Sound Bitcoin Banking Versus Unsound Bitcoin Banking

Bitcoin banking today is caught on the horns of a dilemma between the creation of inflationary money through DeFi without the creation of corresponding new wealth (unsound banking) and the Rothbardian fiat 100% in-kind fractional reservists. (Yes, 100% is a fraction!)

The first can be described as unsound banking the latter can at best be described as a bitcoin warehousing operation, no different from a gold warehousing operation except that the base money is bitcoin, rather than gold.

Perhaps, you might argue, that both are not equally bad. And before I began writing this article, I agreed. But upon reflection, the fiat 100% in-kind fractional reservists are equally bad as they are either “living in sin” like my friend Jimmy Song confessed in an interview with Saifedean Ammous or suffer from hypocrisy like bitcoin maximalist Pierre Rochard who works for an exchange promoting unsound DiFi banking while claiming a fiat bitcoin 100% in-kind fractional reserve obsoletes the unsound banking practices of the company he works for.

The bottom line is that current bitcoin banks are nothing that resembles E. C. Harwood’s description of sound commercial banking a.k.a. self-liquidating commercial paper that requires human action and integrity to succeed.