound to the network of people - the valuation is. And yes, the change is also trivial - and that means that once people realize that valuation is just about being first, then by starting another scheme the valuations of all the other will dilute.
Governments money is 'backed up' by the need to pay taxes in it which in the US is a multi trillion a year demand and creates a lot of stability. aka Get paid in bitcoins? The IRS does not care you need to pay taxes in USD which means you need to sell bitcoins and buy USD.
As to being a fixed currency there would be a lot more bitcoins in circulation than actually exist as soon as banks started lending money and no you don't want to try and keep 100+k USD worth of bitcoins secure by your self it's just a fucking bad idea. Which means banks which means loans which inflates the currency. Of course because governments can't print money to bail out banks when they fail you just lose your money anyway and they will fail.
PS: Non private wallet = bank. The reason we don't see loans is because people don't want to borrow money in bitcoins.
Banks lend money they don't have, they cannot do that with Bitcoin because math. Usually their reserves cover a fraction of the loans they give, and they get a massive multiplier benefit. Fortunately, the blockchain won't accept pieces of paper with IOU written on them.
Money in a 3rd party wallet is an IOU as far as the block chain is concerned. Here is how it works you deposit some bitcoins to Bit Bank and the block chain is updated so they now own the and can lend gem out the same day. The borrower would then be able to deposit his coins into Bit Bank II which could then lend them out. Net result is effectively bitcoins from thin air even though there not part of the block chain people act as though they exist which impacts the supply / demand curve.
The bank would have a database somewhere saying "We owe btbuildem 10 BTC". When you make a withdrawal they would take some out of their massive stock and hand them to you. So long as they have enough to cover withdrawals at any given moment they don't need enough to cover if everyone made a withdrawal at once, any more than they do with dollars/pounds/etc.
Gold has to be "converted" to paper to be practical. Bitcoin is already a whole lot more practical than almost any aspect of the modern money infrastructure, so there's no "killer app" for Bitcoin-backed currency.