BitBank?

[RHorning]

So, there is a big opportunity for "hard money lenders" to lend out coins.  The lender would require full ID and validation of a customers income, assets, etc before they would extend a loan.  Loans are based upon TRUST and bitcoin is based on eliminated the NEED FOR TRUST.

Just as a question to toss "out there":

What sort of legal recourse would there be for somebody who engages in a contract (to simplify, presume both the "borrower" and "lender" are in the same country or even the same state) for a loan and then the borrower stops paying back?  For those transactions in a legal tender, that question is fairly obvious, but does it apply to Bitcoins or to "alternate currencies"?  How would you get garnishments to be done for Bitcoins, or would it have to be done in the legal tender "at current exchange rates" as of the date of the judgement?

Seriously, I don't know the answer to this, or to the legal enforceability of a Bitcoins denominated contract.  It also seems like a legal vector that could be done "by the establishment" to discredit Bitcoins as well, if such contracts were held to be invalid.  I would presume this applies to other alternative currencies, and it would seem like there should be some sort of case history on this topic.  I just don't know where to even start looking for such a legal precedence.

[jgarzik]

What sort of legal recourse would there be for somebody who engages in a contract (to simplify, presume both the "borrower" and "lender" are in the same country or even the same state) for a loan and then the borrower stops paying back?  For those transactions in a legal tender, that question is fairly obvious, but does it apply to Bitcoins or to "alternate currencies"?  How would you get garnishments to be done for Bitcoins, or would it have to be done in the legal tender "at current exchange rates" as of the date of the judgement?

Seriously, I don't know the answer to this, or to the legal enforceability of a Bitcoins denominated contract.  It also seems like a legal vector that could be done "by the establishment" to discredit Bitcoins as well, if such contracts were held to be invalid.  I would presume this applies to other alternative currencies, and it would seem like there should be some sort of case history on this topic.  I just don't know where to even start looking for such a legal precedence.

A contract denominated in bitcoins is as enforceable as any other contracts.  It's a written agreement between multiple parties, nothing special about that.  If I want to write a contract that purchases cows in exchange for bananas, that's perfectly legal and as enforceable as any other contract.

[MoonShadow]

As for investing, well, the anonymous nature of Bitcoins makes that a bit hard. We need a good distributed trust mechanism to complement it for that

Um, no.

Digitally signed bearer bonds.  Pity that bearer bonds are illegal in the US, so that any company/bank that wished to try it would have to be founded in some nation that doesn't prohibit bearer bonds.

Creighton

[bytemaster]

I would like to sea bearer stocks. 

The ability for anybody to issue their own "stock" and have it exchanged with the bitcoin system would make the stock market and stock exchanges obsolete.   

Imagine a company, say Apple, were to create a stock issue which would be a 64 bit number just like bitcoins.  Each quarter they would issue a profit/dividend statement.  To collect your dividend you would return your shares, be given the dividend and then issued "replacement shares" for the next quarter.   The whole system would be "untrackable" and there would be no way to collect capital gains!

This bitcoin system is going to be outlawed, it is just a matter of time.   

[FreeMoney]

I would like to sea bearer stocks. 

The ability for anybody to issue their own "stock" and have it exchanged with the bitcoin system would make the stock market and stock exchanges obsolete.   

Imagine a company, say Apple, were to create a stock issue which would be a 64 bit number just like bitcoins.  Each quarter they would issue a profit/dividend statement.  To collect your dividend you would return your shares, be given the dividend and then issued "replacement shares" for the next quarter.   The whole system would be "untrackable" and there would be no way to collect capital gains!

This bitcoin system is going to be outlawed, it is just a matter of time.   

This would be amazing.

[kiba]

I would like to sea bearer stocks. 

The ability for anybody to issue their own "stock" and have it exchanged with the bitcoin system would make the stock market and stock exchanges obsolete.   

Imagine a company, say Apple, were to create a stock issue which would be a 64 bit number just like bitcoins.  Each quarter they would issue a profit/dividend statement.  To collect your dividend you would return your shares, be given the dividend and then issued "replacement shares" for the next quarter.   The whole system would be "untrackable" and there would be no way to collect capital gains!

This bitcoin system is going to be outlawed, it is just a matter of time.   

This would be amazing.

Then there will exists a bitcoin stock market as soon as a bitcoin company exists.

[xc]

I would like to sea bearer stocks. 

The ability for anybody to issue their own "stock" and have it exchanged with the bitcoin system would make the stock market and stock exchanges obsolete.   

Imagine a company, say Apple, were to create a stock issue which would be a 64 bit number just like bitcoins.  Each quarter they would issue a profit/dividend statement.  To collect your dividend you would return your shares, be given the dividend and then issued "replacement shares" for the next quarter.   The whole system would be "untrackable" and there would be no way to collect capital gains!

This bitcoin system is going to be outlawed, it is just a matter of time.   

Definitely doable with Loom assets (https://loom.cc).

The Loom people are working on automated two-way exchanges, but you'd still need some sort of stock exchange site.  Loom is useful for inventory and claim management, and I imagine there's a lot of synergies to be tapped with Bitcoin + Loom in the cryptoeconomy.

