Look at my missing avatar! If I try to view the URL directly (https://bitcointalk.org/index.php?action=dlattach;attach=6514;type=avatar) I get a "Be back soon" page

Edit: Nevermind, it loaded now. Must've been cached or something.

I've noticed that we have a new subforum under lending called securities. I do like the idea of having it there, but it seems to have the wrong things in it.

In a securities subforum of lending, I'd expect to find primarily debt-based securities (bonds, CDOs, CDSes) and requests to borrow or offers to lend other types of securities.

It seems to be the dumping ground of most topics with [GLBSE] in their subject, which doesn't feel right, considering that many of them (shares/perpetuities) are not inherently debt-based.

Was the forum intended to be one level up from lending?

[tl;dr: use shares/bonds as collateral for loans]

Hi all,

I guess it's the time of the week for me to go on my customary long rant (that nobody reads) about how to change the bitcoin credit market.

This time I think it's a pretty simple and helpful idea, though. Real markets have these things called repos (repurchase agreements) which are basically a loan using another asset as collateral. As more and more people start using GLBSE (and eventually MPEX, I hope) for their bitcoin investments, it becomes very easy to transfer securities between users. These transfers are the simplest form of collateral ever: if borrower B asks for a loan, he can transfer an equivalent number of shares to lender L and get the coins, with an agreement that B will buy the shares back from L at a later date for a pre-determined higher amount. If B runs off with the coins, L is left with a bunch of shares. If L loses the shares, B still has coins.

It does expose L to risk from fluctuations in the price of the asset being repurchased, but that's typically better than just losing the entire principal from a dishonest B. By removing most of the counterparty risk from the equation, it could lead to loans with lower risk (good for the L) and lower interest (good for B). Obviously L would have to believe that B's shares are worth something to begin with for this to work, but there are several assets on GLBSE right now that are moderately liquid (bitbond, puremining, SS, gigamining soon, probably BFLS soon)

Anyway, I'd be interested to see what people think. I'd really like to find ways to lower credit risk without compromising the decentralized/pseudonymous nature of this community.

You can read more about the idea at http://en.wikipedia.org/wiki/Repurchase_agreement

tl;dr: use shares/bonds as collateral for loans

I signed up for GLBSE a couple of days ago to buy some of amazingrando's bitbonds and have decided to withdraw some of the coins I have in my account. I was surprised to see that the withdrawal page wanted a two-factor auth token, since I don't remember ever setting one up. My settings page seems to have ambiguous wording about setting up two-factor auth, but there's nothing clickable on it: http://snapplr.com/febd

I went through the signup process again as a different user and indeed, it does give me four checkboxes for choosing what features I would like to use two-factor auth for, but then it never gives me a secret key or any indication of how to work the two-factor auth. Most sites I use Google authenticator with give me a 2d barcode to scan and I've never had any trouble with them. Am I missing some crucial detail? Or is the two-factor stuff not ready yet? In which case, perhaps it'd be better to disable the four checkboxes during signup, so that people like me aren't stuck unable to do anything with their accounts.

Has anyone figured this out? Maybe I'm just being stupid here

[tl;dr: no, definitely not. This is stuff you definitely need to understand well before undertaking the risk]

By now many of you will have seen my sale of CDSes on imsaguy. I just wanted to elaborate on why doing this doesn't make me insane.

Basically, you turn into an insurance company, with all the pros and cons that come with that. The CDS itself is a little more nuanced than straight-up insurance, but the risk/return profile of the CDS seller is about the same.

Think about how much you pay to insure your car, or your house, or your health. It's probably a lot of money, right? And the companies selling you the insurance, most of the time, just sit back and enjoy the cashflow. On the other hand, they're exposed to what is typically called "tail risk" in financial lingo, meaning that they occasionally suffer big losses (when claims must be paid).

Life insurance for 70+-year-olds might be a scary business to get into, but health insurance on young healthy people carries low risk (and lower returns, obviously) but provides some nice steady cashflow for doing very little. Want to supplement your income? Sell catastrophic meteorite insurance!

