Bitcoin Forum

First off, I'm sorry if this has been discussed before (or even already exists).  Also, I'm sorry if this topic better belongs in the Economics forum, if so, would a mod please move it there?

What about a BitBank?  I've been thinking and researching the technical and economic practicalities of it, and I don't see why it's not at least theoretically possible.

I plan on starting only with small amounts (account minimum and maximum amounts in the range of 1 - 100 bc) and a token, experimental interest rate of maybe 1% per month, which I could pay out of pocket for a loss, at least initially.

If anyone is interested in donating some small amount to set up the capital for initial interest payment, send it to 17ogo8c4w9ag726KkXQC5RLCTdgfNepX7Y

As for loans, that's a whole other world.  Any thoughts on the practicality of anonymously doing small loans?  Does anyone think there'd be any non-fraudulent market for loans given the, honestly, limited utility of bitcoins at this point?

Why would you need a bank if you can backup your wallet.dat on regular basis?

I seem no need for it to be honest.

I think loans would be useful, that way if I want to go on a pizza binge I can buy a bunch of it and pay it back later.  I don't think you would want to give someone a loan anonymously though, you'd want to know where they live so you can break their legs, etc.

I think interest would be cool too - like a certificate of deposit?

Well, not to safeguard the money, but for investment.  To earn interest on the balance you have lying around.

lucky, what's the latest on your BitBank?

It would be a useful learning exercise, especially when you figure out that you can't mint money like the real banks do.
Without leverage (the ability to lend out BTC you don't actually have), your upside is limited to just the deposits you hold (lent out) and the gap between interest paid and owed.

(Ignoring all the issues with anonymous lenders, of course.)

I've considered the provision of a Bitcoin Bank before now, basically providing interest payments to those unable to run an 'always on' generating node.

Whilst this is a nice idea, there is basically no benefit to the operator aside from philanthropy.

Also, as Bitcoins become harder to generate the operator ( Bank ) would require an ever increasing percentage of nodes to maintain any viability.

This is somewhat unethical. You can't centralize a decentralized exchange / banking system. Every Bitcoin node is its own Bank ! That's the point.

The only real alternate; provision of Bitcoin 'banking' via deposits of 'other currencies', then paying interest in Bitcoins should be considered an exchange service... and arguably the operator would still need to generate 'interest' on any deposits. A 'Bitcoin ISA'...

Either way you will need a Super Computer or 2, loads of VPS or a botnet to operate with any success.

Again, you are forcing capitalism and monopoly on a system which is fundamentally designed against these factors !

I'm not so sure that banks are required to generate currency to be viable. Banks actually predate the current fiat currency system by several thousand years. I think the underlying principle of banks offering loans is that they hold currency that would otherwise be idle and put it to use, and in exchange will pay interest on the currency deposited, and will present the currency on the demand of a depositor. It's nothing near as sexy and postmodern as creating currency from nothing the way a reserve or a fiat system does, but still probably does have some measure of value to an economy.

You could issue bitcoin bonds offering a set rate of return for a set time period.When the bonds mature the bitcoin principal is returned.

If you are qualifying "capitalism" with "state capitalism", then I agree with you. Too bad that's the most common definition of the word these days.

if this would be true, it would also apply to "real banks".
you could still invest your members bitcoins (or its value), you just need enough coins to pay the "maximum expected cash-outers" a day/month (and theres ways to limit those), not all of the coins ever invested and you'd still make your profit without even generating any block.
that's what banks do today and that's what a bitbank would/will do,
bitcoin, or dollar wont make a big difference.

Banking system today:

Runs out of cash? No problem, just get more at the Fed.

Bitcoin banking system:

Runs out of Bitcoins? Oh, fvck....

The dynamics of a hard-money banking system are different. There could be profit made off of keeping Bitcoins in trust, but I suspect this would look more like a backup service than anything. As for investing, well, the anonymous nature of Bitcoins makes that a bit hard. We need a good distributed trust mechanism to complement it for that :)

so any bank that runs outof cash could just run to Feds and gets more cash?
i doubt that.

Why?

..do banks go bankrupt, if that's true?


the point is, that theres actually no big difference in the "banking system", no matter if we use $, €, or coins,
there IS a difference in how the currency is produced though.

banks lie today about what you have (cuz they dont have all of our money in cash, its just shown on your balance)
and bitbanks would just lie in the same way, telling you your bitcoin-balance (not the actual avialable coins).

Some banks do, but the FDIC honours accounts. Today there's also a  mentality of "too big to fail".

Something like carbonite is probably just as good.