XC

[Red]

As for loans, that's a whole other world.  Any thoughts on the practicality of anonymously doing small loans?  Does anyone think there'd be any non-fraudulent market for loans given the, honestly, limited utility of bitcoins at this point?

Banking is always based on trust in the bankers. People don't really "deposit" their money in a bank. They "loan" their money to a banker. There is a written contract between the banker and depositor that specifies the terms for repayment of the loan. Some loans are "on-demand" (checking accounts) others have more restricted terms (certificates of deposit).

If potential depositors don't know who a banker lends too, how can they possibly judge their risk in lending money to a banker? I'm not a lawyer, but I'm as close to as absolutely sure as I can get that you can't enforce a contract between a person and an anonymous entity. So depositors would be able to hold a known banker to a contract. However, a banker wouldn't be able to hold an anonymous borrower to a contract.

Sounds like a recipe for disaster to me.

[FreeMoney]

As for loans, that's a whole other world.  Any thoughts on the practicality of anonymously doing small loans?  Does anyone think there'd be any non-fraudulent market for loans given the, honestly, limited utility of bitcoins at this point?

Banking is always based on trust in the bankers. People don't really "deposit" their money in a bank. They "loan" their money to a banker. There is a written contract between the banker and depositor that specifies the terms for repayment of the loan. Some loans are "on-demand" (checking accounts) others have more restricted terms (certificates of deposit).

If potential depositors don't know who a banker lends too, how can they possibly judge their risk in lending money to a banker? I'm not a lawyer, but I'm as close to as absolutely sure as I can get that you can't enforce a contract between a person and an anonymous entity. So depositors would be able to hold a known banker to a contract. However, a banker wouldn't be able to hold an anonymous borrower to a contract.

Sounds like a recipe for disaster to me.

Anonymity is a possibility with Bitcoin, not a requirement. You can add all the verification you want before you lend.

How's this for a scenario. I sell you a car and lend you 90% of the cost. The car comes with 2 key cards, one for you and one for me. Your card works as long as you send a payment through the key control program to be forwarded to me. If I don't get a payment, I go pick up my car.

[Anonymous]

As for loans, that's a whole other world.  Any thoughts on the practicality of anonymously doing small loans?  Does anyone think there'd be any non-fraudulent market for loans given the, honestly, limited utility of bitcoins at this point?

Banking is always based on trust in the bankers. People don't really "deposit" their money in a bank. They "loan" their money to a banker. There is a written contract between the banker and depositor that specifies the terms for repayment of the loan. Some loans are "on-demand" (checking accounts) others have more restricted terms (certificates of deposit).

If potential depositors don't know who a banker lends too, how can they possibly judge their risk in lending money to a banker? I'm not a lawyer, but I'm as close to as absolutely sure as I can get that you can't enforce a contract between a person and an anonymous entity. So depositors would be able to hold a known banker to a contract. However, a banker wouldn't be able to hold an anonymous borrower to a contract.

Sounds like a recipe for disaster to me.

Anonymity is a possibility with Bitcoin, not a requirement. You can add all the verification you want before you lend.

How's this for a scenario. I sell you a car and lend you 90% of the cost. The car comes with 2 key cards, one for you and one for me. Your card works as long as you send a payment through the key control program to be forwarded to me. If I don't get a payment, I go pick up my car.

LOL

[bitcoinex]

I think, this is russian bitbank - http://bitcointrade.biz/

They promise 0.1% - 2% per day

[bitwaffle]

I don't think bearer bonds are illegal in the US, it's just that companies can't deduct interest paid as a business expense, so they are far less preferable than registered bonds for tax purposes.

Because all transactions are public, wouldn't it be possible to have even more trust in a bitcoin bank than a "traditional" bank? You should be able to track all of the coins "deposited" to a specific address and whether those coins have been signed over to another address or not. As long as your bitcoin bank publishes all of its receiving addresses, you should be able to independently calculate the amount on reserve at the bank.

There isn't anything inherently evil about fractional reserve banking, as long as it is part of the up-front contract between depositor and bank. If anything, a widget on your desktop that calculates the current reserve position of the bank might engender more trust and decrease the likelihood of a panic/run on the bank.

If you knew for sure that 65% (or whatever reserve ratio is agreed upon) of coins sent to the bank had not been spent to a third party, that would be far more transparency than you currently get with any bank licensed in the US (although perhaps less trust because US banks are insured by the US gov't).

Even though there is easy convertibility between BTC and USD/EUR, what's currently lacking is a futures market that would allow a bank to hedge against future fluctuations in the exchange rate.

[FreeMoney]

I'm having trouble thinking of how to start a bitcoin futures market. If two parties want to agree to trade 100BTC for $7 one month from today either they have the funds on the market site now, or they do not. If they do then they might as well trade now, and if they don't they how will the trade be enforced?

[Red]

I'm not an expert but I thought about an options exchange for a while. It seems that you need to have exchange supervised margin accounts. I was hoping that you could just hold bitcoins in margin accounts, but I convinced myself that the exchange would need to hold dollars (currency) as well.

