Bitcoin Forum

 ;D

If lending fiat dollars with interest is causing the world economic collapse, will lending bitcoins at interest cause an internet collapse?

If we lend bitcoins with interest, what happens when there are not enough bitcoins to pay off all the interest on the borrowed bitcoins?

And another question for the cosmos...

If I earn 100 bitcoins and I have gains of 75 bitcoins in a given year, and I choose not to cash them in because the price might go up, will I be able to pay the IRS in bitcoins, or do I tell them I didn't pay my taxes because I was waiting for bitcoins to gain in value first?

I have come to a very important conclusion regarding bitcoins and humanity.

Bitcoins and alcohol do not mix well. At least you can't lose your bitcoin wallet at the bar. hehe
Happy Saturday Night folks!

 ;)

I has a question about interest!  Instead of learning from any of the many available sources that are the hallmark of the internet age I will spew crap on forums!  TALK GOOD, READ BAD.

mmmph.

sleep well.

I believe once the coin limit is hit, lending bitcoin is ALWAYS with interest since 100 btc would be worth more when returned 12 months down the road. So there's no need to charge extra interest on it hence your hypothetical insufficient bitcoins won't exist.

Isn't that assuming that the price of bitcoin will rise even after the limit is mined? Im not disagreeing with that potential, but it's still potential, not definite. I guess I was assuming it would remain constant at that point, or pretty much so.

Because the decimal point can be shifted there will always be enough Bitcoins.

And your right, Bitcoins and computers and alcohol dont mix. On this point I'm reminded of the old analogy - 'garbage in, garbage out'.

Actually, monetarily, this does not solve the dilemma.

Interest does not depend on decimals. It is the means in which something is stolen from nothing.

If there are 21 Million bitcoins potentially and someone lends someone 1 million bitcoins with .5% interest, 20,000 bitcoins are the interest. In fiat currency the interest would be stolen off, in bitcoins, it cannot really be taken anywhere, so the question is semi-redundant and a joke in fact. It's a trick question of sorts.

As population would inevitably go up, there should be a demand for more bitcoins to use in transactions. But since the number is limited, the only way is for the value to increase so that each bitcoin can be exchanged for more stuff. In a way it's like gold, because the supply is limited, the value keeps going up now due to increased demand.

Theoretically it should really start to increase only when the limit is mined, unless the number/value of total transactions decreases, e.g. bitcoin economy fails to take off (although if bitcoin is still around by 21M, it should have a relatively stable economy by then I would expect), or WW3 wipes out 90% of the population etc.

Why would I take the risk of lending them out if I receive the "interest" even if I keep them in my cozy wallet? I'd want "additional interest" as an incentive to give credit to someone.

1. lending at interest isn't the cause of 'world economic collapse', however you are defining that term.  fractional reserve banking may be part of the problem, but not the lending itself.

2. lending bitcoins at interest is a risk investment.  you lend based on the borrowers promise to pay you back.  you make it worth your risk by charging interest.  if the borrower defaults, you lose your investment.  that's all that happens.

3. the other question: to the extent that taxes are owed, the IRS requires payment in dollars...or blood.

Good point there, I overlooked that :D

I lend person A 1 BTC, and ask for 5% interest, and it to be returned in a month.

He uses this 1BTC, and with it, is able to take a course allowing him to get a job. The job-giving person gives him 1.5BTC.

He gives back 1.05BTC at the end of the month.

That's how it works. You do something that results in you having more BTC, and the other person having less, that you can only do if you have the lent BTC.

PS: Example is rubbish, I know :(

                Simple, because the investment (weather it be a loan or something else) would have to return more than keeping the coins in you wallet would, this encourages investment in more productive projects and generally results in a financial world where investors do a lot more investing in higher risk projects hoping for a return higher than just holding those coins. This would encourage invention and innovation by encouraging investment in those.

Lending with interest does not imply that more money has to be created for the loan+interest to be paid back. Money circulates. The money that is used to pay the interest finds its way back into the economy and may very well be used again later to pay back the loan.