I consider imsaguy to be one of the most trustworthy people in the community, so have no qualms taking on some of his default risk. Depending on your risk tolerance, you might want to sell CDSes on much riskier loans (much larger spreads mean much more regular income for you), but that's really up to you and your perception of the creditworthiness of the reference entity.

Anyway, my point is basically that selling CDSes can give good, steady income, at the expense of increased tail risk. Furthermore, you can actually be doing other things with the money you're liable for during the term of the CDS, which wouldn't be the case if you the loan directly. Of course, doing this exposes you to currency risk too (if you lose the coins you're liable for, and your reference entity defaults, you'll need to buy more coins to cover your debt).

From the larger community's perspective, this will allow lenders to reduce their risk by paying someone else to take it on, thus making the market a bit more mature (http://charleshughsmith.blogspot.com/2012/03/in-praise-of-hedging.html) and giving people more ways to protect their investments. It also gives us a way (whose validity is certainly arguable) to quantify the community's perceived risk on loan defaults, which might help in the longer run.

I'm definitely not advocating that anyone do this unless they fully understand the risks involved. Most of the time selling a CDS is just "free money", if you do it right, but you need to be able to cover the losses if things go down the drain. As always, this is not investment advice and all the usual no liability bullshit, but I think it could be a good deal for some people.

So, read up on http://en.wikipedia.org/wiki/Credit_default_swap and feel free to ask questions here about how they work. Surely I can't be the only one with the guts to try this around here, right?

tl;dr: no, definitely not. This is stuff you definitely need to understand well before undertaking the risk

[Edit: I'll elaborate later on precisely what constitutes a default and what will happen if one happens, but I don't have time to write it out now.]

Hi all,

I thought I'd get the ball rolling on credit derivatives (because everybody loves credit derivatives, right?) by offering to sell 1000 bitcoins worth of 6-month CDSes with imsaguy's Open-Ended Investment Opportunity (https://bitcointalk.org/index.php?topic=60117.0) as the underlying reference entity.

This offering will be structured as ten 100-coin contracts. Buyers will pay me monthly fees for the contracts, and if imsaguy defaults on his debt, I will pay the buyer the value of the contract. The contract will also cover the less extreme credit event of imsaguy being more than 48 hours late on any payments due to his investors, in which case it will pay less than the full 100-coin liability.

If a buyer misses the monthly CDS payment by 48 hours, I shall consider the contract terminated and will offer no default protection beyond that.

I have contacted nanotube, the founder of the IRC OTC channel and one of the most respected people in the bitcoin community, to act as a neutral arbiter for deciding whether a credit event has occurred.

This offering will be held as a Second Item Auction (sometimes called a Dutch Auction; see http://en.wikipedia.org/wiki/Dutch_auction#A_second_item_auction), so anyone who wants these should just post how many contracts they're interested in and what percentage they're willing to pay as a fee. Bids should be phrased as a percentage, which represents what fraction of my liability you pay me in fees per month. I set a reserve of 1% (100 basis points, if you prefer finance lingo) on the contracts, so bids must be greater than or equal to 1%. To avoid too much clutter, let's do bids in increments of 10 basis points. As the wikipedia page explains, winning bids will pay whatever the lowest eligible bid was. The bidding will run for a week after I post this. Sold contracts will provide coverage for 6 months from that day, with monthly payments on the same day of every month.

As far as my own creditworthiness, I have a good reputation on the WOT (http://bitcoin-otc.com/viewratingdetail.php?nick=copumpkin), and am well respected on these forums. I've also signed a statement on this forum linking my WOT identity with this one: https://bitcointalk.org/index.php?topic=66313.msg769294#msg769294. I have "lots" of coins (significantly more than I am accepting liability for in this CDS offering) and even in the unlikely even that those are somehow lost, I have other assets and a real job.

