Are there any Bitbanks yet?

[hyperD]

Has anyone started lending out bitcoins yet?

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[Anonymous]

Yes a few people have.

Its not a wise thing to do in bitcoin though.

[hyperD]

Yes a few people have.

Its not a wise thing to do in bitcoin though.

I understand the wisdom of it. Fiat money relies on usury. CB's need to print more money to satisfy repaying the original loans. My question is if bitcoins start earning interest, where will this extra money come from to pay of the principle?

[Tril]

Yes a few people have.

Its not a wise thing to do in bitcoin though.

I understand the wisdom of it. Fiat money relies on usury. CB's need to print more money to satisfy repaying the original loans. My question is if bitcoins start earning interest, where will this extra money come from to pay of the principle?

It shouldn't be necessary to charge interest...Bitcoin's value increases over time, so there could reasonably be loans for 0% or negative interest.

[silversurfer]

Some people want to sell BTC short (this means betting on a price decline).  These short sellers will pay to borrow your BTC, in order to sell them with the hope of buying those coins back later at a lower price.  So someone could setup a bank that offers interest to depositors, paid by the people who borrow BTC to sell short.  Those "borrowing" the BTC might not need to physically hold the coins if they are to be immediately sold short into the market.  This would prevent people from running off with depositors' coins.  However there will need to be a lot of collateral on hand from the short seller, otherwise if the price of BTC goes up quickly, there could be problems for the bank and the person who loaned the BTC.

[hyperD]

Some people want to sell BTC short (this means betting on a price decline).  These short sellers will pay to borrow your BTC, in order to sell them with the hope of buying those coins back later at a lower price.  So someone could setup a bank that offers interest to depositors, paid by the people who borrow BTC to sell short.  Those "borrowing" the BTC might not need to physically hold the coins if they are to be immediately sold short into the market.  This would prevent people from running off with depositors' coins.  However there will need to be a lot of collateral on hand from the short seller, otherwise if the price of BTC goes up quickly, there could be problems for the bank and the person who loaned the BTC.

Yet fiat was adopted to facilitate margin leading. In the future if bitcoins are to be used for trade what facility unlike fiat is to be used to create new capital? People won't simply lend bitmoney for free.

[silversurfer]

Some people want to sell BTC short (this means betting on a price decline).  These short sellers will pay to borrow your BTC, in order to sell them with the hope of buying those coins back later at a lower price.  So someone could setup a bank that offers interest to depositors, paid by the people who borrow BTC to sell short.  Those "borrowing" the BTC might not need to physically hold the coins if they are to be immediately sold short into the market.  This would prevent people from running off with depositors' coins.  However there will need to be a lot of collateral on hand from the short seller, otherwise if the price of BTC goes up quickly, there could be problems for the bank and the person who loaned the BTC.

Yet fiat was adopted to facilitate margin leading. In the future if bitcoins are to be used for trade what facility unlike fiat is to be used to create new capital? People won't simply lend bitmoney for free.

No one needs to lend for free in the scenario I described.  Nor does 'new capital' need to be created.

[hyperD]

Some people want to sell BTC short (this means betting on a price decline).  These short sellers will pay to borrow your BTC, in order to sell them with the hope of buying those coins back later at a lower price.  So someone could setup a bank that offers interest to depositors, paid by the people who borrow BTC to sell short.  Those "borrowing" the BTC might not need to physically hold the coins if they are to be immediately sold short into the market.  This would prevent people from running off with depositors' coins.  However there will need to be a lot of collateral on hand from the short seller, otherwise if the price of BTC goes up quickly, there could be problems for the bank and the person who loaned the BTC.

Yet fiat was adopted to facilitate margin leading. In the future if bitcoins are to be used for trade what facility unlike fiat is to be used to create new capital? People won't simply lend bitmoney for free.

No one needs to lend for free in the scenario I described.  Nor does 'new capital' need to be created.

In a bitcoin universe if I needed to open up a mine, build a factory, develop a new tech (new capital) where will I get the bitfunds to pay for labor?

[qikaifu]

Some people want to sell BTC short (this means betting on a price decline).  These short sellers will pay to borrow your BTC, in order to sell them with the hope of buying those coins back later at a lower price.  So someone could setup a bank that offers interest to depositors, paid by the people who borrow BTC to sell short.  Those "borrowing" the BTC might not need to physically hold the coins if they are to be immediately sold short into the market.  This would prevent people from running off with depositors' coins.  However there will need to be a lot of collateral on hand from the short seller, otherwise if the price of BTC goes up quickly, there could be problems for the bank and the person who loaned the BTC.

In this case, the total accounting system was based on USD. The BTC is only a kind of commodity.

[SgtSpike]

Yes a few people have.

Its not a wise thing to do in bitcoin though.

I understand the wisdom of it. Fiat money relies on usury. CB's need to print more money to satisfy repaying the original loans. My question is if bitcoins start earning interest, where will this extra money come from to pay of the principle?

