Bitcoin Forum

Hello,

I have been working on a website in which bitcoin users can lend to each other and have their "credit" recorded on my website.
It is based on making payments that are recorded through block chain transactions and bitcoind.

I think it will be useful for establishing shared trust for lending purposes.

Any thought?

Great idea!  Like Prosper.com before the man came down on their heads?

Like http://bitcoin-otc.com/trust.php ?

Care to explain the circumstances regarding prosper.com?  I am not familiar with this website.

My site would be entirely peer to peer, but the coin would have to travel through my wallet.  Then get forwarded to the lenders wallet to confirm payment.  I already have most of the website set up.  I figure I could get it up and running in a week or two.  I have been working on this for many months now and it is almost ready.  It won't be anything fancy; mostly backend php type stuff.

It would be similar, but very streamlined.  This website also is limited for lending.  There are very few ways to record their actual history.  My database would record their total lent or borrowed, debt, number of loans taken and completed, number of late days for their loans, and I was thinking about having people tie their facebook/linkedin accounts as well to their credit.

I would like to create a competitive market for lending in which trust can easily be transferred between users based on extremely in depth historical data.

I think it'd be great - but how would you prevent defaulting?

Prosper.com is USD-based peer-to-peer lending.  You should familiarize yourself with their history, problems, and how they overcame them before attempting a BTC equivalent.  Their biggest problem early on was the default rate exceeding the interest rate paid to the lenders.  They overcame that problem by doing credit checks and better digging into people's financial histories to give a more accurate picture to potential lenders.

In my opinion, you'll have to either do credit checks on the people asking for loans, or do insanely high interest rates to protect against defaults (which would likely only further aid the number of defaults happening).

To me, one of the most prominent aspects of prosper was that lenders only funded part of the loan.  This split the cost of a default across many lenders, and allowed for easier diversification of your funds.  Something like that with Bitcoin would be very interesting to me.

Right, and that's certainly a huge benefit.  But in the early days of prosper.com, most investors lost money DESPITE diversifying their funds across many different loans.  For example, if they invested in the D-class loans with an interest payout of 22%, prosper.com had an average default rate on their D-class loans of greater than 22%, losing the investor money no matter how much they diversified.

Yep... I ended up breaking even with the funds I put up there.  Now I'm not even allowed to participate because the state I live in isn't supported.

+1000

You might want to get some of the existing bitcoin lenders on board who have done a lot of the credit checks already. Say you allow them to charge fees for providing credit reports:)

Love this idea!!  I can't wait to see it!

Reputation / ratings is getting to be a big topic around here this month:

 - http://bitcointalk.org/index.php?topic=86975.0 (Proposal for a reputational system)
 - http://bitcointalk.org/index.php?topic=87601.0 (BBB of Bitcoin?)
 - http://bitcointalk.org/index.php?topic=87255.0 (commercial ratings)
 - http://bitcointalk.org/index.php?topic=87151.0 (line of credit ratings)
 - http://bitcointalk.org/index.php?topic=84540.0 (Ripple)
 - http://bitcointalk.org/index.php?topic=84904.0 (Ratings service)
 - http://bitcointalk.org/index.php?topic=85702.0 (Seller ID verification)

Not bad,,, Will keep updated.. :)

I have been working on this a lot the last week.  The website does not look amazing, but I am heavily focusing on functionality.

So far I am implementing the following items to this website.
It will track all lending data for both the lender and the borrower.
debt, total debt, completed loans, days late are a few of the statistics you will see when you log into an account.

You will be able to post a loan request publicly, which will display your loan stats so lenders can browse requested loans.  The lender can click a button and take the loan.  The loan will be pulled off the page and will go into limbo for a couple hours while the lender can arrange sending payment.

The payment can be made directly to the customer where I will record the payment by accessing the blockchain data.  You can also send the payment to me which will record the payment via bitcoind and forward the money to the borrower.  This provides members with the ability to make payments completely independent of my wallet and therefore lower risk of theft.  I must have both the sender and the receiving bitcoin address before the coin is sent or the payment will not be recorded.  I can override this if both the lender and borrower contact me with payment details.

After the money is sent, the loan will become active and interest will accrue.  When member wants to pay off his loan he can send the payment directly to the lender or through my wallet, whichever they decide.  The loan will be recorded as completed and the stats for both users will be updated.

I will also implement the tru.ly api for identification verification.  If you would like to have a verified account, which will add a significant amount of trust to your account.  You can enter your full name, address, and last 4 digits of your social and your information will be verified through a government database.  This will ensure that verified users cannot just make another account after ripping somebody off.  Of course becoming verified is completely voluntary and I do understand if a majority of users opt out of this option.

If a verified user does not pay off their loan on time.  Their private data(address, full name, etc) will be provided to the lender.  This bad debt can then be sold to others who perhaps live near the member with the bad debt and can collect.

The site is not live yet, so many of these things can be altered if anyone sees any reason why they should.  Thank you for your input and long live bitcoin.

So there won't be the possibility of multiple lenders for a single loan?

I suppose I could implement something that could divide between different lenders...  The borrower could just as easily request multiple small loans and divide it up that way.  That would be much easier to program and less prone to failure.  Would having to make multiple loan requests be a huge problem for you?  What could some of the complications be?

If he's thinking prosper style, that was 50+ people throwing in on a loan.  That would be cumbersome to do manually.

I'll just say this much:  The popularity of P2P USD lending is, in part, due to lenders being able to diversify their loans so as to mitigate the risk of default.  A person with $10,000 would much rather invest $100 each into 100 loans than the full $10,000 into 1 loan.  That way, if one of the loans is defaulted on, it's not such a big hit, whereas the $10,000 loan defaulting would be devastating.

The loans could be split up by the person requesting them, but then, the person requesting them wouldn't know how much each lender wants to lend, so how would they know what to split the loan into?

It's more programming to implement this, I agree, but in my opinion, you're going to lose out on a lot of potential lenders if you don't allow this type of fractional lending.

This is great input thank you.  I could implement package loans.  Where a loan could consist of hundreds of smaller loans.  When the lender would like to lend a particular amount he could type in the number of small loans he would like to take on much like shares...  This would not be that difficult because it would not deviate far from my currently implemented coding.  What do you think?

I think people would raise an eyebrow at something like that.  I'd much rather see this:


Than this:

Now, if you can do the multiple loans thing in the background, and make it seamless to the end user, then I suppose it doesn't matter how you do it.  Just don't make a lender or borrower look at pages of tiny loans that are all, ultimately, part of the same loan.

I would probably look something like this.

loan A 126/2000 @ 1.2 btc each
loan B 334/1000 @ .5 usd each

Would that work for you?

That'd be perfect.  ;)

This would be great  :)

What do you mean? Prosper uses the credit scoring of its borrowers.  There may be some slight problems with the credit score equations but no one doubts that the fico score was a brilliant invention.

If someone can't pay back or is late on their student loan, credit card or mortgage, then they will definitely be late or default on their bitcoin loans.

+1000


Anticipating this one.

The score is actually not very useful.  I worked in the car industry for a long time and frequently looked at credit reports.  The finance department mainly looked at the lending data and not the score, because it had more information about their history.  I would rather not implement a cookie cutter solution to credit that people will have an easy time digesting.  Lenders need to have a complete understanding of what makes a borrower credit worthy rather than simply looking at a 3 digit number.