I will compile GPG-signed (with my WOT identity) contracts outlining all the terms so that buyers may use them as recourse against my reputation in the event of a dispute. To avoid creating perverse incentives for imsaguy, I cannot let him purchase CDSes against himself, and must require that bidders be reasonably well established either here or on the WOT.

So, if you want to hedge your investment with imsaguy (starting at just 10 btc a month for 1000 btc of protection!) or you just want to speculate on him defaulting on his investors, feel free to bid here. Or if you get nothing else out of all of this, you can see this as a monetary vote of confidence in imsaguy's creditworthiness

Free free to ask questions and I'll be happy to answer whatever I can. I'm also open to suggestions on adjusting the specifics of the contract. I can't say I have much experience actually dealing in CDSes, so some things might be a little funny.

Edit: I'll elaborate later on precisely what constitutes a default and what will happen if one happens, but I don't have time to write it out now.

tl;dr: there is no tl;dr Read what I wrote above. This stuff isn't going to cost you much money (but could cost me a lot of it), but it isn't trivial, so make sure you understand how it works.

Hi all,

I was wondering if anyone had considered (or heard of) a bitcoin service offering travel purchases for bitcoins. Customers could contact the agent and give general criteria for travel, then the agent would provide a few offerings and their USD/bitcoin price, and would accept payment for them in bitcoin. The agent could then just purchase the tickets using a credit card.

This could possibly be extended to hotels and car rentals, but the issue there is the fact that those two usually ask for the customer's credit card in person, to cover incidental damages, and often charge the entire bill to whatever card the customer provides. If it were possible to arrange full prepayment for hotels, that'd be cool too. The service would probably need to be offered by a trusted community member, due to the added inconvenience of a scam when you show up in a foreign country and your supposedly reserved hotel has never heard of you.

Anyway, does anyone have any thoughts about this? Has this been done? I'm mostly asking because I need to buy a plane ticket soon and was thinking how nice it'd be to be able to pay for it in bitcoins

I'm just wondering how people interpret market depth around here. Please comment to elaborate on your reasoning process, if you think it's of interest.

Edit: this isn't so much a question about "fake" walls that disappear if you tickle them. I'm just asking about walls that you can assume people actually intend to leave in place.

For anyone interested, mircea_popescu posted some information on stock/bond offerings for his options emporium on his blog (and on IRC) yesterday:

http://polimedia.us/trilema/2012/sa-ne-jucam-de-a-investitiile-n-bitcoini/#comment-78745

The arrangements do seem a little uncommon, so I'd be interested to see what people think of them. I've told him about this post, too, so he'll probably be following as well, although I don't think he has a forum account yet.

If you're wondering about trust, his WOT account is http://bitcoin-otc.com/viewratingdetail.php?nick=mircea_popescu&sign=ANY&type=RECV? and he has a GPG-signed statement from the WOT identity at http://polimedia.us/bitcoin/mpoe_sign.txt

Turns out it's illegal to ship alcohol (other than wine) to Texas and I'd like to send a friend a gift. Basically, what I need from you is to go buy a bottle of booze and to deliver it, during work hours, to an address that I give you. I'll obviously pay for the alcohol purchase itself, and will reward you 5 btc (or best offer, if reasonable) for your time. I can also send with paypal if you trust me to do so.

My WOT profile should give you some idea of my reputation, and I can GPG sign a statement if you want proof that I am the same copumpkin: http://bitcoin-otc.com/viewratingdetail.php?nick=copumpkin

I'm willing to send the coins first if you look reputable on the forum, but otherwise I'm going to need to ask you to deliver first, and then I'll compensate you once the recipient confirms receipt of the bottle.

Overview

The goal of this protocol is to:

• Allow lenders to safely associate a WOT reputation with a loan request
• Allow both parties involved in a loan to give a cryptographically verifiable positive or negative rating to each other

The key guiding principles I follow in the protocol are:

• All communication must be signed.
• All communication must include all prior communication to acknowledge what is said by the other party.
• All communication including bitcoin addresses must be private.

