Saturday, February 23, 2013

Super-Easy Offline Bitcoin Wallets

In a previous post, I discussed Bitcoin brain wallets and described a way to generate them offline using the Casascius Bitcoin Address Utility.

Since then, I have learned about a much easier way to create brain wallets (and paper wallets) offline, by downloading a tool called  In this post I describe, step-by-step, how to download and use this tool offline.

Now, you can also just use right there in your web browser while online.  But, the potential risk there is that if there was some malware on your computer (or if the page itself were corrupted), it might send your secret brain-wallet passphrase or private key over the Internet to some attacker who might later steal any Bitcoins you later transfer into the accounts that you created while online.

To prevent this, you can download the source code to, disconnect your computer from the Internet entirely, and then run the code offline to generate all the brain wallets and/or randomly-generated paper wallets that you need without any network exposure.

After you have printed out any backup copies you want, saved them to encrypted virtual drives on USB sticks, or what-not, you can then reboot your computer (or to be really, really safe, wipe its hard disk and reinstall its O/S), and then safely reconnect it to the Internet without having to worry about your private keys (and your Bitcoins) potentially getting stolen.

Thankfully, makes it super-easy to run its code offline.  Here's how you do it:
  1. While connected to the Internet, go to in your web browser.  
  2. Near the lower-right corner of the page, there is a link to "GitHub Repository."  Click it.
  3. The resulting page shows two files, a README text file, and a file called which contains the HTML and embedded JavaScript source code.  Click the latter filename, and you will see a listing of the file contents (with line numers).
  4. Now click the "Raw" button, and you will see the raw (unformatted) source file (with no line numbers or any other page decorations).
  5. Right-click on any blank (whitespace) area in that raw listing and select "Save As..." (in Chrome; or the equivalent action in your browser).  
  6. In the save dialog, navigate to a convenient save location - your Desktop will do for now, although you might want to make an archival copy of the file somewhere else for later use.
  7. After the file is downloaded, disconnect your computer entirely from the internet.
  8. Then, drag-and-drop the file onto your web browser (onto an open window or the browser application icon).  Or you can select "Open File..." within the browser's menus and navigate to the file.  The browser should open a new tab pointing at a "file://" URL and load the page contents.
  9. Now, you are running the page entirely offline!  Wiggle your mouse around a little bit right away, to generate some random bits to seed the random-number generator.
The page contents will then look something like this (although with different random data, of course): page (online or offline), after wiggling mouse to generate randomness.

Now, if you want to create a brain wallet, simply click the "Brain Wallet" tab.  Click the "Show" checkbox (for ease of typing - but make sure no one is spying on your first), type your passphrase, and click View to see the public address and private key for that brainwallet account.  For example:

Brain Wallet generation tab, after typing a passphrase and clicking the View button.

When satisfied, you can click the "Print" button to make a paper printout for safekeeping.  You can also  scan the QR codes into your smartphone, or just write down the public address and/or private key.  Or, you could just write down your passphrase - since you can always regenerate the private key from it.  Note that if you REALLY trust your memory for your passphrase, you might not need to record anything at all right now, except for the public Bitcoin address, which you will require in order to receive any Bitcoins into this brainwallet.  (You will have to give that address to whoever is sending you the Bitcoins.)

Another very useful feature of which you can use offline is its paper wallet generation feature.  Click the "Paper Wallet" tab, and it will auto-generate for you several new Bitcoin accounts represented as beautiful "bit-bills."  They look like this:

A "bit-bill" generated by's "paper wallet" option.

Isn't that just beautiful?  You can print these out, as many as you want, and make multiple photocopies of them as backups.  You could also cut out the credit-card sized left third ("Load & Verify" part, with the Bitcoin Address) of one of your copies, and carry it around with you, so that you can give that address out to people that you want to receive Bitcoins from.  At any time, you can receive Bitcoins to the address on the left, then write down how many you received in the "Amount" field, and whenever you are ready to spend, you can import the private key on the right into your favorite Bitcoin client to spend it.  (I recommend and Electrum for casual users.)  And, even before you're ready to spend, you can import the address into a client like as a "watch-only" address, to securely monitor the contents of the account (without risk of losing them).  