The difference between futures "options" and trading now, is that options buyers are not required to trade in the future. Instead they have the option to trade in the future. Options writers however, are required to trade in the future if the option holder chooses to. The only way to assure that someone trades in the future when the market has gone against them, is to hold their margin account as collateral.

Also, these options trade as independent entities. You can buy an option today and sell it to someone else tomorrow never having "exercised" the option. Creating an option exchange is not a trivial exercise, at least if it is modeled on traditional options exchanges.

It could be fun though.

[MoonShadow]

I don't think bearer bonds are illegal in the US,

I'm afraid so.  They used to be very popular, but were banned in 1984, and the date shouldn't be lost on anyone.  They were banned because they could be used to hide, or even launder, large volumes of cash from the IRS.  There are still a few small nations that permit their trade, but only a few, and none with a solid tradition of respecting the property rights of foreigners.

[venom]

 There are still a few small nations that permit their trade, but only a few, and none with a solid tradition of respecting the property rights of foreigners.

Care to elaborate on where these few small nations are? To date I haven't seen any credible bearer bonds.  And no, the 'Guatemalan' $200,000 bearer bonds sold by that scammer that shows up in a google search, I doubt are legitimate.  Any real ones?

[em3rgentOrdr]

How about setting up a bitcoin loan market instead of a bitcoin bank.  Why?  Well, since bitcoins are secure, there is no need to store your bitcoins somewhere safe since you can just do automatic backup of your wallet.  So we can simply cut out the middle-man (i.e. the banker) and trade directly between buyers and sellers of bitcoin loans.  Someone can implement an open-bidding bitcoin loan market, such as an ebay or biddingpond complete with loaner/borrower ratings, but instead of goods/services, people offering bitcoin loans at different interest rates and maturity spans.  With enough bidders, eventually there will be a market bitcoin interest rate for specific loans at specific rates for specific credit ratings.

Let me start the first(?) bitcoin loan offer:

I'm offering up to 100 bitcoins to be loaned at the rate of 10%/month with a maturity of 1 month (i.e. you borrow 100 bitcoins from me today, and within 31 days, you must return to me 110 bitcoins, so that I take 10 bitcoins profit for the risk involved).  Any takers?  For this loan, I will only trust bitcoin.org/smf forum members who have at least two stars next to their name, since I'm not going to trust some random address or newbies.

Now ultimately, reputation will become very important in such a system without any governmental enforcer, thus I suspect that credit ratings will become associated with each bitcoin address.  I will make a public record about the bitcoin address of the person who repays my bitcoin loan on-time, so there is an incentive to be honest and pay.  Collateral will be hard to implement on an online system (e.g. here's the title to my virtual car   ) for the time being at-least.

Someone should write an open-source GPL code for such a distributed bitcoin loan bidding market.  I pledge 100 bitcoins to anyone who does such a thing...

One thing to note is that short-term loans will be matched with short-term borrowers, and long-term loans will be matched with long-term borrowers.  This is different from the current banking system, which is inherently unstable due to the mismatch between short-term and long-term loans/borrowing (http://en.wikipedia.org/wiki/Asset-liability_mismatch).  This is actually a theory for why bank-runs occur (http://en.wikipedia.org/wiki/Diamond-Dybvig_model).  Of course, nothing is stopping someone from using his own money and assets and trying to lend to long-term borrowers and borrow from short-term lenders...but he would hold all that asset-liability mismatch risk, since people who do not want to take that risk aren't compelled to trade with him or hold that risk, which happens with anyone holding Federal Reserve Notes.

[mpkomara]

i will loan up to 500 bitcoins to be loaned at the rate of 8%/month with a maturity of 1 month.  i don't have a minimum post requirement, but I don't have to accept all applications.

[MoonShadow]

 There are still a few small nations that permit their trade, but only a few, and none with a solid tradition of respecting the property rights of foreigners.

Care to elaborate on where these few small nations are? To date I haven't seen any credible bearer bonds.  And no, the 'Guatemalan' $200,000 bearer bonds sold by that scammer that shows up in a google search, I doubt are legitimate.  Any real ones?

I think, perhaps, you misunderstood my point.

[MoonShadow]

How about setting up a bitcoin loan market instead of a bitcoin bank.  Why?  Well, since bitcoins are secure, there is no need to store your bitcoins somewhere safe since you can just do automatic backup of your wallet.  So we can simply cut out the middle-man (i.e. the banker) and trade directly between buyers and sellers of bitcoin loans.  Someone can implement an open-bidding bitcoin loan market, such as an ebay or biddingpond complete with loaner/borrower ratings, but instead of goods/services, people offering bitcoin loans at different interest rates and maturity spans.  With enough bidders, eventually there will be a market bitcoin interest rate for specific loans at specific rates for specific credit ratings.

Sounds like the original Prosper.com before government regs and the reccession strangled it.  Look into the trials and tribulations of that site, and be fully aware of what kind of legal quagmire you're stepping into before you proceed.