To Borrow

1) The borrower prepares a roughly standardized (in the sense that it includes all relevant details; the format itself need not be standardized) document outlining sought loan terms, signed with their #bitcoin-otc WOT public key:

For example:

Code:

-----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

I want 40 btc for 1 month. I will pay the lender 2 btc interest per week during the loan period and will then repay the principal in full at the end of the one-month period. Assuming I receive the loan today, here is a sample payment schedule:

2  btc on Feb 4
2  btc on Feb 11
2  btc on Feb 18
2  btc on Feb 25
40 btc on Mar 3

The overall interest rate for the month is thus 20%, or a little more if you factor in the time value of money :)

I am a reputable trader and my #bitcoin-otc WOT rating of 80 (http://bitcoin-otc.com/viewratingdetail.php?nick=copumpkin) should speak for itself.

Thank you,
copumpkin
-----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org
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=VZwT
-----END PGP SIGNATURE-----

I generated this message by saving it to a text file, then running:

Code:

gpg -u 9280FBD6 --clearsign sample-loan-request.txt

where the -u selects the key I want to use (it must match the one used on the WOT for this request to be meaningful).

It is important to note that the message does not include an address to send to, because that opens a hole for disputes later.

To verify the loan request, the lender must feed the complete signed message into gpg:

Code:

gpg --verify sample-loan-request.txt.asc

which should reveal the keyid:

Code:

gpg: Signature made Sat Jan 28 12:15:50 2012 EST using RSA key ID 9280FBD6
gpg: Good signature from "copumpkin <pumpkin@me.com>"
gpg: WARNING: This key is not certified with a trusted signature!
gpg:          There is no indication that the signature belongs to the owner.
Primary key fingerprint: C275 212F 15F2 9AB8 FB97  E5F5 1AF9 2946 9280 FBD6

Note that my key (and probably many of the keys used here) will not be certified by system-trusted signatures. This is fine, as we don't care so much about external identity verification as we care about associating the loan request with a known OTC reputation. If the key is also signed by someone you know and trust, all the better, but the important part there is the key ID (9280FBD6). To verify it, you should visit http://bitcoin-otc.com/viewgpg.php?nick=copumpkin (linked from the main user rating page) and check that it matches there. In this cases it does, so you can evaluate the message according to your usual creditworthiness criteria.

If I were evaluating this loan request, I'd be willing to make the loan because it has a high return but also pays small amounts at regular intervals. This should give a lender additional confidence because it means that even if something bad happens to the borrower at the end of the term, the loan isn't a complete loss to the lender. Also, money now is better than money later, if you have a choice Additionally, the prospective borrower has a good WOT reputation. Less ideally, the borrower doesn't state what the loan is for, but I'm willing to let that slide for someone with a good WOT reputation. Other lenders might have more of a problem with that. Borrowers with less of a WOT reputation should probably state their loan purpose in the original request.


2) The lender has evaluated the request and has decided to make the loan. To proceed, he takes the lender's request and includes it, signature and all, in a new message signed with his own key. He sends this message to the borrower, privately:

Code:

-----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

Hi copumpkin,

These terms sound good, and I am willing to lend you the coins. Please give me an address to send 40 coins to. Your payments should be sent to 18KUm7XVmZDpxchtowsT31Pv82MrBwWs7v.


- -----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

I want 40 btc for 1 month. I will pay the lender 2 btc interest per week during the loan period and will then repay the principal in full at the end of the one-month period. Assuming I receive the loan today, here is a sample payment schedule:

2  btc on Feb 4
2  btc on Feb 11
2  btc on Feb 18
2  btc on Feb 25
40 btc on Mar 3

The overall interest rate for the month is thus 20%, or a little more if you factor in the time value of money :)

I am a reputable trader and my #bitcoin-otc WOT rating of 80 (http://bitcoin-otc.com/viewratingdetail.php?nick=copumpkin) should speak for itself.