These kinds of private keys, generated offline using a high-quality, non-repeatable random source, and subsequently stored only on paper, are utterly (at least, until you import them into a client to spend them) unhackable by any electronic means.  (And actually, for added security, you can even spend coins in an offline manner by following the instructions here.)  These offline Bitcoins could only be stolen by physically stealing (or copying, or photographing) the private key.  You can keep them in safes, safety deposit boxes, bury them in your back yard, behind a brick in your Mom's basement, wherever you like.  You can make them as safe from accidental discovery or theft as you want them to be.  You can burn all paper copies and keep just a brainwallet passphrase in your brain (if you trust your memory that well; for good security your brainwallet passphrase must be VERY LONG).

One caveat:  To be totally confident in the security, you might want to examine the source code in the file, to convince yourself that it is really using high-quality nonrepeatable random numbers, and that it isn't storing a copy of your private information on the computer's hard drive (in a browser cookie, say) where it might be retrieved later.  (As I mentioned earlier, if you're worried about the second possibility, you could always wipe your hard drive after generating your brainwallet or paper wallet.)

If you do keep a brain wallet, for maximum security it should ideally contain a full 256 bits' worth of true randomness.  This Facebook note describes a method that can be used for memorizing that amount of random data.  But for max security, you should probably generate your random data offline.  Here is one method for doing that using dice.

Friday, February 22, 2013

Rebalancing Your Liquid Assets

It seems ironically amusing, and almost symbolic, that the Pope will be stepping down on the same day (Feb. 28, 2013) that the clock will run out on the sequester, after which many U.S. Federal government programs will be operating at substantially lower spending levels than previously, which many people (rightly) worry may nudge the U.S. (and the world?) into a newly-resurgent recession.  The more theologically (or conspiratorially) minded among us might even wonder whether the period of "many tribulations" prophesied for the next papacy might end up being brought into being by the resulting economic struggles.

One of many authors who have pointed out the
"perfect storm" of resource crises that mankind
will face in this century.
I personally am highly skeptical when it comes to such theories, but nevertheless, I do often worry about the long-term prospects for avoiding the collapse of (let alone growing) the world economy in the face of peak resource flows of various kinds (cheap oil, fresh waterphosphorus, arable land, etc., etc.).  Traditional economic arguments that "the market will always provide," due to higher prices stimulating investment into developing more efficient technologies that will extend the planet's productivity, in terms of the amount of human economic activity it can support, may no longer hold true in a world wherein many key resources are peaking all at once, while simultaneously we are getting pummeled by the impacts of rapid climate change along with various other manifestations of the degradation of Earth's ecosystems which we are causing through our civilization's over-development, and its resulting excessive resource draw-downs and polluting waste flows.  At some point, the spiraling complexities of multiple, cascading resource shortages and environmental crises may simply grow faster than our ability to cope, and the whole system could come crashing down like a house of cards.  Yet despite these enormous systemic risks, our politicians waste time arguing with each other uselessly about speculative trivia such as how to deal with naively-extrapolated Medicare costs 25 years from now, a time by which point, vast, rapid changes in our environment and our economy in the meantime most likely will have rendered the present debates on this topic almost entirely irrelevant.

In any event, during a period such as today when no sane person who is paying attention to the world can have much (if any) confidence in the ability of our so-called "leaders" to navigate a safe course through the dangerous shoals humanity is facing, it pays to hedge one's bets.  And, one way to hedge against the failure of the existing regimes of governmental and financial oversight (by nation-states, central banks, etc.)  is to invest in forms of wealth that are more or less immune to having their value destroyed by what we can anticipate will be future desperate maneuvers by political and financial leaders who will, sooner or later, find themselves rapidly losing control of an increasingly untenable global situation, as (for example) increases in agricultural and energy productivity eventually become unable to keep up with what is needed to sustain world population.  It world only take a year or two of, say, climate-change-induced crop failures in several major "breadbasket" regions around the world to exhaust all grain reserves and plunge billions of people in poor countries into severe famine conditions.  In such an environment, scenarios such as a devastating world war over resources between major powers become not at all unlikely.

For this reason, among others, I plan to maintain a significant chunk of my personal wealth (pitiful as it is at the moment) in the safest possible form, so that, if worse comes to worst, I will retain access to it even in a rapidly-deteriorating situation.

