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Author Topic: Bitcoins interest rates possible?  (Read 6017 times)
Funkypala
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June 26, 2011, 10:54:47 AM
 #1

Yesterday i was discussing with friends about Bitcoin and i got to a point, where i need your help.
I was always claiming, that with Bitcoins there is no interest rate possible, since the amount of coins can t be influenced by an evil power like banks.
And no inflation means no interest rates are possible.

And since inflation and interest rates  are the tools, to make the world go insane by a constant demand for economy growth i am sure we would live much better without them.


But now one of my friends said, that with Bitcoins its still possible to have a system of banks, that own a lot of Bitcoins and lend them to people for interest rates.

Let me give you an example:

There are thousand Bitcoins available. They all belong to the bank, and they lend 500 to a person for 10% of interest. Now the person has to give 550 Bitcoins back. But since the bank still has 500 BTC and he has the other 500 BTC those 50 BTC don t exist. He can t give 50BTC back and without pressing money they will never be there.
But what if he says to the bank, that he can pay the 50 BTC in another trading good like gold or cows or giving the bank owner a massage (service).

Wouldn t this still be as evil as the system we have right now?



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June 26, 2011, 10:57:47 AM
 #2

Is it evil to rent a house?
Is it evil to rent a car?
...
Is it evil to rent a sum of money?

When you take out a loan, you're just renting, and paying rent to a 'landlord' (the owner of the coins).

That rent can be in any form; If no BTC are available, then pay your rent in massages if that's something you and the owner can agree on.

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June 26, 2011, 10:59:32 AM
 #3

But bitcoin is a currency with deflation. If mtgox takes 500 btc, and returns 500 btc after some time, then it loses money. To compensate for deflation, mtgox should return only 95%-98% of bitcoins, keeping the rest.

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Alex Beckenham
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June 26, 2011, 11:03:18 AM
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If mtgox takes 500 btc, and returns 500 btc after some time, then it loses money.

That would only be true if it exchanged the 500 BTC for USD, then after some time (when the loan was due), bought 500 USD worth of bitcoins to repay the loan.

They wouldn't lose a thing if they just held the 500 BTC and then repaid it.

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June 26, 2011, 11:09:37 AM
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But now one of my friends said, that with Bitcoins its still possible to have a system of banks, that own a lot of Bitcoins and lend them to people for interest rates.
Would you rather have 1 BTC today or 1 BTC tomorrow? Of course, you'd rather have one today. Because with one today, you can either spend one today or have one tomorrow. So if a bank wants 1 BTC from me today, it had better give me more than 1 BTC tomorrow. Otherwise, I'm giving up my opportunity to spend 1 BTC today for nothing. That's wasted value.

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There are thousand Bitcoins available. They all belong to the bank, and they lend 500 to a person for 10% of interest. Now the person has to give 550 Bitcoins back. But since the bank still has 500 BTC and he has the other 500 BTC those 50 BTC don t exist. He can t give 50BTC back and without pressing money they will never be there.
But what if he says to the bank, that he can pay the 50 BTC in another trading good like gold or cows or giving the bank owner a massage (service).

Wouldn t this still be as evil as the system we have right now?
There are so many false premises involved in this argument that I have no idea where to start.

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hugolp
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June 26, 2011, 11:10:41 AM
 #6

Yes, there can be interest in bitcoins, and there will be interest in bitcoins.

No, interest are not bad.

No, you dont need inflation to pay for the interest. As an example, you can pay a loan of 1000 bitcoins with a money supply of 600 bitcoins. Money circulates.
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June 26, 2011, 11:11:40 AM
 #7

But bitcoin is a currency with deflation. If mtgox takes 500 btc, and returns 500 btc after some time, then it loses money. To compensate for deflation, mtgox should return only 95%-98% of bitcoins, keeping the rest.
Hahaha. No.

Whether the currency is deflationary or not, 1 BTC today is always worth more than 1 BTC in a month. Because with 1 BTC today, you can have 1 BTC in a month or you can spend before that. So it has, today, whatever the value of 1 BTC in a month is expected to be plus whatever value there is in being able to spend it before that.

A currency cannot predictably deflate. It's like saying "gold is $1,000/oz today, but we all know it will be $5,000/oz in a year". That's impossible. People who didn't need money immediately would buy up all the gold until its price came very close to $5,000/oz now. Any *predictable* deflation will have already happened and its expected present value will already be bundled into the present cost.