Thank you,
copumpkin
- -----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org

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g7xKcr/FKBUMUZFAFhOuEIOo3RrFlbYojnrWVHoXSBByid+MfFZokSsbtyNwviaL
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zP+Rdsc1fbSU4oKEuKATSCgwnk+qyu5mgCYuOUBxcGLOi6jGKRVCAMYd/7MCzPum
YpOm8c+4Ju4ZVThhzLsul8gRwU2vQhOCZxjm6YUaDtLRfTAkCnOZPo+UGgy6+E31
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V/Cbq7azlI7gb1ZO9uL3
=VZwT
- -----END PGP SIGNATURE-----
-----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org
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=mVMZ
-----END PGP SIGNATURE-----

The borrower checks the signature and makes sure it matches a WOT identity. The lender doesn't actually need to trust the borrower at all at this stage, but it is important to have a valid identity associated with all communication, in case there are disputes later.

3) The borrower responds, again privately, with:

Code:

-----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

Thanks! Please send coins to 16hismWmy1okSezpAab9eqnfkaYSpDVhC5. I will be paying on the schedule I wrote in the original request.

- -----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

Hi copumpkin,

These terms sound good, and I am willing to lend you the coins. Please give me an address to send 40 coins to. Your payments should be sent to 18KUm7XVmZDpxchtowsT31Pv82MrBwWs7v.


- - -----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

I want 40 btc for 1 month. I will pay the lender 2 btc interest per week during the loan period and will then repay the principal in full at the end of the one-month period. Assuming I receive the loan today, here is a sample payment schedule:

2  btc on Feb 4
2  btc on Feb 11
2  btc on Feb 18
2  btc on Feb 25
40 btc on Mar 3

The overall interest rate for the month is thus 20%, or a little more if you factor in the time value of money :)

I am a reputable trader and my #bitcoin-otc WOT rating of 80 (http://bitcoin-otc.com/viewratingdetail.php?nick=copumpkin) should speak for itself.

Thank you,
copumpkin
- - -----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org

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=VZwT
- - -----END PGP SIGNATURE-----
- -----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org

iQIcBAEBAgAGBQJPJDYjAAoJEBr5KUaSgPvWKNoQAKuA63N0yIp/l3CK8ZEGJPbG
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9jN6aKabSeYFMjmbBypM
=mVMZ
- -----END PGP SIGNATURE-----
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Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org

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cjyJxUFoIJEQihN2kE5WZnlCaF7Tguw9RPA4Pe7NYHoHyG88c9mzH6xbsxd18S+G
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=MmV3
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4) The lender responds with:

Code:

-----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

I have sent 40 coins to 16hismWmy1okSezpAab9eqnfkaYSpDVhC5, with transaction id <blahblahblah>. Don't spend them all on candy! :)

- -----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

Thanks! Please send coins to 16hismWmy1okSezpAab9eqnfkaYSpDVhC5. I will be paying on the schedule I wrote in the original request.

- - -----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

Hi copumpkin,

These terms sound good, and I am willing to lend you the coins. Please give me an address to send 40 coins to. Your payments should be sent to 18KUm7XVmZDpxchtowsT31Pv82MrBwWs7v.


- - - -----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

I want 40 btc for 1 month. I will pay the lender 2 btc interest per week during the loan period and will then repay the principal in full at the end of the one-month period. Assuming I receive the loan today, here is a sample payment schedule:

2  btc on Feb 4
2  btc on Feb 11
2  btc on Feb 18
2  btc on Feb 25
40 btc on Mar 3

The overall interest rate for the month is thus 20%, or a little more if you factor in the time value of money :)

I am a reputable trader and my #bitcoin-otc WOT rating of 80 (http://bitcoin-otc.com/viewratingdetail.php?nick=copumpkin) should speak for itself.