The world's safest, most convenient form of liquid wealth.
As I have argued in previous posts, one of the safest, and perhaps the safest, place to stash a "rainy-day fund" of liquid wealth is in the global electronic crypto-currency known as Bitcoin.  This is because of several desirable properties that Bitcoin holds, compared to other asset classes:
  • Unlike sovereign currencies such as the US dollar, it cannot be debased (its supply hyperinflated to worthlessness) by possible future irresponsible actions by governments, central banks, or anyone; 
  • Unlike precious metals, it cannot be debased through advances in mining technology, asteroid mining, and nuclear synthesis;
  • It can be transmitted electronically, in minutes, anywhere in the world, with very low fees, without needing to go through a bank or other third party;
  • It does not require trusting any other party to hold it for you (and give you access to it when you need it);
  • It can be held (and redeemed) anonymously;
  • It can be made as secure from loss or theft as you wish it to be; it can be backed up in multiple locations, and hidden away in the safest places you can imagine (you can even store it in your brain if you are so inclined).
The one risk in holding Bitcoins, which it shares with most other forms of money, is that its market value may someday fall to next to nothing if it becomes increasingly unpopular, which could happen if (for example) a clearly technologically superior alternative to it should arise.  However, even if this did happen, the new technology would probably be adopted only gradually, and this would give most people time to migrate their liquid wealth out of Bitcoins (and into the new currency) before Bitcoin's value falls too far.  In the meantime, a large and growing installed base of Bitcoin-based applications and services will ensure that the currency retains a relatively stable value for some time.  For the last year at least, the Bitcoin value has remained fairly stable, and has mostly risen (see below chart).

The price of 1 Bitcoin in US dollars has remained fairly stable, or risen steadily, for most of the past year.
It is interesting to note that the present value of 1 Bitcoin is US$30, close to its all-time high, and greater than the value of an ounce of silver.
You can buy one of these for less than 1 BTC already.

Further, we can argue that the value of Bitcoin has a lot more upside growth potential than the value of silver, or gold, or other precious metals.  This is because, relatively speaking, not very many people hold Bitcoin yet, since it is relatively new, and a lot of people haven't learned about it yet.

Furthermore, the total number of Bitcoins in existence is limited, by mathematical algorithms that cannot be changed except by a consensus of most users, to never be more than 21 million.

For comparison:  Just the amount of silver that has already been mined has been estimated at about 43 billion ounces.  This means that, if eventually Bitcoin becomes merely equally widely held to silver (despite its clear practical advantages over silver), that is, with an equal amount of wealth stored in it, 1 Bitcoin will at that point be worth more than 2,000 ounces of silver, or in other words, more than $60,000 in today's dollars.

So, for those who are already convinced that Bitcoin is the cat's meow, how should one proceed?

One could put one's entire personal wealth into Bitcoins, but that would probably be unwise, just in case someday there it suffers a systemic failure (e.g., if the cryptographic algorithms underlying it were found to have weaknesses - although most experts strongly believe this is not the case).

A more conservative approach, like in traditional portfolio management, is to simply maintain some fraction of one's wealth in Bitcoins (or any given form, for that matter).  This allows you to see some upside if the value of that asset appreciates, while limiting your losses to the fraction of your savings that is stored in that form.

Rebalancing your portfolio periodically can help you
hedge against risks from over- and under-investment.
Furthermore, if you periodically rebalance your portfolio to maintain the desired distribution of assets, then this has an effect similar to dollar-cost averaging, in that it causes you to purchase more of the asset when its price is low, and less when the price is high, so that the net effect is the "buy low, sell high" behavior that is the essence of good investing.

As an example, suppose initially you had $400, and decided to invest 1/4th of it in Bitcoin, and at that time the cost of 1 bitcoin was $10.  Then you have 10 BTC ($100 worth) and $300 in dollars.  Now, suppose that subsequently, the price of Bitcoin repeatedly fluctuates up to $100/BTC and back down to $10/BTC, and suppose you rebalance your portfolio each time the price hits these targets.

The result of this strategy would be, your wealth would increase by 3.25x (225% gain) each time the Bitcoin price goes up by 10x, then you rebalance, and then your wealth decreases by 1.29x (22.5% loss) each time the price goes down by 10x.  But the net result of each cycle is an increase in your total wealth by 2.52x (152% rise).  After just 3 of these up-down cycles, you would be about 16x wealthier overall than when you started.  See this spreadsheet for the calculations.

It is not really necessary to rebalance at particular price targets - you still can gain (although not as much) if you simply rebalance your savings periodically - e.g., after each paycheck.  As long the price is repeatedly fluctuating, up and down, you will still gain overall from applying this approach.  So, you can relax, and not worry about having to constantly watch the price and react instantly to price changes.