In the current, fractional reserve lending system this would be correct.  With BTC's finite $21MM coins, it doesn't work this way.  Eventually someone will not be paid back.

Lending fiat dollars with interest, in the way you're implying, was not the cause of the world economic collapse.



The quantity of money is irrelevant to your question. An economy works equally well with 21m units of currency or 210m units of currency (and of course we know that btc is divisible to 8 decimals anyway).

There is nothing wrong or problematic with "interest loans."  The problems arise from fiat currency and fractional reserve banking. Don't confuse the villains =)

i propose that we keep the USD but have Bitcoins replace Gold in a Bitcoin Standard system. 

Brain Fart Warning!

I don't have time to outline details, so I'll just leave you with this:

Bitcoin Trust Fund --->  http://www.kiva.org/about/supporters

Bitcoin: Touch--Something We Should Keep In (possibly not relative to Bitcoin, but I like the phrase nonetheless)

Or just don't lend your money to people who probably won't be able to pay up.

I don't believe in lending anymore I mean look at the U.S if this most powerful nation can't fork up the cash to pay its lenders ( the biggest one being China) how can we expect 20 somethings who are computer savvy to pay interest and sum. Let's break the cycle guys!!

Greetings all,

This thread has been an excellent read, very interesting, and with many good points and questions.

I would like to take it back to it back to this question for a moment if possible,

1) How do you go about reporting capital gains on a currency that is technically not accepted by the agency who's trying to collect from you?

2) How would the IRS ever know you were saving up bitcoins in the first place?

-KBundy

+1

As long as there are more coins outside of the lender's control than there are due to the lender, everyone can in theory pay back.  Even if the lender is owed 30 million coins, the debts can in theory be paid back as long as the lender spends enough of the coins as they are being paid back.

I thought I had too much to drink, but if you say it's a good thread, then so be it. Glad you are enjoying it. Maybe it was too much to smoke instead and I actually stirred up some good thoughts. lol

I was just doing what I always do. Think about crazy shit.   :)

In a monetary system such as the one we have now, bankers loan fiat currency (blips in a computer), and print a percentage of that in paper form and coin. Then, after 1 year, when interest is due, they subtract a percentage of that paper and liquid wealth from the economy. The amount they subtract can be a huge dent into what was injected to begin with hence we have the problem of this....

Banker/government loans people 100 at interest of 8%. One year later there is 91 1/2 dollars left in the economy. Being a regulated currency and economy (regulated being UNDER CENTRAL CONTROL) there is only so many there for people to own and spend and that is what everyone accepts by law. That same year later, when the interest is due, people lose their homes who do not have the currency or liquidity to pay. The loaning mechanism in a controlled economy causes a guaranteed theft from the bottom to the top.

In bitcoins, it would really be no different as I see it. Say I loan 1000 bitcoins at interest of 5 bitcoins, I will end up with 5 more bitcoins than I had before. So, the top loaning bitcoin dog, will eventually have all the bitcoins if people borrow in bitcoin. That can only happen though if there is only one central bitcoin loaning authority and there is and can never be anything like that. So I guess that should put the whole argument to rest.

I think.

I think the irs would currently treat this as a barter.  and being the irs, they have that covered.
http://www.irs.gov/taxtopics/tc420.html

So, you can report it or not report it, as you see fit.  If you choose not to report it, you're breaking the law.  If you get caught, you'll pay the fine (or potentially worse).  So there it is.

The situation you describe is not a problem at all. Even (taking this to absurdity) if you borrowed all 21 million bitcoins at 5% interest and had to pay back 22,050,000 bitcoins, more than there exist, this would not be a fundamental problem for the monetary system. You would just have to present goods and services to holder(s) of Bitcoins at an agreed upon value of BTC22,050,000.

This is how the COMEX continues their long running fraud, and always will be able to.

Also, see the term "evergreen" in relation to gold leases.

Knife cuts right through the shit.