Thank you,
copumpkin
- - - -----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org

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- - - -----END PGP SIGNATURE-----
- - -----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org

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xDZZMSD0Ol3iz9DtbDMrUNWKAntb2Cs6lZ2LMzvN5PABVYFezLH4h1+TesUj8ROw
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kXDH0RUFydwr7ARogwu/J8mV1Ifs0MpqW5joudZxQYAVMU5dnk9401NWXn2zpN9u
/vubYDGC78+BjnUQedv4cVpNHvcTvLio8WJVmbBNCEjCIaDVHA7/kNjcM0DXxZeY
pGAqVgm5arHHXNNQpT4Xv76w/bFSAJ+RswNGAmYGs1W+SILqMYba+jQaCychCZJs
r6SMFiuMLPeYsHXkCgb4yJGWmz265AdG5mBMNklIXotnwFao4oxirg6yMJ2OeSQR
EzIeAmdxFWRY92wCs6S8IDURJK3dNy3D0KlUSAtTu91V0F0gDFg3iqtx6+fKuGH4
HWdwUxzwphR+NQN1N48/G7Ns9LLLNyZiVKg2otMh01ydqHdJynIAdKXVyi1XhNNU
9jN6aKabSeYFMjmbBypM
=mVMZ
- - -----END PGP SIGNATURE-----
- -----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org
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=MmV3
- -----END PGP SIGNATURE-----
-----BEGIN PGP SIGNATURE-----
Version: GnuPG/MacGPG2 v2.0.17 (Darwin)
Comment: GPGTools - http://gpgtools.org

iQIcBAEBAgAGBQJPJDijAAoJEBr5KUaSgPvWyIEP/AkxVrAEmvvH+7jzhXPjocx3
KV3GjB3RJDbjkCjpNokMNJNiRMEsQqG+6GWxzQekPTrwwwC7OqOEeArQICLudWrs
fRoDvoceg0U28u2/hjA0unc+OJevwW/23rLTfjq2l49pUMtr/GthhnYPfhNlNhyF
P6RRBNMvudIsue60p2es3p4KTgw40krG62Ifo82o1zZOSETfuf0xT+CdVsuOieEq
36nRlN9OPJQKGtjbHzkwMffYB8E8eF5aiTZWVTrwbk0JzB2NwAPqvwWt3gQ5FteW
xxHQEC3p5IObn7D8kWhBIRCiefob1azQvanucN4z1bWEM64A/DmWHhVXkPczCuts
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UHttBkFjvDtBpf2KnU9kS+oZlTRKOeVtcOl9JAQ8FflfH+REFGDuz11JYMu7Z0x7
RQQsBuEKUFy7ikr3YHre5NOhL/xp2JC+iLdfDMR08cBai2yKiW0wSebpZBmRGzBT
xniZ2HYwx2wHKxvio0cbPJfPL7Kb6rCHlsaTGJ2ZHTcvlphYHKvNTBREvVCFiT36
MfwVTzLb4EXmoaU/FECQDU1JFJAzF1OFz+YOe8ngQBESOF65ZrykhpUW0J4eC9EB
L5t0If9XJC7A9RZAKqay
=SYMk
-----END PGP SIGNATURE-----

And the borrower now has some coins. There is no need to post any confirmation to the forum as both parties have proof of what the terms were, if something goes wrong.

For example, if the borrower never receives the coins, he can post a transcript of the correspondence, third parties can check the signatures and also check the bitcoin network for transactions to the address (or the txid) and see that no coins were received at that address.


To repay

There is no need for any GPG communication here if everything goes smoothly. The original loan agreement has all the information needed in it to verify that the repayment terms are being respected by checking the blockchain. Because the repayment address is private, only the borrower or a delegate of the borrower can send coins to that address. Because the protocol specifies that the repayment address must be private, the lender can't claim that his buddy Joe also uses that address and that the 2 btc payments we see in the blockchain were from Joe, not from the borrower, so the borrower is protected from predatory lenders.


To renegotiate terms

At any point during the loan period, both the lender and the borrower can attempt to renegotiate terms, again following the convention of keeping all correspondence signed. The counterparty is free to reject an attempt at renegotiation, of course.