There is a simple formula you can use to determine how many Bitcoins to buy or sell each time you want to rebalance your portfolio.  Let us make the following definitions:
  • p = The percentage of your wealth that you want to keep in Bitcoin, expressed as a fraction (e.g., p=0.25 for 25%).
  • B = The number of Bitcoins that you have currently.
  • D = The number of dollars (or whatever your "home currency" is) that you have currently.
  • e = The current market exchange rate for Bitcoins in terms of your home currency (e.g., dollars per Bitcoin).
  • b = The number of Bitcoins you should buy (or if negative, sell) to rebalance your portfolio.   
With these definitions, the number of Bitcoins b that you should buy, right now, to balance your portfolio to attain the desired percentage p in Bitcoin is:

Number of Bitcoins b to buy to balance your portfolio.
(When b comes out negative, that just means to sell |b| Bitcoins, rather than buy.) This strategy thus becomes very easy to implement if you just track your assets and the Bitcoin price in a spreadsheet; each time you want to rebalance, just buy or sell according to the formula.

It takes discipline to maintain a portfolio-balancing strategy, though.  There is a temptation, when an asset price has been rising, to put more of your money into that asset, rather than less, and there is a temptation, when the price has been falling, to take your money out of that asset.  But, for an asset with a cyclical price pattern, that would be exactly the wrong thing to do.  (Since it would lead to "buy high/sell low" behavior, which is never a winning strategy.)

The price of Bitcoin might not turn out to be cyclical, it is true - but even if the price is steadily rising, rebalancing is safe to do - since that just means, if the price rises faster than your USD savings, so that "b" comes out negative, that you are taking out a dividend for yourself from your BTC investment - you still gain somewhat from the rise (although admittedly, perhaps not as much as if you did not rebalance).

The only scenario in which rebalancing is not safe is if the value of the asset is falling, indefinitely, towards zero - in which case you could end up losing all your wealth by this strategy.  So, it is probably a good idea to have a cutoff - a price where, if the asset value falls below that price, you will not throw any more "good money after bad" by investing it in that asset.  Personally, I would probably give up rebalancing my savings into Bitcoin if its price fell below, say, parity with the dollar, for any significant length of time.  But I do not expect that to happen, at least, not any time soon.  More likely, I think, is that its price will continue to rise significantly each year, for quite some time.

UPDATE 4/9/2013:

Since writing this post, I have been periodically rebalancing my BTC/USD portfolio.  Initially I rebalanced using the above formula whenever my %BTC rose one or two percentage points above or below my target percentage (which was 25%).  However, I soon realized this was inefficient (since this happened too often) and that my average gains would most likely be greater if I only rebalanced on larger swings, such as +/- 5%.  I designed a spreadsheet that would calculate automatic buy/sell thresholds that I could enter on Mt. Gox to automatically rebalance my portfolio whenever the %BTC strayed outside that range (20-30%).  I later increased my nominal %BTC to 30%, with the same tolerance of +/- 5% so that my range was 25-35%.  This strategy has been successful, although in the last couple of weeks, the Bitcoin price has risen so quickly that I have still had to rebalance about 5 times!  I have posted an example of a spreadsheet that can do all these rebalancing calculations for you at THIS LINK, feel free to download a copy and use it yourself!

Friday, February 8, 2013

The Fraudulence of Fractional-Reserve, and Why Bitcoin Can Save the World

Today, the excessive growth of our civilization's industrial development, in the century or so since the discovery of cheap fossil fuels (particularly oil), has, ecologists estimate, exceeded Earth's sustainable consumption rates by roughly 50%, and brought us to the brink of near-complete ecological devastation of the planet.  Many astute observers believe that we have overshot the carrying capacity of the planet, and that later this century we will suffer massive population die-offs and extreme human suffering (not to mention the extinction of enormous numbers of other species).

In a way, the fact that our civilization is on this horrific bubble-and-bust trajectory is not surprising, given that our economy is pervasively controlled by a monetary system that is, in effect, designed to create rapid growth and resource overshoot - namely, the fractional-reserve banking system.  What do we mean?

The Fractional-Reserve Fraud

First, what is fractional-reserve lending?  This practice goes back to the early days of Italian banks, such as those run by the Medici family, which would take deposits of gold for safekeeping, and give back certificates (redeemable for gold) in exchange.  Since these certificates were good for gold, they became, in effect, the earliest bank notes, or paper money.  (Notice that the US dollar bills in your pocket are stamped "Federal Reserve Note," seemingly implying that you can redeem them at a Federal Reserve Bank in exchange for precious metals, although actually this hasn't been true since Nixon closed the gold window in 1971.)