1 BTC today includes the right to sit and hold that bitcoin and watch it appreciate in value. You can, of course, exercise that right by holding it. But you can also sell it to someone else for whatever the fair market value of that right is.

The reason BitCoins have been going up is not because of the deflation built into them but because they have been increasing in popularity, thus increasing the probability they will ever actually experience the deflation built into them.

I am an employee of Ripple.
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June 26, 2011, 11:13:36 AM
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You don't need to be able to increase the money supply in order to have interest. You can have more debt than money and it can all get paid back. Of course even if you couldn't pay back all debt plus interest without growing the money supply you could still have it, you'd just have defaults.

I loan you $8, you owe me $10 with interest, you buy a bucket from me for $6, you wash my car, I give you $5, you pay me back $5. Later you wash my car again and I pay you $5, you pay me $5 and the debt is gone. You can have unlimited debt on any amount of base money. There never needed to be more than $8 in this 'economy'



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hugolp
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June 26, 2011, 11:24:54 AM
 #9

I loan you $8, you owe me $10 with interest, you buy a bucket from me for $6, you wash my car, I give you $5, you pay me back $5. Later you wash my car again and I pay you $5, you pay me $5 and the debt is gone. You can have unlimited debt on any amount of base money. There never needed to be more than $8 in this 'economy'

Thank you, I was too lazy to write down the whole example.

What it is true is that under a deflationary system there is less incentive to go into debt so usually there is less debt in a deflationay system that under a inflationary system. Inflation promotes debt. But there are other factors that influence as well.
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June 26, 2011, 11:26:31 AM
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What it is true is that under a deflationary system there is less incentive to go into debt so usually there is less debt in a deflationay system that under a inflationary system. Inflation promotes debt. But there are other factors that influence as well.
How do you figure? In an inflationary system, interest rates are higher.

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June 26, 2011, 11:29:11 AM
 #11

No do not introduce Interest into the Bitcoin market. The whole concept of interest is what is destroying the real fiat currencies of the world (USD, CAD, etc). It would last for awhile but eventually destroy the whole BTC economy..just look around the real world to see examples of that. Why not just setup the Banksters here too....NOT.
Funkypala
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June 26, 2011, 11:32:53 AM
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Thats what i mean. What is preventing the Bitcoin economy from becoming the shitty and evil thing our dollar economy is right now?
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June 26, 2011, 11:37:14 AM
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i replace this with a brainfart.... san mind was not thinking correctly

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June 26, 2011, 11:40:48 AM
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interest is creating money that should not exist, it has immediate benefits for the person receiving the interest but devalues the currency

No.

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hugolp
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June 26, 2011, 11:46:52 AM
 #15

What it is true is that under a deflationary system there is less incentive to go into debt so usually there is less debt in a deflationay system that under a inflationary system. Inflation promotes debt. But there are other factors that influence as well.
How do you figure? In an inflationary system, interest rates are higher.

Usually real interest rates are lower under inflationary system becuase usually the newly printed money comes in through loans. Because banks have more money to loan real interest rates are lower, at least for a while (during the bubble phase, when the bubble pahse is over interest rates skyrocket).

While it could seem that more loans is better, its the contrary. Inflation stops growth because it creates malinvestments.
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June 26, 2011, 12:19:55 PM
 #16

Is it evil to rent a house?
Is it evil to rent a car?
...
Is it evil to rent a sum of money?

Is it evil to rent a sum of money?  In my opinion, absolutely!  Because interest to be paid on your loan, in simplistic terms, doesn't exist.  You must pay back the original principal + interest.  The interest portion doesn't exist and cannot be created out of thin air.

We, and the world, is in so much debt due to interest we can never pay back.  We should learn from history and not repeat the same mistakes.  Unfortunately, history always repeats itself and we'll also screw ourselves with bitcoins too.  Sigh.
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June 26, 2011, 12:28:01 PM
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Is it evil to rent a house?
Is it evil to rent a car?
...
Is it evil to rent a sum of money?

