Bitcoin Forum

I've been reading around the forum and I am slightly confused about the concept of collateral. If A takes a loan from B but B requires collateral in all coins, then isn't that the same as A trading B for altcoins? If A has a sufficient value of collateral in altcoins, why not use Shapeshift or a similar service?

Because some not everyone like to sell them but get them back for later so you can put altcoins in collateral and get them back once you repaid the loan

Lets say I have 5 litecoin, but I expect the price to double or even triple soon, but I need bitcoin right now. I don't want to shapeshift it, since it might double before I get enough to buy litecoin again causing me to lose a bunch of money. The point of giving altcoin as collateral instead of selling it is that you hope that the price will go up soon, so you don't want to sell it. Shapeshift would be easier, but if you have 120% in litecoin/other good altcoin, it should be extremely easy to get a loan here, as most lenders would be happy for those kinds of extremely low risk loans.

Because ,the collateral is just there for safety.The "B",lender in your case is simply not interested in the trade or the collateral.The collateral in such cases are always kept in an escrow.Moreover, "A" if keeps 120% of the amount as collateral,he would never dump them by defaulting the loan.

Suppose you have some dogecoins and you think its price will rise very soon and hence you dont want to sell them at cheaper price and at the sme time you need some BTC , in such cases what you do is take a loan by giving dogecoins as collateral.

Because basically A believes that the price of altcoin is more than the loan and he does not have to sell it actually. Like you have a watch and it costs over 10k but when you sell, u get around 4k , for you its worth 10k .. getting my point ?

So you would want to use coins whose value you expect to increase

that simple example is good,collateral is something that will taken by lender if people loan soemthing and can't pay it back. and by the way talk about shape shift,they already got serious problem,someone already post on bitcoin disscusion section.

another reason is because maybe he need bot, the collateral and the loan, but since he does not have the right collateral for asking for double the value of the collateral he ask for half and use the collateral also, for when he is in trouble

then he regain the collateral and pay back everything

Collateral asked is above the amount that one borrows, and it's just because you need to prove that you are actually going to pay back, else how can someone trust you???
So, they ask you for coins, but they won't trade it or sell it unless you repay or default...
Both situations will have different effects...