It shouldn't be necessary to charge interest...Bitcoin's value increases over time, so there could reasonably be loans for 0% or negative interest.

0% or negative interest loans won't happen.  The investor/bank may as well just keep the money instead of offering a 0% or negative interest loan.

Loan percentages will be the same as they are today, less current inflation.  So for a low-risk loan, such as a home mortgage of a person with good credit, you might see a loan of 2.5% to 3.0%.  For a higher-risk loan, say, a credit card of someone with bad credit, you might see a 27.99% interest rate (vs the "normal" 29.99% interest rate).

The lender will always have to consider risk into the equation, and they are not going to lend without some form of profit ABOVE AND BEYOND the gains/losses of the currency itself.

Because the currency is deflationary, it will mean fewer people will be willing to take out loans.  Instead, they will be more encouraged to save until they have enough to purchase whatever they want.

Some people want to sell BTC short (this means betting on a price decline).  These short sellers will pay to borrow your BTC, in order to sell them with the hope of buying those coins back later at a lower price.  So someone could setup a bank that offers interest to depositors, paid by the people who borrow BTC to sell short.  Those "borrowing" the BTC might not need to physically hold the coins if they are to be immediately sold short into the market.  This would prevent people from running off with depositors' coins.  However there will need to be a lot of collateral on hand from the short seller, otherwise if the price of BTC goes up quickly, there could be problems for the bank and the person who loaned the BTC.

Yet fiat was adopted to facilitate margin leading. In the future if bitcoins are to be used for trade what facility unlike fiat is to be used to create new capital? People won't simply lend bitmoney for free.

No one needs to lend for free in the scenario I described.  Nor does 'new capital' need to be created.

In a bitcoin universe if I needed to open up a mine, build a factory, develop a new tech (new capital) where will I get the bitfunds to pay for labor?

There will be banks, and there will be loans, but the loans will be disadvantageous to the borrower.

[hyperD]

Sure, but if 6 million BTC's or 21 million BTC's are to lent out where are the new BTC's going to come from to pay for the interest. Gold became unsutable for modern finance because of this scarsity, so fiat currency was created. how can an economy grow?

[Steve]

It shouldn't be necessary to charge interest...Bitcoin's value increases over time, so there could reasonably be loans for 0% or negative interest.

0% or negative interest loans won't happen.  The investor/bank may as well just keep the money instead of offering a 0% or negative interest loan.

I don't think 0% or negative interest loans would happen simply because you then take on both the risk that bitcoins could fall in value and that the borrower will default.  However, loans will happen and people might borrow in terms of some index based on real value (a basket of tangible goods of some sort).  They'll take the loan in bitcoins and they'll repay in bitcoins, but the repayment amount will be calculated based on this index rather than be a fixed percentage of bitcoins.  This affords the lender diversification out of bitcoins with a fixed, real return and the borrower is not taking on the risk that bitcoin has a huge appreciation in value.  In short, this loan structure would eliminate the risk inherit in bitcoin volatility from both the lender and the borrower, it offers the lender diversification, and it offers the borrower the funds they may need for whatever venture they might be contemplating.

[Wreckus]

Sure, but if 6 million BTC's or 21 million BTC's are to lent out where are the new BTC's going to come from to pay for the interest. Gold became unsutable for modern finance because of this scarsity, so fiat currency was created. how can an economy grow?

Gold became unsutable because you couldn't carry around .00000001 gold coins. :v

[Explodicle]

Sure, but if 6 million BTC's or 21 million BTC's are to lent out where are the new BTC's going to come from to pay for the interest. Gold became unsutable for modern finance because of this scarsity, so fiat currency was created. how can an economy grow?

I don't think we could ever reach loans as big as 6M BTC, or ever have all the BTC out for loans. That's like a loan for a bazillion US dollars... Of course it wouldn't get paid. Fiat currency was created so states could temporarily create money to pay for sudden costs like wars, not to facilitate loans. IIRC, one of the highest growth periods in US history was while the dollar was pegged to the price of gold, before Richard Nixon reinstituted "normal" fiat printing to pay for the Vietnam war.

[barbarousrelic]

Sure, but if 6 million BTC's or 21 million BTC's are to lent out where are the new BTC's going to come from to pay for the interest. Gold became unsutable for modern finance because of this scarsity, so fiat currency was created. how can an economy grow?

You do not need to have an inflationary currency to have interest-paying loans. This is not the reason gold stopped being the basis of currency.

I hear  this objection every once in a while, but it doesn't make sense. Let's imagine an island with three people in it, Aaron, Bob, and Charlie, and only 10 credits of money, which will never increase.

Aaron lends Bob 5 credits at 5% interest. Bob buys a widget from Charlie. Bob now owes Aaron 5.25 credits. Where does this come from? Bob exchanges his services for it, from either Aaron or Charlie. Perhaps Bob has a job working in Charlie's widget store where he earns the 5.25 credits to repay his loan. Or perhaps he mows Aaron's lawn in exchange for the 5.25 credits he must repay. Or perhaps he sells some of his old DVDs to get the 5.25 credits.

