"Cold storage" in Bitcoin parlance is a wallet that is completely disconnected from the network. Since a "wallet" is really just a collection of private keys, one example of cold storage is to scatter pieces of the wallet (M of N splitting) in physically secure locations like safe deposit boxes.
Unless I'm misunderstanding him, what he's describing is simply "cold storage", not a fractional reserve. The putative bitcoins are still under the person's control, even if they are offline. It would only be fractional reserve lending if the person were actually lending a portion of their reserve.
But very cool site. Bitcoins are one of the things that drew me back into programming, and I'm grateful for that. (btw, are they still using json rpc for interprocess communication? it got a lot of flack, but I liked the API) But I got fed up with the volatility and the people it was attracting about a year ago and left it behind. It's good to see a legitimate business like yours getting involved (and with the ycombinator name, too!). Maybe I'll check it out again. There's a huge amount of potential there.
EDIT: My bad, I see that the parent comment was talking about fractional reserve lending. I only looked at the comment directly above your remark about reserve lending. Yeah, I'd stay away from fractional reserve lending since it's an anathema to almost everyone who uses bitcoins.
The potential was always there ever since Satoshi released the specs. The volatility is because of the nail-thin market depth, and the bubble was unavoidable (Hello 20/20 hindsight) because of that combined with some media attention and the first time occurence of a digital limited resource... Well, most people probably only thought as far as "OMFG the price is going up, I expect great returns on investment". Thankfully the price fluctuations are smaller now and we can all focus on building infrastructure and a market.
As for legitimate businesses there´s plenty. We´ve (mullvad.net) been accepting bitcoins for two years, but then again we were probably the first corporation and full-time business to do so :)
Oh, I totally agree that there are plenty of legitimate businesses using Bitcoin. I've sent you guys a lot of bitcoins over the past 1-2 years (great service, btw).
I've also paid some very professional developers and designers for high-quality work using bitcoins. Personally, I'd love for btc to take off more, since I'm a freelancer and do lots of work for overseas clients, and get hit with lots of banking fees. Btc is a fast and easy way to pay freelancers, and could be a great way to get paid by clients.
Nonetheless, I an easyjust got sick of all the hoopla surrounding Bitcoin and the constant Bitcoin heists, combined with the cluelessness of so many Bitcoin developers regarding security (not the core developers, but all the devs trying to build Bitcoin-related businesses). But perhaps it's time to give it another try.
