Fractional reserve banking is a very important concept to learn because it plays a big part in the reason why the world is going through the long tail of a financial crisis.
Originally people carried gold and silver around with them as money. They used it at markets to buy products and services. But gold and silver was very heavy to carry around. Then the first banks came along and people deposited their gold and silver there. The banks then gave the depositors paper receipts for the gold and silver that said on them that the bank owed the bearer of that receipt x amount of gold or silver.
Eventually, people just started using the paper receipts at the market places instead of the gold and silver. This is called currency and not money.
The banks then figured out, that they could loan out more receipts for gold than they had on deposit and charge interest on those loans, because not everyone would want to withdrawal all their gold at once. This was fraudulent and almost ponzi like.
Eventually the people figured out the "scam" and demanded laws to stop this. The problem was that the banks were too powerful. They legalisd it, to lend out more than they had on deposit, "a fractional reserve", and they gave every depositor a little bit of the pie by giving them interest on their deposits.
A fractional reserve means, that a bank only has to hold a small fraction of depositors money and has the ability to lend out 10x ,100x. Nowdays some countries let banks lend out an unlimited amount above reserve and to top it all off the reserves are not even gold or silver any more but just more paper in the form of government bonds.
This means that banks have the power to create currency out of thin air and charge interest on this currency, interest that needs to be lent into the economy which also charges interest. This system builds a constant debt class. It also means that if you have 50 dollars in your pocket, someone owes 50 dollars to a bank somewhere + interest.
Money is normally a representation of value or work done, but when you print it out of thin air and charge interest on it you distort the whole system and create an economy based on permanent and growing debt.
Ok but what about Vaultoro, how can I be sure Vaultoro is not doing the same?
1.)100% of the gold is legally held by the clients of Vaultoro.
You have legal right to your gold and Vaultoro has no right to sell, lend out, securitise any of your gold. Vaultoro is only a market place for users to settle trades initiated by them.
Vaultoro hereby declares and guarantees that it functions at 100% full reserves. This means that Vaultoro will never use as collateral, lend out, hypothecate, create a derivative transaction of any type, with any Bitcoin or gold held in bailment for it's clients. All gold will remain the property of the user through a Vaultoro bailment until sold by or physically withdrawn by it's owner.
2.) Vaultoro publishes an anonymised ledger of all members gold and bitcoin holdings and the sum of all members holdings. This ledger can be audited by every user.
3.) Vaultoro also requires a full 3rd party audit of the vault operator every 6 months by one of the biggest and most reputable auditing firms in the world (BDO), who follow and perform ISA standards in auditing to ensure that our vault operator is in full reserve. This report is also published on the Vaultoro website