Now, there's nothing wrong in itself with representing gold bars with paper notes; they are much more convenient to carry around, after all.  But, a problem arose when bankers like the Medicis noticed that people rarely actually cashed in their notes - mostly they just exchanged them, and left their gold safely in the Medicis' vaults.  Well, this created a temptation for the bankers.  They said to themselves, what if we loaned out some of the gold deposited in our vault to people in need of money to bankroll some new project?  It is very unlikely that all of the holders of gold-deposit certificates would demand for their gold to be returned all at once.  So, no one will notice that some of the deposits are in fact missing from the vault.  In fact, even the majority of the deposits could be loaned out at any given time - only a small portion needs to be kept in reserve, to accommodate the day-to-day fluctuations in the amount of gold on deposit. 

Of course, the predictable consequence of this practice is that, over time, the temptation increases to loan out a larger and larger fraction of the gold, and keep less and less of it in reserve, and eventually the public realizes how much of the bank's gold is missing, and starts getting nervous about whether their bank notes are really redeemable, and then a large number of people actually try redeeming their certificates, there is a "run on the bank," and the notes are not actually redeemable, because in the meantime some of the loans have gone bad, or else cannot be called in right away, and so the bank collapses.  This happened to the Medicis, and of course also to thousands of other banks, as well as to entire countries' banking systems, throughout history.  The book This Time is Different provides data showing how utterly ubiquitous banking failures really have been. 

One can argue that fractional-reserve lending (this practice of keeping less than 100% of demand deposits on reserve) is a fundamentally fraudulent practice, because it implies making a set of promises that cannot possibly be kept in all circumstances, namely, the promise to all depositors that their deposits of gold (or other fungible valuables) will always be returned on demand - such a promise is of course impossible to fulfill in the event that depositors do demand their deposits back all at once, and in the meantime some of them have been loaned out and cannot immediately be called in.

Moreover, one can argue that this practice overstimulates the economy.  Consider:  Money like gold is supposed to represent real wealth.  Therefore, the total amount of gold deposited in a country's banks represents, in effect, the total wealth in terms of resources accessible to that country.  But now suppose that, through the issuing of certificates and fractional-reserve lending, the illusion is created that the total amount of wealth in existence is greater than it was previously - since the loan-recipients have their borrowed gold, and the original depositors still have their "redeemable on demand" gold certificates.  Collectively, citizens of the country will be misled into thinking that their country has more real wealth (in terms of resources) than they had before.  So they will be fooled into growing their development and consumption patterns beyond what the real resources available to their country can actually support.  They don't do this consciously, but it happens automatically because they have more money to invest than there is corresponding real wealth.

This illusion can work for a while; i.e. the vision of greater wealth can become a self-fulfilling prophecy, in cases where a country has many untapped resources.  The development funded by easy credit and the increasing money supply can lead to the harnessing of those resources, and to increased real wealth for the country overall.  In such cases, the growth of the money supply anticipates future wealth, or reflects the net present value (in the undeveloped country) of its future resource development.  The fractional-reserve lending becomes a means of tapping that future wealth, and making it accessible (in the sense of, being represented by exchangeable monetary tokens) in the present.

However, what if the potential for real economic growth does not really exist, for example because the country is resource-limited, or its available natural and human resources are exhausted?  What happens then?  Well, then the fractional-reserve system and its inflation of the money supply leads to over-building of industrial capacity and infrastructure, to overshoot in consumption patterns, to more-rapid exhaustion of resources, and eventually to economic collapse, a banking crisis, and (frequently also) to sovereign default, if the state is (explicitly or implicity) backing the banking system.  This bubble-and-bust pattern has happened dozens, even hundreds, of times throughout history, in practically every country where fractional-reserve banking has existed.  If we haven't learned by now that fractional-reserve lending is inherently destabilizing, and that it tends to promote economic overshoot and collapse, then when will we?

A Better Way - A Fixed Money Supply

Given that fractional-reserve banking, and the flexible money supply it makes possible, is inherently destabilizing because it promotes excessive economic growth and resource overshoot, what is the alternative?

One solution, which is actually realized beautifully by the Bitcoin electronic currency, is to keep the size of the money supply absolutely fixed.  Bitcoin has, by design, a forever-fixed ultimate money supply of 21,000,000 BTC - not all of that is in circulation yet, because much of it still needs to be "mined," but in principle it is already there, and a large fraction of it (a bit more than half, as of this writing) is already in circulation.

