Bitcoin Forum

Hi, I have been thinking about peer to peer mortgages for some time, and trying to come up with ways that people could borrow money from each other instead of banks.  Then last week I heard about Bitcoin and I found the answer.  Basically it breaks down like this:

* everyone would have a credit rating, lending money gets you good credit, as does re-paying money.  Defaulting on payments gets you bad credit.  So eveyone is able to decide for themselves if they want to lend depending on the rating of the borrower.

* The Borrower's loan is split up into many segments eg. for a $500,000 loan there would be 5000 people loaning the borrower $100 each.

* This is the clever part...instead of recieving interest, the lender recieives a mining right to process the loan transaction.  The right expires within a given timeframe, so if he doesn't (or can't) process it before it expires then he can sell the right to someone who can.   If the right expires then it just goes into the general pool to get processed.
So every month that the loan is outstanding, the lender gets a new right to process that month's portion of the transaction repayment.

This is potentially far more valuable to the lender than a few percent of interest would be, and effectively the borrower gets an interest free loan.

Does this make sense?  I hope I have understood Bitcoin correctly.  If anyone finds this useful feel free to post it to the main board as I don't have access there yet.

Cheers.

Who is hosting the mining hardware and how do you get paid?  I am assuming the 'btcbroker' gets a cut too.  Sounds interesting but needs to be fleshed out a bit more.

I'm interested in this.

This sounds interesting, but years down the timeline.  Very tough to peg the price of a house to a currency with so much volatility.  We often see swings of over 10% in this market daily.  That might be ok if you deal with small things, but that is HUGE when it comes to a house.  In a few years, if BC prices have stabilized a bit, and it ends up getting "pegged" to products (like houses and cars) then you see even less volatility.  Chicken or the egg?

Maybe instead of mortgages we can start out on something smaller, like stuff under $1000.  Maybe this concept could be used to fund new miners ore (LOL) something.

Love this idea, especially that of a reputation system to weed out unreliable loanees. A website that would facilitate these loans could be quite useful in my opinion. Just my two cents.

This sounds like a good plan!

Cool, thanks for your support guys!  Obviously it needs a bit of fleshing out..

I think it would make more sense to take interest rate.

Nothing prevents you from reducing your interest rate by some part by mining but why would I as a lender give money to people for free? (Which is what you do when you do not charge appropriate interest rate)

I agree that this is years down the line.  Early adoption will involve easily moved products in exchange for Bitcoins; the medium for this exchange being the Internet.  Buying/selling a house would require both parties to live in relative proximity to agree upon the transaction, involving inspections, due diligence, agent and closing attorney fees.  It's a great vision... but honestly I'd rather keep my money in Bitcoins instead of real estate for another few months at least!  :P

have you heard of ripple?
http://en.wikipedia.org/wiki/Ripple_monetary_system

This seems like a good idea.

that would be creazy man

Hey internet, want to help me buy some land?

The mining rights would be worth more and besides, the whole point is to undercut the banks.  who would take out a bitcoin loan if it were not cheaper than the bank rate?

what do you mean not be able to profit from it?  Did you miss point 3 in my original post?  Currently mining yeilds what, 5 Bitcoins?  This is worth roughly $70.  So for an investment of $100 you would get a return of $70 per month.  Is that not a good enough profit for you? 

I think the confusion comes from the title 'Zero interest Bitcoin Mortgages'.

Also, if I invest $100 and get $170 in Bitcoins back, where do they come from?  In other words, who generates them? 

They are mined.  Just like regular bitcoins, except in this case only one person is allowed to mine them (but he can sell that right)

hmm.... I remember something called prosper.com. I don't know if it's still around. Is that what you were thinking of?

What are you talking about?  it's quite simple:  Person A lends coins to person B ($100 worth).  Person B makes monthly repayments back to person A (principal only, no interest)  As a reward for lending the coins, person A gets the right to process (mine) the transaction, which of course results in new coins being created.  There is no counterfieting here.

Here's what I don't understand - where is the value in that?


1. I don't need rights to mine. I can mine all day long in a pool or solo - how is this different?

2. supposing this somehow makes mining easier(the alternative) then it must make mining harder for everyone else. The # of bitcoins is limited to 21 million, so making 1 million free for one person means there's only 20 million left for everyone else to mine.