Is it evil to rent a sum of money?  In my opinion, absolutely!  Because interest to be paid on your loan, in simplistic terms, doesn't exist.  You must pay back the original principal + interest.  The interest portion doesn't exist and cannot be created out of thin air.
so profit doesn't exist either, eh?

jeez...a bunch of economic illiterates trying to run a currency.

work for  a car company. take out a loan from them to buy a car from them. earn part of their profits for your work in the future and pay back the loan with interest

everything "existed" and nothing is created out of thin air. as simple as this is, the real world works the same there are just more intermediary steps.


if bitcoin will ever be widely accepted, there automatically will banking, there will even be fractional reserve banking, there will be interest.
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June 26, 2011, 12:51:35 PM
 #18

Is it evil to rent a house?
Is it evil to rent a car?
...
Is it evil to rent a sum of money?

Is it evil to rent a sum of money?  In my opinion, absolutely!  Because interest to be paid on your loan, in simplistic terms, doesn't exist.  You must pay back the original principal + interest.  The interest portion doesn't exist and cannot be created out of thin air.
so profit doesn't exist either, eh?

jeez...a bunch of economic illiterates trying to run a currency.

work for  a car company. take out a loan from them to buy a car from them. earn part of their profits for your work in the future and pay back the loan with interest

everything "existed" and nothing is created out of thin air. as simple as this is, the real world works the same there are just more intermediary steps.


if bitcoin will ever be widely accepted, there automatically will banking, there will even be fractional reserve banking, there will be interest.

Never said profit doesn't exist.  Profit is just an increase in value.  You can create profit by adding value to something either by effort, time, resources or demand.

Lending money for money creates nothing of value.  Money is simply a medium of exchange.  Adding interest to money is a sure way for someone to get it all in the end, much like we'll have soon in the reality of this world.  Explain to me how can every country be in debt?  The only way for someone to get out of debt is to put someone else in even more debt.  The game is rigged and we are all losers when interest comes in play.  Interest is an insatiable monster that will eventually swallow everything, including the lender.

Lending money is also a great way to create slaves...Usury, was once punishable by death.  That's when they use to understand what it caused.  Now, most don't give a f*ck as long as they make something for nothing, much like the speculators.  Good luck with that.
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June 26, 2011, 12:53:41 PM
 #19

Is it evil to rent a house?
Is it evil to rent a car?
...
Is it evil to rent a sum of money?

Is it evil to rent a sum of money?  In my opinion, absolutely!  Because interest to be paid on your loan, in simplistic terms, doesn't exist.  You must pay back the original principal + interest.  The interest portion doesn't exist and cannot be created out of thin air.

We, and the world, is in so much debt due to interest we can never pay back.  We should learn from history and not repeat the same mistakes.  Unfortunately, history always repeats itself and we'll also screw ourselves with bitcoins too.  Sigh.

This is false, as several people have noted before in this post. Re-read the answers.
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June 26, 2011, 12:55:42 PM
 #20

Is it evil to rent a house?
Is it evil to rent a car?
...
Is it evil to rent a sum of money?

Is it evil to rent a sum of money?  In my opinion, absolutely!  Because interest to be paid on your loan, in simplistic terms, doesn't exist.  You must pay back the original principal + interest.  The interest portion doesn't exist and cannot be created out of thin air.
so profit doesn't exist either, eh?

jeez...a bunch of economic illiterates trying to run a currency.

work for  a car company. take out a loan from them to buy a car from them. earn part of their profits for your work in the future and pay back the loan with interest

everything "existed" and nothing is created out of thin air. as simple as this is, the real world works the same there are just more intermediary steps.


if bitcoin will ever be widely accepted, there automatically will banking, there will even be fractional reserve banking, there will be interest.

Never said profit doesn't exist.  Profit is just an increase in value.  You can create profit by adding value to something either by effort, time, resources or demand.

Lending money for money creates nothing of value.  Money is simply a medium of exchange.  Adding interest to money is a sure way for someone to get it all in the end, much like we'll have soon in the reality of this world.  Explain to me how can every country be in debt?  The only way for someone to get out of debt is to put someone else in even more debt.  The game is rigged and we are all losers when interest comes in play.  Interest is an insatiable monster that will eventually swallow everything, including the lender.
Lending money is also a great way to create slaves...Usury, was once punishable by death.  That's when they use to understand what it caused.  Now, most don't give a f*ck as long as they make something for nothing, much like the speculators.  Good luck with that.

Totally agree with the bold part above

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