There can be liquidity problems even with a bank that uses Bitcoins.... where more money has been loaned out than can be quickly used to cover deposits. 

A problem with fractional reserve banking is that the bank loans out even more money than they have deposits on record to make, and crazy stunts where larger banks "borrow" money from the central (fiat) bank and loan that money they never had in the first place with a certain percentage of mark-up.  For "loans" to purchase things like government securities, they finance the federal debt off of money created out of nowhere and keep the 3-5% interest differential as pure profit for doing essentially nothing other than existing.  Such stunts simply could never exist with bitcoins (then again, that could be a huge problem politically with people who like to do such crazy things).

I would imagine that a failed Bitcoin bank would be something more like seen in "It's a Wonderful Life", where the liquidity of the bank would be questioned and there would be a "bank run" by depositors demanding their deposits back, only to find the bank without funds to return the money.  In theory, this rarely happens today as banks can borrow from "The Fed" to meet those obligations and to calm down ordinary bank panics that happen on a local or small scale.  I think it would be a larger problem for a bitcoin bank.

Yep! I wrote about this in more detail on another thread here...

A Bitcoin bank will only be able to expand credit to the degree that it is demanded, and even then, I believe it will only be stable over the long run if "on-demand" deposits are full-reserved, and only "investment deposits" are fractionated.

The issue with bit banks and lending is clearly resolved if you view lending a coin as someone "renting the coin" as they would "rent a house".   There is money to be made by renting coins for a defined period of time; however, just like you cannot "kick someone out of a house" until the lease is up nor rent the same house out twice, you cannot not do that with bit coins.   

The current banking system "rents the same vacation home out ten times" and tells all ten customers they have full claim to the house at any time they want to vacation.  This is a FRAUD called "fractional reserve" lending.

So, there is a big opportunity for "hard money lenders" to lend out coins.  The lender would require full ID and validation of a customers income, assets, etc before they would extend a loan.  Loans are based upon TRUST and bitcoin is based on eliminated the NEED FOR TRUST.

Just as a question to toss "out there":

What sort of legal recourse would there be for somebody who engages in a contract (to simplify, presume both the "borrower" and "lender" are in the same country or even the same state) for a loan and then the borrower stops paying back?  For those transactions in a legal tender, that question is fairly obvious, but does it apply to Bitcoins or to "alternate currencies"?  How would you get garnishments to be done for Bitcoins, or would it have to be done in the legal tender "at current exchange rates" as of the date of the judgement?

Seriously, I don't know the answer to this, or to the legal enforceability of a Bitcoins denominated contract.  It also seems like a legal vector that could be done "by the establishment" to discredit Bitcoins as well, if such contracts were held to be invalid.  I would presume this applies to other alternative currencies, and it would seem like there should be some sort of case history on this topic.  I just don't know where to even start looking for such a legal precedence.

A contract denominated in bitcoins is as enforceable as any other contracts.  It's a written agreement between multiple parties, nothing special about that.  If I want to write a contract that purchases cows in exchange for bananas, that's perfectly legal and as enforceable as any other contract.

Um, no.

Digitally signed bearer bonds.  Pity that bearer bonds are illegal in the US, so that any company/bank that wished to try it would have to be founded in some nation that doesn't prohibit bearer bonds.

Creighton

I would like to sea bearer stocks. 

The ability for anybody to issue their own "stock" and have it exchanged with the bitcoin system would make the stock market and stock exchanges obsolete.   

Imagine a company, say Apple, were to create a stock issue which would be a 64 bit number just like bitcoins.  Each quarter they would issue a profit/dividend statement.  To collect your dividend you would return your shares, be given the dividend and then issued "replacement shares" for the next quarter.   The whole system would be "untrackable" and there would be no way to collect capital gains!

This bitcoin system is going to be outlawed, it is just a matter of time.   

This would be amazing.

Then there will exists a bitcoin stock market as soon as a bitcoin company exists.

Definitely doable with Loom assets (https://loom.cc).

The Loom people are working on automated two-way exchanges, but you'd still need some sort of stock exchange site.  Loom is useful for inventory and claim management, and I imagine there's a lot of synergies to be tapped with Bitcoin + Loom in the cryptoeconomy.

XC

Banking is always based on trust in the bankers. People don't really "deposit" their money in a bank. They "loan" their money to a banker. There is a written contract between the banker and depositor that specifies the terms for repayment of the loan. Some loans are "on-demand" (checking accounts) others have more restricted terms (certificates of deposit).