Coins get created with new blocks, not new transactions.  They can even be created with no transactions (except the coin generating one) in it.  The only thing miners get that is associated with a transaction is the fee and that fee comes from the person sending the bitcoins (the borrower in this case).  Sorry, no free lunch.

This is where the breakdown is. Who determines who is allowed to mine and how do you propose on enforcing that?

 You still aren't answering my question.  WHO physically mines the Bitcoins?  Where are they mined?  Is it a server farm?  Is the guy that took out the loan responsible for mining them with his own equipment?  How do you determine the queue for mining coins?

If I take a $100,000 mortgage out, by your model, I would have to repay $170 back to 1000 people.  My hash rate is at 350 Mhash/sec.  At that rate, and at the current difficulty, I generate .26 BTC per day.  If I have to pay back $170,000 worth of BTC, I will be mining for 91 years.  And that's only if the difficulty stays the same.  If I am one of the guys that loans out $100, how long before I get my money back?

All you have is a concept, can you give an actual example with math to back it up based on current difficulty and say $20 per BTC?  

Terrible idea. Not only it's not viable but it'd encourage bad investments.

how so?

The lender gets to mine them.  If he can't or doesn;t want to then he sells his right to a server farm or whatever.


your hash rate is irrelevent, as the borrower you are not the one mining.


exactly, it's a great concept.  look at my post number, i'm new to all this.

raresaturn,  do you mind explaining your understanding of how bitcoin works to us?

I do not mean to pick on you, but the best way to help someone understand something is to have them explain to you how it works.

Yes but as I understand it it's pretty hit and miss, and anyone can mine the coins out from under you.  Under this concept only you can mine those coins.


why is it limited to 21 million coins? Is that an arbitary number?

Sure, as I understand it each transaction has to be processed by a miner, for which they are rewarded with coins.  But I am not totally sure how the transactions are allocated, is it random? Or to multiple persons work on the same transaction and the first one to finish gets the coins?  Let me know if I'm misunderstanding it, I only learnt about it last week.

can you expand on that?  how exactly are these allocated?

 Look at my post number.  I'm new too.  

 But once again, you aren't answering the whole question.  Where. Are. The. Coins. Mined???  Who's. Hardware?  Who's. Electricity???

 If the individual lenders are mining the coins, why even lend $100 in the first place?  I can mine bitcoins now without having to lend $100.  

 As a lender my hashrate is vitally important.  At 350Mhash/sec will take me about 35 days to generate $170 in Bitcoins (assuming $20/BTC).  

 Concept is dead if lenders use their own hardware and electricity.

I. Don't. Care!


But isn't mining competitive? (correct me if I'm wrong).  The difference here is it becomes exclusive

As others have mentioned, the idea as it stands is unworkable because you don't understand how Bitcoin works. Miners don't need your transaction to mine Bitcoins. The only incentive that a miner has to process a particular transaction is the fee associated with it. Blocks can be created with no transactions other than the one that creates 50 BTC. You're not offering any incentive to a miner that he doesn't already have.

Now if you offered a fee to a miner and an exclusive right to mine that transaction rather than broadcasting it to a network, that would be something at least. As others have mentioned though, not many players have sufficient power to solo mine any more, so it would take them a highly variable random amount of time to actually generate the block with your transaction. And then you're not having zero-interest, you're just having a fee in place of the interest.

 Dude, you're not grasping the concept of Bitcoin at all.  We all have mining hardware.  We all have the ability to mine bitcoins ALREADY.

 Why would I lend someone $100 when I can just mine them for myself?

 If I loan you $100, and then mine $170 worth of BTC on my own hardware, how does that benefit me?  I can do these things already WITHOUT having to lend you any money.  You get $100 FREE without having to pay me back.  At all.  Basically,  your concept is for people to lend money, and then use Bitcoin mining to pay themselves back with the borrower contributing absolutely nothing.  Or am I wrong?

 Why would I lend you money and then use my own hardware and electricity to pay myself back?  How do you, as the guy that just got the loan, pay me back the original $100?

  EDIT - To put it in other terms, it's like me lending you $100 to help you out, but instead of YOU getting a second job to pay ME back, I have to get the second job to get back my money while YOU contribute nothing. 