For example, let's say that the borrower's having cashflow problems and will be unable to make his third 2 btc payment on time. He sends a signed email to the lender explaining that his dwolla transfer into mtgox will arrive in three business days and the payment will thus be three days late. The borrower responds, again including all past signed correspondence, and tells the lender that he would like an extra bitcoin of principal repayment (41 at the end) in that case. The lender reluctantly accepts in a third signed email.


If shit hits the fan

copumpkin the borrower warned his lender that his 3rd payment would be late, and also paid his 4th 2 btc payment late without notice and is currently 2 days late on his principal repayment. He sends copumpkin a signed email giving him a final chance to redeem himself before he gets a negative rating on the WOT and the correspondence is posted publicly. copumpkin responds and says that he is very sorry for the lateness and he was having computer and cashflow trouble. A day later, copumpkin repays his lender 42 btc.

The lender might then post publicly (or privately to designated credit report collectors if we don't want public credit reporting) the full correspondence acknowledging that he has received the full amount back from copumpkin, with a discussion of lateness. It would include addresses for people to verify all payment claims, including the lender's claims that payments were late.


Discussion

This document is a lot longer than it needs to be, and is just an implementation of the basic guiding principles I outlined at the beginning, but I do hope it gives an idea of how something like this might work. The simplest approach to making this happen would be to use signed email, since the annoying parts involving signing and verifying messages (and including earlier messages) are taken care of for us. The original signed loan request could be posted publicly on the forum, then a PM could be sent over the forum to exchange email addresses, and then all further correspondence could happen over signed emails. Some people would understandably be uncomfortable exchanging emails (if unpleasantness happens, a party could get signed up for spam against their will), so in that case manually signed messages could still be exchanged through forum PMs.

I can't think of any gaping holes in this system if everyone follows it correctly, but would be interested to see if anyone can think of ways in which one party could get away with screwing the other without the other party being able to prove innocence using the blockchain or signed correspondence.

The system is admittedly pretty cumbersome, and might only be worthwhile for larger loans, especially considering that many forum-based lenders might not even have GPG set up or a WOT reputation.

I welcome any constructive feedback I would like to extend this into a discussion of how we would like credit ratings to work, too. Swaps/insurance can come later.

In a similar vein (pie in the sky) to my previous post on bitcoin CDSes, and stemming from some discussion with BTC_Bear, vragnaroda and imsaguy on IRC, I wanted to gather some thoughts on credit ratings in bitcoin land.

As BTC_Bear said in another thread, interest rates around here are often very high, and that's often because there's almost no information to build a reasonable expectation of the likelihood of default. Having a good reputation on WOT and the forum are a good indicator, but fraud isn't the only reason for default. Some people are irresponsible, or make bad predictions, or might just be unlucky. And I think it'd be nice to have some independent credit reporting facilities on borrowers.

I've already gone on about how I think the approach people often use in loan requests (posting a deposit address up front) is flawed and could cause some unpleasantness if multiple people claimed a loan. But taking things a step further, I think it would be cool if we could design a standard format for making loan requests, and it would be built on top of a GPG identity (which might also be associated with a WOT identity).

One example of this might be to have you paste information into a form like

BTC requested:
Loan duration:
Type of loan: (whether it has periodic "coupon" payments or just pays back a lump sum at the end)
Special features: (anything unusual)
Reason for loan:
Other loans or similar contracts currently open:

And crucially, a link to a credit report. For now, this could just be a text file in a standard format in a standard location (writable by people who are willing to sign their contributions), containing a sequence of signed statements from previous lenders about how the loan worked. Specifically, this would involve a double-signed statement at the point the loan is issued and another double-signed statement when the loan is fully repaid (or defaulted on). The gpg signature scheme would include transaction IDs and should be fairly secure and fair to both parties. If the repayment statement is only singly signed there might have been a disagreement, but that's fine and should go on the report. Other factors listed should include things like punctuality and how communicative the borrower was, and whether other special conditions of a loan were respected.