If potential depositors don't know who a banker lends too, how can they possibly judge their risk in lending money to a banker? I'm not a lawyer, but I'm as close to as absolutely sure as I can get that you can't enforce a contract between a person and an anonymous entity. So depositors would be able to hold a known banker to a contract. However, a banker wouldn't be able to hold an anonymous borrower to a contract.

Sounds like a recipe for disaster to me.

Anonymity is a possibility with Bitcoin, not a requirement. You can add all the verification you want before you lend.

How's this for a scenario. I sell you a car and lend you 90% of the cost. The car comes with 2 key cards, one for you and one for me. Your card works as long as you send a payment through the key control program to be forwarded to me. If I don't get a payment, I go pick up my car.

LOL

I think, this is russian bitbank - http://bitcointrade.biz/

They promise 0.1% - 2% per day

I don't think bearer bonds are illegal in the US, it's just that companies can't deduct interest paid as a business expense, so they are far less preferable than registered bonds for tax purposes.

Because all transactions are public, wouldn't it be possible to have even more trust in a bitcoin bank than a "traditional" bank? You should be able to track all of the coins "deposited" to a specific address and whether those coins have been signed over to another address or not. As long as your bitcoin bank publishes all of its receiving addresses, you should be able to independently calculate the amount on reserve at the bank.

There isn't anything inherently evil about fractional reserve banking, as long as it is part of the up-front contract between depositor and bank. If anything, a widget on your desktop that calculates the current reserve position of the bank might engender more trust and decrease the likelihood of a panic/run on the bank.

If you knew for sure that 65% (or whatever reserve ratio is agreed upon) of coins sent to the bank had not been spent to a third party, that would be far more transparency than you currently get with any bank licensed in the US (although perhaps less trust because US banks are insured by the US gov't).

Even though there is easy convertibility between BTC and USD/EUR, what's currently lacking is a futures market that would allow a bank to hedge against future fluctuations in the exchange rate.

I'm having trouble thinking of how to start a bitcoin futures market. If two parties want to agree to trade 100BTC for $7 one month from today either they have the funds on the market site now, or they do not. If they do then they might as well trade now, and if they don't they how will the trade be enforced?

I'm not an expert but I thought about an options exchange for a while. It seems that you need to have exchange supervised margin accounts. I was hoping that you could just hold bitcoins in margin accounts, but I convinced myself that the exchange would need to hold dollars (currency) as well.

The difference between futures "options" and trading now, is that options buyers are not required to trade in the future. Instead they have the option to trade in the future. Options writers however, are required to trade in the future if the option holder chooses to. The only way to assure that someone trades in the future when the market has gone against them, is to hold their margin account as collateral.

Also, these options trade as independent entities. You can buy an option today and sell it to someone else tomorrow never having "exercised" the option. Creating an option exchange is not a trivial exercise, at least if it is modeled on traditional options exchanges.

It could be fun though.

I'm afraid so.  They used to be very popular, but were banned in 1984, and the date shouldn't be lost on anyone.  They were banned because they could be used to hide, or even launder, large volumes of cash from the IRS.  There are still a few small nations that permit their trade, but only a few, and none with a solid tradition of respecting the property rights of foreigners.

Care to elaborate on where these few small nations are? To date I haven't seen any credible bearer bonds.  And no, the 'Guatemalan' $200,000 bearer bonds sold by that scammer that shows up in a google search, I doubt are legitimate.  Any real ones?

How about setting up a bitcoin loan market instead of a bitcoin bank.  Why?  Well, since bitcoins are secure, there is no need to store your bitcoins somewhere safe since you can just do automatic backup of your wallet.  So we can simply cut out the middle-man (i.e. the banker) and trade directly between buyers and sellers of bitcoin loans.  Someone can implement an open-bidding bitcoin loan market, such as an ebay or biddingpond complete with loaner/borrower ratings, but instead of goods/services, people offering bitcoin loans at different interest rates and maturity spans.  With enough bidders, eventually there will be a market bitcoin interest rate for specific loans at specific rates for specific credit ratings.

Let me start the first(?) bitcoin loan offer:

I'm offering up to 100 bitcoins to be loaned at the rate of 10%/month with a maturity of 1 month (i.e. you borrow 100 bitcoins from me today, and within 31 days, you must return to me 110 bitcoins, so that I take 10 bitcoins profit for the risk involved).  Any takers?  For this loan, I will only trust bitcoin.org/smf forum members who have at least two stars next to their name, since I'm not going to trust some random address or newbies. :P

Now ultimately, reputation will become very important in such a system without any governmental enforcer, thus I suspect that credit ratings will become associated with each bitcoin address.  I will make a public record about the bitcoin address of the person who repays my bitcoin loan on-time, so there is an incentive to be honest and pay.  Collateral will be hard to implement on an online system (e.g. here's the title to my virtual car  8) ) for the time being at-least.

