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Author Topic: I want my bitcoins generate more bitcoins. We need a bank.  (Read 1258 times)
TheSpanishGuy
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July 03, 2011, 05:20:45 PM
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We need some kind of service where we could store our savings (making them generate profit). This is usually called BANK. So we store our bitcoins in an account, and the bank lends these bitcoins to someone who want to invest. This person pays interest to the bank, and the bank pay us that interest.  Of course the bank should only lend the money for the period of time we have agreeded to save it.

This is not a fractionary reserve system because I cannot spend my bitcoins while they are lended to someone else.

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Hawker
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July 03, 2011, 05:31:05 PM
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Its very hard to lend money safely.  What if someone simply refuses to repay ?  Bitcoin is a decentralised system and making loans is a very complex process.

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July 03, 2011, 05:36:50 PM
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We need some kind of service where we could store our savings (making them generate profit). This is usually called BANK. So we store our bitcoins in an account, and the bank lends these bitcoins to someone who want to invest. This person pays interest to the bank, and the bank pay us that interest.  Of course the bank should only lend the money for the period of time we have agreeded to save it.

This is not a fractionary reserve system because I cannot spend my bitcoins while they are lended to someone else.

Like Hawker said, it's really complicated to set up a regular loan process much less one around Bitcoin. For a Bitcoin banking industry to work, you'd need other supporting industries around it. For example, how would you handle someone who refuses to pay back their loan? You can't really send men with guns after them to put them in a cage and you can't contract with a regular private collection firm to do recovery without devaluing the transaction and losing money.

At the very least you'd need 1) a contract that specifies how much is to be repaid and when. 2) And independent arbitration firm to handle disputes 3) A collection firm the could recover your assets in case the borrower doesn't pay.

I'm not saying this couldn't work. The first two items are easy. The third could be handled by attaching the recovery process to the collection of fiat money. If the borrower didn't pay back the bitcoins, you took some of their cash if arbitration sided with you.

It's a complex thing but pretty doable if the market were to cooperate to create/extend the needed services.

Rage
TheSpanishGuy
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July 03, 2011, 05:42:47 PM
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That's not a business of mine is a business of the bank as long as the bank is the one that lends the money.
But if i was the bank the best way to ensure that the money is going to be repaid would be with something backing the debt... like a car. If not, i would increase the interest rate so i could pay an insurance for risky cases. BTW it would be necessary to sign a contract in order to get the bitcoins, so i don't see where the problem is.
What do you think?
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July 03, 2011, 05:46:28 PM
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That's not a business of mine is a business of the bank as long as the bank is the one that lends the money.
But if i was the bank the best way to ensure that the money is going to be repaid would be with something backing the debt... like a car. If not, i would increase the interest rate so i could pay an insurance for risky cases. BTW it would be necessary to sign a contract in order to get the bitcoins, so i don't see where the problem is.
What do you think?

I like your idea much better than mine of linking recovery to fiat currency. That way, the transaction stays totally untainted and the recovery process is simplified. In cases of default, recovery would be much easier under your system.
TheSpanishGuy
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July 03, 2011, 05:48:29 PM
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Like Hawker said, it's really complicated to set up a regular loan process much less one around Bitcoin. For a Bitcoin banking industry to work, you'd need other supporting industries around it. For example, how would you handle someone who refuses to pay back their loan? You can't really send men with guns after them to put them in a cage and you can't contract with a regular private collection firm to do recovery without devaluing the transaction and losing money.

At the very least you'd need 1) a contract that specifies how much is to be repaid and when. 2) And independent arbitration firm to handle disputes 3) A collection firm the could recover your assets in case the borrower doesn't pay.

I'm not saying this couldn't work. The first two items are easy. The third could be handled by attaching the recovery process to the collection of fiat money. If the borrower didn't pay back the bitcoins, you took some of their cash if arbitration sided with you.

It's a complex thing but pretty doable if the market were to cooperate to create/extend the needed services.

Rage

I agree with all the 3 points but i think point number 3 could be executed by another company. And yes. Suddenly if someone steals you, you will have to use the violence to defend your self, so if you lend me some money and i don't repay you... then i think it's not inmoral for you to take whatever i promised to give you in compensation (in example my car).

I think there are minor issues that must be thinked but, in general this economy wont start seriously without a system to invest in new projects.
saykor
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July 03, 2011, 07:52:37 PM
 #7

Lets say this...
TheSpanishGuy can you give me a loan of 1000BTC I will return you a 1200BTC for 1 year.

When the year end... how you will catch me to return your money?
1. my business can fail.
2. i can be a bad man that just not want to pay you.
3. many more options.

So how you as a bank is a save? How you will return your investment? A collection firm from US will go to Namibia ( for example ) to collect the loan?

Of course you understand that all this is a just example to explain you why I just not see how the system can work.

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Dansker
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July 03, 2011, 08:03:32 PM
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Lets say this...
TheSpanishGuy can you give me a loan of 1000BTC I will return you a 1200BTC for 1 year.

When the year end... how you will catch me to return your money?
1. my business can fail.
2. i can be a bad man that just not want to pay you.
3. many more options.

So how you as a bank is a save? How you will return your investment? A collection firm from US will go to Namibia ( for example ) to collect the loan?

Of course you understand that all this is a just example to explain you why I just not see how the system can work.

These are the problems that ordinary banks and businesses giving credit face as well.

There is a number of ways to reduce the risk of lending.

The risk of the borrower never repaying the money will always be present.

The interest rates paid by the borrower will reflect the likelyhood of a typical borrower taking the money and not returning it.

The bank, in order to try to make sure that the borrower will not take the money and run, will have to:

-Make the borrower sign a contract, that contains a clause that will make it unfavorable to break the contract.

-Make sure that the borrower is thorougly identified.

-Make sure that the borrower has a good reputation (ie. something to lose)

-Make sure that the borrower is within a jurisdiction that the lender is comfortable with, should it end up in arbitration or legal issues in general.

-Require the borrower to offer some sort of security. This can be anything from a car to a domain name as long as it can be legally secured by the lender in case the borrower defaults.

markm
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July 03, 2011, 08:04:06 PM
 #9

A couple of approaches or workarounds...

One is in use by GMC (General Mining Corp) and GRF (General Retirement Funds). As their value and/or price is not specifically tied to or pegged to BTC, they exerience potentially greater flexibility in this kind of application. (If their investments/loans fail, their value in terms of other currencies (such as, for example, BTC) might well fall.) Both GMC and GRF provide secured loans featuring associated repossession agencies.

Another is mortgaging your BTC. That is, put BTC up as collateral for loans denominated in things other than BTC itself. This approach can be used for such things as borrowing fiat to buy BTC which in turn can become more collateral to borrow yet more fiat to buy yet more BTC and so on. (Careful of margin calls in doing that, of course. Wink)

-MarkM-

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