Entities could also voluntarily disclose other information about themselves, like real identity, or ties to well known online pseudonyms, which could also be signed by third parties who are willing to vouch for them. How meaningful those vouching signatures are depends on how much you trust the person signing them (this could get cumbersome)

The centrally available credit reports would be visible to everyone, and there would be one for every GPG identity. As these reports would often get quite long (and the meaningfulness of signatures depends on the trust of the signer), it could be a good place for third-party credit evaluators, who would develop their own criteria and look over longer credit reports and synthesize them into a few key points, and then would sign those syntheses (possibly something as succinct as a score, but who knows). To discourage people from discarding bad credit reports by creating new identities, the length and age of the report would also be factored positively into the overall rating. One open question is compensation for the evaluators so as to not create too many perverse incentives, but I don't think there's too much we can do to avoid that other than to double check their reports.

Ideally the reports would not be a text file, and would just be a database of signed statements by one entity for another entity that could be searched by both. This would allow people to evaluate lenders, too. Ideally, it'd also be decentralized (much more like bitcoin) but we want something lightweight or nobody will use it, and it could already become fairly complicated.


Anyway, just more random thoughts and I'm half asleep, so I apologize if I've written anything particularly stupid But I think that a better infrastructure would lead to better rates for longer term loans than we're able to give these days. Lending would still be risky (exchange rate risk!), but the risk would be a bit easier to evaluate. Maybe one day we could have a real lending-specific website that dealt with all the complicated issues above

I was wondering if anyone had considered CDSes on loans around here. To prevent fraud, we'd probably need to verify that any buyers are known, reputable members of the community, or they could someone could ask for loans under one identity and buy a CDS under another identity, then disappear/default and make money twice.

There are also other ventures that people could buy CDSes against. bitscalper or even larger bitcoin enterprises come to mind. Shades Minoco? It could give investors "insurance" against bad shit happening there.

Given how risky this market is, anyone selling CDSes could make really good money, too. But again, reputation would be important as the potential losses could be quite large. And of course, it'd be tricky to figure out a "right" price for this stuff, but should definitely be possible.

Anyway, it was just a random idea, and I wanted to see if people had any thoughts on it

I've noticed a lot of the loans on this forum are run a bit like:

Borrower: "I need X coins at Y interest rate, please send to address A"
Lender 1: "I sent X/p coins to you. Please return coins to address B"
Lender 2: "I sent X/q coins to you. Please return coins to address C"

The issue with this is that there's nothing connecting a forum post to the transaction they claimed to have made. Of course, chances are the real lender will post immediately and first, following a transaction, but a sneaky scammer could easily actively listen on the bitcoin network for transactions to address A and claim to have made them on the forum. Then we'd end up with two different people claiming to have lent the same amount of money to the same person, and we'd need a way to resolve the conflict. In most cases, there's a residual amount of coins that gets sent back to a new address in the sender's wallet, so it's sufficient for them to show that they can spend the residual amount, but it's a hassle.

As a safer system (at least until the bitcoin system supports arbitrary proofs of coin/transaction ownership), it'd be fairly simple for a lender to express a desire to lend X coins on a thread, then for the borrower to privately send them the amount followed by a small random sequence of decimals afterwards (X.01321451). Then, when the borrower receives an amount for that denomination, they can be sure that either the lender or a corrupt forum admin sent them those coins, and both parties can publicly post the agreement on the thread for witnessing by other people.

It's a bit more complicated, and might not be worth the hassle for most people, but I figured I'd suggest it or at least point out the flaws with the current system. Reputation can obviously help resolve disputes, but even people with good reputations can have their accounts compromised and wreak havoc on everyone

I'm not sure if this has been discussed here before (it comes up regularly in #bitcoin-otc on IRC), but I figured people here might be interested in buying options:

http://polimedia.us/bitcoin/options.php

It doesn't let you write options yet, and the purchasing mechanism is a bit complicated, but I've used it before and it works pretty well. The guy behind it (mircea_popescu) is well respected in the OTC community.