The same could be said to be true for precious metals such as gold, except that, if one contemplates future mining technologies, the development of space resources, the eventual possibility of nucleosynthesis of Au in fusion reactors, etc., it becomes clear that the amount of gold that is already in circulation today is only a miniscule fraction of the ultimate long-term supply; thus, gold has, in the very long run, a rather unstable supply.  Bitcoin is, in fact, more stable in the long run, because its ultimate supply is "set in stone" by the mathematical algorithms used; it cannot be changed via any single party developing some destabilizing technological innovation.  

So, what are the benefits of a fixed money supply?

First is that the over-development of resources becomes unlikely.  In periods when the real economy is growing, prices in terms of the currency will be deflating, because larger and larger amounts of real-world resources need to be exchanged using a fixed supply of coins.  Due to the price deflation, one's money is becoming more valuable over time, so one is encouraged to hold onto one's money instead of spending it.  One only will spend it on ventures that one expects to return more than the rate of deflation.  So, this naturally tends to regulate or throttle back economic activity, to keep it in check - since the faster the real economy grows, the larger the deflation rate, the greater resistance there is to spending, and the more investments get naturally focused just to the places where they are most beneficial.  The economy can still grow, but only in cases where there is real growth, not just a bubble of paper wealth - since there is no paper wealth when all the money is (real or virtual) "specie" like Bitcoin, rather than notes (debt money), and the supply of Bitcoins, by its definition, cannot "bubble."

Some economists worry about a "deflationary spiral," wherein the braking effect of deflation causes economic activity to slow down and down, and come to a halt.  But this makes no sense, since if the money supply is fixed, but economic activity is slowing, then prices will inflate because fewer and fewer goods are circulating and a shortage of needed goods will cause prices to rise again.  Some minimum amount of economic activity is necessary simply to maintain wealth, i.e. to protect it from degradation/depreciation by various causes.  As long as there is economic activity, prices will not fall to zero, and there will be no spiral.  One may, however, arrive at a state of zero-growth, but this in fact is exactly what is needed for a sustainable economy on a finite planet, if technologies are not improving.

What about during when the real economy is slowing, say because production of some critical resource (such as cheap oil) is falling?  Again, the fixed money supply would tend to have a stabilizing effect.  If the real economy is shrinking, but the money supply is constant, then there will be price inflation, as shortages create increasing competition for goods, and the available money supply chases fewer goods.  But, price inflation will spur investment, since the only way to maintain one's wealth during periods of high inflation is to spend it quickly on investments that one hopes will produce a return that beats inflation.  So this spending would spur economic activity that would tend to moderate the rate of decline of the economy.  The economy can still shrink (since if resources are declining, the economy must ultimately shrink, no matter what the spending patterns are), but the rate of decline can be a slow, comfortable slope, rather than the type of sharp crash that can occur in a fractional-reserve system when suddenly everyone realizes that the system is overextended and credit dries up.

In other words, a fixed money supply tends to produce a stable economy.  The economy can still grow as new resources become available, but at a gradual, natural pace; and the economy can still shrink as available resources diminish, but again, at a gradual, natural pace.  In both cases, there would be less painful displacement than is suffered today in the bubble-and-bust cyclical economy that is produced by the so-called "modern" (more accurately, fraudulent) fractional-reserve banking system.

Better Banking with Bitcoin

So in conclusion, I truly believe that the widely adoption of an alternative currency with a constant supply, such as Bitcoin, can indeed "save the world" from suffering the worst depredations of economic overshoot and collapse.  Of course, for this to work, the practice of fractional-reserve lending must be shunned by the public, if not outright made illegal.  Short of changing the law, consumers can "vote with our feet" if we obey these cardinal rules of economic ethics:  
  1. Never lend out money that you owe to another, especially if you've promised to repay it on demand;
  2. Never accept a loan from any institution that might be violating rule #1.
  3. Never deposit money with, or loan money to, any institution that might be violating rule #1.
Making loans would still be possible under these rules, but to loan out money, you would have to actually earn it first - not just obtain it by borrowing (or accepting deposits from) someone else.  Any loan always bears some risk that the money might not be returned, but if it's money that you truly own yourself, free and clear (not obligated to someone else), then you can take this risk upon yourself with a clear conscience.