That's exactly what I'm proposing.  Was I not clear on that..?

If he was just adding a transaction fee, he wouldn't have to change anything. He would just have to send it just to this one miner, whoever that was, rather than broadcast it to the network. As soon as that miner solved a block with that fee in it, he would claim the fee.

All the same, this wouldn't count as zero-interest. Instead of paying interest to the lender, which makes sense, you'd be paying it to the miner instead for some strange reason, but you'd still be paying it... It seems he doesn't really understand how Bitcoin works.

 Help me understand what you are proposing.  

 Here are 3 scenarios.  Let's assume that for each scenario, my Hashrate is 350 Mhash, the price of Bitcoins is $20, difficulty stays where it's at, free electricity and I have $100 in the bank.

 Given the above, it would take me 33 days to mine $170 worth of Bitcoin.  $170 is what you originally proposed as payback ($100 + $70).

 Scenario One - I lend you $100.  33 days later, I have $170.  

 Scenario Two - I don't lend you $100.  33 days later, I have $170 + $100.

 Scenario Three - I buy another 5770 for $100, increase my hashrate to 550 Mhash, and 33 days later I have $267.

 What I *think* you don't understand is that those of us that are already mining don't get anything from your proposal.  Since I am already mining, what do I get for lending you $100?  All I get is $100 less in the bank.  This is because I am already mining.  Lending the $100 does not add to my hashrate.  The borrower doesn't even have to pay anything back.  

  A few posts ago I asked you to go through and provide an example backed up by numbers and math, you didn't.  I also asked who pays for the electricity and who's hardware does the mining.  You said you didn't care.  Well, those of us that have to pay for our own electricity do care.  Those of us that don't have mining farms do care.  I am already maxxed out on my hashrate and will always be.  

 So I'll ask this a different way.  Let's pretend I don't own a computer.  Let's say I lend you $100.  How do I get repaid?

The lender is the miner

The borrower still has to repay the loan. .the mining is just a bit of incentive on top of that.

Let me try to put it another way... when you are mining, what guarentees that you'll earn some coin?  Is it just dumb luck?  or is it something else?  Are others trying to earn those same coins, and can they undercut you?  That is what I am trying to take out of the equation.  You get to procees a block that nobody else can.

If you are already mining to your maximum capacity then you can sell your rights to THIS BLOCK to someone who is able to use it. 

Maybe there could also be a reduced difficulty for the lender to process the block, as an added incentive.

Hmm... I don't get the right to "process the transaction" bit. Isn't anyone allowed to mine, whetehr they have the means to do it solo or via a pool?

Or is what you're saying that, borrowers join a lender's mining pool for the loan but don't generate any btc for themselves? Presumably, this would mean the lender is a heavy-duty miner already but doesn't pay the borrower any share of  mined/generated btc and, instead of making payouts to his pooled borrower(s), gets 100% pooling fees from their monthly cpu/gpu efforts until the loan is paid off...?

If this is the case, I'm not sure a mortgage would be feasible. Small payday loans, maybe... Although, with the deflationary nature of btc at present, loan repayment could be possible quite qickly... or not. BTC might be a bit too volatile for such transactions at present.

Yes, currently.  But I am proposing a whole new scheme to incorporate loans.

So, everytime a borrower goes online, he's working towards paying off his/her debt?

But it wouldn't be possoble for the lender to set the difficuly. In fact, by adding to his pool, surely, he'd be increasing the difficulty.

Why wouldn't it be possible?  All it would require is a change to the client software.

From my understanding of how bitcoin works, it's built into the system that no one person has the authority (or ability?) to change the block solving difficulty. It would have to be a peer to peer agreement, and why would the bitcoin community want to devalue the currency just so that a lender/miner could give out easy loans (and we've all seen where that leads).

Otherwise, we're essentially looking at ways to devalue the currency by making it more easily available - a bit like Bernanke cranking the printing presses to create more dollars and then throwing them out of a helicopter for all and sundry to scramble over, even though he's effectively decreased its purchasing power.

At present, it's built into the system that as more people leave bitcoin mining, block processing difficult decreases, enticing people to back get in for a relatively easy coin-generating ride and keep the system going. However, the more people join, the more the difficulty increases, making it harder to acquire coins as easily, and thus keeping it a deflationary, rather than inflationary currency.