Did a little investigating into this over the weekend.

Barter is taxed by the IRS only in a certain way, as far as I can tell.
Barter exchanges are taxed because the Barter exchange holds goods for a chosen value in relation to the dollar and that chosen value is taxed. So, Barter is all based on the dollar and that is how they tax it.

Bitcoins are not based on the dollar and can never be, since they are their own currency and fluctuate solely by supply and demand. So, therefore, it stands to reason that bitcoins cannot be taxed, hence the TurboTax ad we saw recently.

I'm having difficulty following your logic.  In your example, you hold all $21MM Bitcoins.  There are no other holders of Bitcoin.  You're it.

How do you "present goods and services to holder(s) of Bitcoins" when none of them exist?  Further why would anyone agree to pay something knowing that they can never collect on those 1,050,000BTC's that exceed the limit?   

Unless the loan has some sort of silly provision requiring the entire payment to be atomic, the loan holder could easily pay part of it, then buy some bitcoins back from you to pay off the rest.

But what if that amount costs you interest?

The solution to Zeno's Paradox of Achilles and the Tortoise has been known for centuries now.  The answer is calculus.

Can you explain this to me?

In Zeno's paradox, the tortoise has a head start, say 100 meters, but Achilles runs 10 times faster.  By the time Achilles reaches the place where the tortoise started, the tortoise is 10 meters down the course.  When Achilles reaches that point, the tortoise will be a meter further.  And then 10 centimeters, then 1 centimeter, and so on.  Achilles can never win.  He can't even catch the tortoise because every time he reaches where the tortoise has been, the tortoise has moved a tiny bit forward.

We now understand this problem in terms of the limit of the infinite sequence.  Even though the sequence is infinite, the limit is not.

In the same way, a borrower can pay back a loan of more than 21 million BTC, even if the loan has interest, and the total amount paid can be finite.

Well, I definitely won't attempt that one after a couple drinks. I'm still struggling with it sober.
Thanks.

Isn't this just an accounting system of perpetual debt at this point, though. Just ledger entries posting more and more debt, similar to the current ponzi scheme of the US dollar today?

None of what exist? Goods and services still exist, I assure you.

edit: And in this extreme example, the single holder of Bitcoins would be the person you owe to. But that doesn't make it impossible to provide him/her with goods and services with a value of the amount owed, thereby canceling your debt.

In reality there will always be a large number of people holding Bitcoins with which you could trade goods/services for Bitcoin.

I'm not understanding your argument.  If you are a U.S. merchant and accept BTC as payment, then come tax-time you must report the equivalent dollar amount of BTC that you earned as income.  The irs even has several point papers on it for their auditors.  They assist the auditor in detecting these transactions.  Here's one
http://www.irs.gov/businesses/small/article/0,,id=210735,00.html
but there are many.

Private people borrow so much because it's so damn cheap, just like if blueberries were 90% subsidized we'd have a hell of a lot more blueberry juice. People calling themselves governments borrow so much because they aren't going to pay you back with actual value.

OP mentions people will lend with no interest in Bitcoin because they will be getting more valuable coins back. Wrong. Holding the coins yourself is much less risk then letting someone else use them and maybe pay back, the lending that does happen will be at interest.

The title of this thread is a VERY poor example.  A good title gives the reader some idea of what the thread is about without having to click into it.  Forum etiquette 101.

Yeah, it's getting ridiculous. Should I start a thread in Bitcoin Discussion about how people should only get to start one thread and then get approved to start more based on it's quality? NO, I should put it in Meta ffs.

I'll be visiting your threads soon to troll on them and tell people how they should never have been started in the first place. To be honest, I didn't think two people would reply. But it seems they are more interested in my drunken ramblings than the goings on in your own life, so  :P 

There will be permanent deflation like it was 80 years ago when "golden standard" was in place

no more quantitative easing, no more inflation bubbles, no more expansive monetary policy and fake growth

Houston, this is not problem, it is big surplus.