what did this forum do before the collateral rule even happened? Or what is it always there?
This is actually an interesting question. I'm not going to loan to you, but I'll give you an answer. History incoming:
Back in the day, the number of Bitcoin users was small, and the number of bitcointalk users was smaller. Reasonable loans with a clear payback plan were often granted, without ID or collateral.
In November 2011, pirateat40 opened
Bitcoin Savings and Trust, which provided fairly exclusive interest paying accounts (initially 10% weekly, revised to a max of 7% weekly). This set an unhealthy expectation of ridiculously high interest. To avoid the referral-only bit, "pirate pass-throughs" were set up, where a deposit-taker would consolidate smaller amounts and deposit them as lumps into their own BS&T account.
By the beginning of 2012, lending was becoming a larger business. Lenders like
PatrickHarnett and
HashKing set up businesses where they would pay interest to all depositors (the minimum rate was 1% per week) and use the money to give out loans. This was actually a semi-legitimate business because people were, for whatever reason, willing to pay 10% monthly on their loans.
Here's a summary of reasons to trust PatrickHarnett (now labeled a scammer).
Loan requests with ID were rarely rejected. Example:
I'm looking for a loan of 12 BTC to enable me to make a purchase before I get paid on the 26th April.
Repayment can be made as soon as I can get money into an exchange, so to be certain let's say by the 28th April.
I have little or no reputation on here, though I took out a tiny loan here:
https://bitcointalk.org/index.php?topic=56720Xenland is in the process of verifying my home address as I'm setting up as a vendor on CheaperInBitcoins.
I'm more than willing to provide personal information if required.
Many thanks,
(Note the lack of collateral)
Then, in mid-August 2012, pirate defaulted. This unavoidable outcome caused a storm throughout the BTC economy. It turned out that BS&T was more of a foundation of the economy than people realized. People had been taking out loans, putting them in BS&T, and then repaying, while skimming some of the interest off for themselves. Some people, like ineedausername, made heroic efforts to pay back thousands of lost bitcoins out of their own pockets, while others, like PatrickHarnett, made partial paybacks and disappeared.
Here's the thing:
the id-based system failed. Note that ripper234
had a scan of PatrickHarnett's passport, Patrick lived in the US, but Patrick still got away with a default. Litigation and shady kneecap-busting efforts both failed. One would think that the millions of dollars worth of stolen bitcoins would be enough incentive for someone to track the scammers down in person. One would be wrong. You'll notice that only recently, almost a year after the default, has the SEC brought a case against Trendon Shavers (pirateat40). I only remember a few examples of the threat of litigation ever working, one being
RandomQ vs TheBitMan (the defendant was 17 and probably scared).
That was a year ago. Since then, Bitcoin and bitcointalk have grown in size and awareness, especially since the April bubble. Scammers are aware that Bitcoin is a pseudonymous, irreversible, global currency, and is thus as useful, easier, and safer to steal than cash. They are aware that giving out their passport doesn't really do them much harm. Especially if they live in another country, like
Alberto Armandi, they can steal bitcoins under their real name and get away with it. Unfortunately for them, they can only use their real name once, but fortunately, they can buy fake ids with bitcoins, and forum accounts are cheap to create, cheap to buy, and easy to throw away.
This leaves two options for lenders who don't want to get burned today: they can lend to members whose reputation is much more expensive to create than the value of the loan (
example), and hope that the lendee will similarly value their own account (thus making scamming a worse option than paying back), or they can lend to users with collateral, and take zero risk.
I hope this has been an accurate and interesting account, as it has been recalled entirely from my firsthand experience.