Someone should write an open-source GPL code for such a distributed bitcoin loan bidding market.  I pledge 100 bitcoins to anyone who does such a thing...

One thing to note is that short-term loans will be matched with short-term borrowers, and long-term loans will be matched with long-term borrowers.  This is different from the current banking system, which is inherently unstable due to the mismatch between short-term and long-term loans/borrowing (http://en.wikipedia.org/wiki/Asset-liability_mismatch (http://en.wikipedia.org/wiki/Asset-liability_mismatch)).  This is actually a theory for why bank-runs occur (http://en.wikipedia.org/wiki/Diamond-Dybvig_model (http://en.wikipedia.org/wiki/Diamond-Dybvig_model)).  Of course, nothing is stopping someone from using his own money and assets and trying to lend to long-term borrowers and borrow from short-term lenders...but he would hold all that asset-liability mismatch risk, since people who do not want to take that risk aren't compelled to trade with him or hold that risk, which happens with anyone holding Federal Reserve Notes.

i will loan up to 500 bitcoins to be loaned at the rate of 8%/month with a maturity of 1 month.  i don't have a minimum post requirement, but I don't have to accept all applications.

I think, perhaps, you misunderstood my point.

Sounds like the original Prosper.com before government regs and the reccession strangled it.  Look into the trials and tribulations of that site, and be fully aware of what kind of legal quagmire you're stepping into before you proceed.

Ok, I will modify my rate to match yours...here's my updated offer: up to 100 bitcoins for a rate of 8%/month with a maturity of 1 month.  Likewise, I don't have to accept all applications, but I prefer applicants with at least two stars in the bitcoin forums.


Interesting.  Well the idea is that the code should be all open sourced, so that the server doesn't have to be hosted at a single website.  And hopefully, even the directory of loaner/borrower addresses, rates/maturities offered, and ratings/credit scores could be designed so that it is distributed and/or duplicated across multiple servers or in a p2p fashion, so that nobody is in charge and there is no one thing/person that can be strangled/shut down :D

Does anyone know of any such open-source distributed type of databases that allow posting, bidding, and rating?  I suppose for the time being, biddingpond can be used...or even this forum... :)

Those are ursury rates anyway.  I could get a better rate from the loanshark/bookie operation down on main, or from any payday advance place that preys upon the poor & addicted.  8% monthly is getting close to a 100% APR.  Even my credit cards, when I was still young and dumb enough to carry them, didn't charge over 1.6% monthly.  If you guys are really going to start a credit & loan operation using Bitcoin, at least do so within realisitic revolving credit margins.  If you aren't willing to run proper credit checks on your customers, or they aren't willing to submit to the scrutiny, you could accept collateral, like a pawn shop.  I'm not sure what that kind of collateral that could be other than a security deposit in Bitcoins or some other currency, in which case the markets are just as well.  Although I'm sure that credit derived from Bitcoin has a place in the the material world, I'm not convienced that it has any place in online commerce.  That would re-introduce many of the problems with use of credit online that Bitcoin could solve.

Well those 1.6% monthly rates are in Federal Reserve Notes.  Sorry, but people aren't interested in them.  Unfortunately, I don't know of many other bitcoiners offering loans.  Naturally, as there become more sellers, the price will drop.

And as I already mentioned, it would be nice to use some sortof collateral, but that is hard to do anomalously on the internet with virtual goods...although if anyone has some ideas, feel free to offer them.  So that is why I have to charge such high interest rates.  You are free to make a lower offer.  It's quite likely that someone wants bitcoins right now to buy something, but doesn't have any at the moment...

"I could get a better rate from the loanshark/bookie operation down on main, or from any payday advance place that preys upon the poor & addicted."

Really?  Denominated solely in bitcoins?  I will gladly borrow 100 bitcoins at 8%/month from a certified payday advance place if you can arrange it. 

You could arrange it easily enough on your own.  Just because the loan isn't denominated in Bitcoin doesn't mean that it has to stay that way.  Paying 8% monthly interest to avoid a 3% transaction fee from Paypal is bad math.

Okay, fair enough.  I will make a better offer.  I can offer a one month loan, for up to 500 coins, to anyone willing and able to either offer collateral that I can accept or willing to drop autonomy with respect to myself so that I could reasonably enforce an agreement.  I'd be more than willing to negotiate the terms, but would be unwilling to loan to anyone that I considered a risk too great to loan at 4% per month.