This is why anyone who bought/mined/acquired btc last year, while it was under $1, are now sitting on a tidy profit (assuming they didn't sell). Surely, getting 100% mining fees from the borrower would be enough incentive for a lender. Why would he then also try to reduce the difficulty in order to make it even easier for himself. Sounds a lot like old-world (20th/21st century) banker greed, there.

Saturn, maybe this will help.

What you want is to say, "hey, you lent me money so I'm going to let you mine my transaction!"

However, the fallacy here is that when you talk about bitcoin getting money from it, you can't talk about just one transaction, you have to talk about the block. The block doesn't contain just one transaction though, it contains ALL the recent transactions that occurred on the network. So, let's say 1000 loans are originated, ALL of those transactions will go into the current block. This is the record that everyone has so that we can all make sure that transactions are valid, and that the money you say you have actually does belong to you.

So then you might ask, why is it called mining bitcoins? really it should be called mining blocks, because what your computer is actually doing is calculating a checksum for the block.

However, any given block can have more than one checksum(this gets into matrix math, which I'm a bit rusty on and don't feel like brushing up. You probably don't care and won't need to in order to understand anyway. Just think of it as saying there is more than one solution to a problem)

We don't want just ANY checksum, though. We want a checksum that is lower than some target number. However, The lower the number is the less likely it is that you will generate a winning checksum(when people talk about difficulty, this is what they are referring to).

example: let's make this sweet and simple. Let's say the target is 0234
Block 1. - generate checksum - OK I got 1330, but we're tossing this result because its bigger than 0234
block 1. - generate checksum - OK I got 2804 but that is also bigger
block 1. - generate checksum - OK I got 0123 - yay  I win!


So what happens when you win? something UNHEARD of happens! essentially, a NEW one way transaction is added to the block that adds 50btc to the generator's bitcoin wallet. The network, however, is reducing the number of bitcoins generated per winning block(every 4 years) and increases the difficulty (I forget how often) to keep the number of bitcoins under 21 million(inflation is bad mmkay?)

now, a pool is just a group of people who decide to share the risk of not discovering a block checksum under the target by dividing the 50btc when a block IS discovered. You can solo mine if you want, but there is no guarantee that you will EVER win a block.

Well, I don't know how good this explanation is, but I tried! XD

 I have a grasp now on what your idea is.  I was getting hung up on the whole 'right to process' thing.  The problem is, as a small player (tiny really), I wouldn't really benefit from getting the right to solve a block, since it would take me so long to solve it. 

 What you are missing is that small guys like me are probably members of mining pools.  So we get frequent smaller payouts, and over time, things average out.  With my hashrate and difficulty, the average time to solve a single block for me is over six months.  So, as a lender, it would not benefit me at all.  I would have to drop out of the mining pool and process that block until it's done.  It may take more or less time, the six months is an average.  The end result for me would be the same amount of Bitcoins mined whether I lent money or not.

 So, the problem as I see it is you have to come up with a way to motivate people to lend the money in the first place, something other than Bitcoins.  I think the mining right is a good start, but it needs to be quantified.  You should try and focus on how the mining right thing would work and how it can be transferred.  Maybe call them Lendcoins and mine them separately?  I have no idea how that would work, It's too early in the morning for me...

 

hold on let me see if I follow. You want to start a company then lends bit coins. This company will lend (lets say  100BTC), to someone, using the blocks that are created from the transaction of sending the BTC to the person and the person repaying, give them to the lender so he can decrypt them and bag the 50 BTC or what ever it is?

Came across this from digitalcoin.info. It's just a one page pdf file, but there's already someone out there that's looking at interest/debt-free digital mortgages and it might give you some useful info to incorporate into your own idea.

http://digitalcoin.info/Digital_Coin_Mortgages.pdf

It's a pretty quiet forum, but you may also want to check out the following to see if there's any useful information to fuel your research there.

http://digitalcoin.earthsociety.org/forum/index.php/board,11.0.html

Interesting that someone else has come up with a similar concept, I think we might see a fundamental change in the economy in the next 10-20 years...could this be the end of banks?

Found an introductory video that goes in a little more detail as to how Credit Coin would work...

http://www.digitalcoin.info/Digital_Coin_Introduction.html