The fact that Bob borrowed 5 credits and must repay 5.25 credits does not in any way require that the money supply on the island grow to more than its set 10 credits.

[hyperD]

Sure, but if 6 million BTC's or 21 million BTC's are to lent out where are the new BTC's going to come from to pay for the interest. Gold became unsutable for modern finance because of this scarsity, so fiat currency was created. how can an economy grow?

You do not need to have an inflationary currency to have interest-paying loans. This is not the reason gold stopped being the basis of currency.

I hear  this objection every once in a while, but it doesn't make sense. Let's imagine an island with three people in it, Aaron, Bob, and Charlie, and only 10 credits of money, which will never increase.

Aaron lends Bob 5 credits at 5% interest. Bob buys a widget from Charlie. Bob now owes Aaron 5.25 credits. Where does this come from? Bob exchanges his services for it, from either Aaron or Charlie. Perhaps Bob has a job working in Charlie's widget store where he earns the 5.25 credits to repay his loan. Or perhaps he mows Aaron's lawn in exchange for the 5.25 credits he must repay. Or perhaps he sells some of his old DVDs to get the 5.25 credits.

The fact that Bob borrowed 5 credits and must repay 5.25 credits does not in any way require that the money supply on the island grow to more than its set 10 credits.

Let me get this straight, Aaron has all the credits, he lends Bob and Charlie 5 credits each at 5% interest each. Bob and charlie use the money to have fun and buy stuff from each other but they eventually have to pay these 10 credits back to Aaron, plus interest. Where is .5 of a credit going to come from?

[Explodicle]

Sure, but if 6 million BTC's or 21 million BTC's are to lent out where are the new BTC's going to come from to pay for the interest. Gold became unsutable for modern finance because of this scarsity, so fiat currency was created. how can an economy grow?

You do not need to have an inflationary currency to have interest-paying loans. This is not the reason gold stopped being the basis of currency.

I hear  this objection every once in a while, but it doesn't make sense. Let's imagine an island with three people in it, Aaron, Bob, and Charlie, and only 10 credits of money, which will never increase.

Aaron lends Bob 5 credits at 5% interest. Bob buys a widget from Charlie. Bob now owes Aaron 5.25 credits. Where does this come from? Bob exchanges his services for it, from either Aaron or Charlie. Perhaps Bob has a job working in Charlie's widget store where he earns the 5.25 credits to repay his loan. Or perhaps he mows Aaron's lawn in exchange for the 5.25 credits he must repay. Or perhaps he sells some of his old DVDs to get the 5.25 credits.

The fact that Bob borrowed 5 credits and must repay 5.25 credits does not in any way require that the money supply on the island grow to more than its set 10 credits.

Let me get this straight, Aaron has all the credits, he lends Bob and Charlie 5 credits each at 5% interest each. Bob and charlie use the money to have fun and buy stuff from each other but they eventually have to pay these 10 credits back to Aaron, plus interest. Where is .5 of a credit going to come from?

Like I said, a loan involving ALL the money, or anything near it, is completely unrealistic. Aaron would have to lend out less than 100% of the total. Then the other guys would have to sell him something to pay for the interest.

[barbarousrelic]

Sure, but if 6 million BTC's or 21 million BTC's are to lent out where are the new BTC's going to come from to pay for the interest. Gold became unsutable for modern finance because of this scarsity, so fiat currency was created. how can an economy grow?

You do not need to have an inflationary currency to have interest-paying loans. This is not the reason gold stopped being the basis of currency.

I hear  this objection every once in a while, but it doesn't make sense. Let's imagine an island with three people in it, Aaron, Bob, and Charlie, and only 10 credits of money, which will never increase.

Aaron lends Bob 5 credits at 5% interest. Bob buys a widget from Charlie. Bob now owes Aaron 5.25 credits. Where does this come from? Bob exchanges his services for it, from either Aaron or Charlie. Perhaps Bob has a job working in Charlie's widget store where he earns the 5.25 credits to repay his loan. Or perhaps he mows Aaron's lawn in exchange for the 5.25 credits he must repay. Or perhaps he sells some of his old DVDs to get the 5.25 credits.

The fact that Bob borrowed 5 credits and must repay 5.25 credits does not in any way require that the money supply on the island grow to more than its set 10 credits.

Let me get this straight, Aaron has all the credits, he lends Bob and Charlie 5 credits each at 5% interest each. Bob and charlie use the money to have fun and buy stuff from each other but they eventually have to pay these 10 credits back to Aaron, plus interest. Where is .5 of a credit going to come from?

Even if all money in existence was loaned from one person to another at interest, (which is an extreme example, but let's play along) this still wouldn't be a problem. The borrower can perform work for the person he borrowed from in exchange for the owed amount. Or sell him something worth the owed amount.

Some people are under the impression that there must be enough dollars/Bitcoins in circulation to match the value of all goods and services in existence in the entire economy. This is not so.