Creighto--

I will borrow 500 bitcoins at 100% per month from a payday advance store (or, more technically, from the person who can arrange such a loan for themselves and prove it) as long as the loan is denominated in bitcoins.

does this makes my original loan look less usurious?

and careful when you say your offer is better.  your loan requires collateral.

That's a strawman argument, and one that I'm not entirely sure is even relevent.  Why does it matter what currency the loan is denominated in if the rate is so high?

Yes the currency the loan is denominated does matter.  Digital USD are very traceable.  But you can buy things with bitcoin with privacy, such as secret offshore domain names, and other things listen in the bitcoin trading section that would be much more difficult to buy with USD.  Also, USD are not a very good hold of value...Dollar Slides After Fed Statement (http://online.wsj.com/article/SB10001424052748704129204575505341209923002.html), so you don't want to have your money denominated in USD.  Also, if you are buying something denominated in bitcoin with USD, the USD must first be converted into bitcoin, costing some currency exchange transaction cost and possibly revealing your identity in that transaction.  Oh yeah, and bitcoin is more of a Universal Currency (like gold/silver and unlike USD), since it can be used anywhere there is internet connection in any country, without needing a bank account or registering your name with authorities.  So yes, what currency the loan is denominated in is important.

Also the fact that a loan requires collateral is NOT a strawman.  In lending agreements, collateral (http://en.wikipedia.org/wiki/Collateral_(finance)) is a borrower's pledge of specific property to a lender, to secure repayment of a loan.  If you use collateral for a loan, then you will have to hand that piece of collateral to the loaner if you fail to pay back the loan.  This is worse than just loosing points on your credit score.  So naturally, a lack of collateral will have to be compensated by higher interest rates.

And, of course, I know all of this.  I just don't think that these issues are relevant to a 30 day contract between two or three parties.  What have you lost in the addition of a currency trader being involved that you didn't lose in the original contract? 

Learn the lesson of Prosper.com:  in absence of collateral or army of lawyers, people will not pay back loans even if risk is priced at 100% interest.

Good point.  I don't know much about human behavior...maybe what you say is true.  In that case, we should focus on figuring out a way to implement virtual collateral tied into the bitcoin loan, such that if a loan isn't paid, then your internet domain or whatever you put on as collateral automatically changes ownership.

A loan service could be a good idea, but of course you would need
various verification process in place to ensure it could actually work,
but i think a bitbank is a very good idea and linked with a physical card would be gold,
i think the bit bank could offer CD's to investors, for those looking to earn a return
on their BTC deposit.

If you're only loaning 10 BTC, than you only need a little verification, and so on.

I think you're right about needing to post cash as well, cash as collateral could be converted to BTC to manage the margin account.

The big reason this kind of intermediation (options or futures market) is necessary is because bitcoin right now isn't really "capital" that can be productively employed. Liquidity between BTC and EUR and USD is great, right now the best way to run a profitable BTC bank is probably to convert BTC deposits into some fiat currency, make a traditional interest bearing investment, and convert/re-pay in BTC.

You might get some takers on the other side of the transaction from people running a server farm with fast computers, video cards, etc... there is some serious risk that the value of BTC could plummet; why spend a bunch of effort to develop some hot FPGA BTC mining program if the bottom could fall out of the BTC price? Better to sell your wares forward in time at a known price, just like agricultural farmers selling futures in corn.

request for quote:

I want to exchange 1000 BTC for USD on March 17th, 2011.  Anyone willing to enter into a forward?

That's it, I'm making a proper market.

*fires off a django install*

I need 18 btc and would gladly pay 20 or even 25% with a maturity date of 90 days from the date of the loan. Anyone care to help me out?

Found this very old topic from 2010 :)
Now a Chinese bitcoin company bought the domain name BitBank.com recently (see this (https://bitcointalk.org/index.php?topic=986228.0)). This is coming true. (In fact, there are some website around here is offering a percentage for deposit bitcoins.)

But why ? Ok they will get 1% per month but you will need cash too, so someone will lose something. Or you can be so rich and invest their money, then it can be really good.

They seem to be the same guys (jua.com) that recently (about two weeks ago) bought for 1,000 bitcoins the Bter exchange hacked in the last mid-February. Though the deal was not officially advertised as purchase (it was announced that jua.com provided a 1,000 bitcoin interest-free loan to Bter in exchange for shares), but since Bter had been desperately searching for a buyer, I think it's just that...