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Author Topic: Bitcoin Interest Rate  (Read 5576 times)
Minecache
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November 28, 2013, 03:25:09 AM
 #1

If I deposit some Bitcoins with a trader like Kraken shouldn't I be earning interest on my bits?

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qsrab
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November 28, 2013, 03:34:43 AM
 #2

If I deposit some Bitcoins with a trader like Kraken shouldn't I be earning interest on my bits?

Banks pay interest because they lend your deposit to people at a higher rate. It also protects you against inflation.
Bitcoins are more like gold. Interest isn't paid when you store your gold somewhere. both gold and bitcoins are hard to lend. Bitcoins even have deflation.
Minecache
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November 28, 2013, 03:40:20 AM
 #3

Thanks. By deflation my bits are losing value?  Huh

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November 28, 2013, 03:42:17 AM
 #4

Thanks. By deflation my bits are losing value?  Huh
It's the other way. Inflation means losing value and deflation means appreciation.

But to be more presice, BTC is still in the inflation stage and around 4000 coins are mined everyday.
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November 28, 2013, 05:21:47 AM
 #5

Thanks. By deflation my bits are losing value?  Huh
It's the other way. Inflation means losing value and deflation means appreciation.

But to be more presice, BTC is still in the inflation stage and around 4000 coins are mined everyday.

Inflation is when BTC prices are going up. Btc is in the deflationary stage.
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November 28, 2013, 07:28:34 AM
 #6

If I deposit some Bitcoins with a trader like Kraken shouldn't I be earning interest on my bits?

Banks pay interest because they lend your deposit to people at a higher rate. It also protects you against inflation.
Bitcoins are more like gold. Interest isn't paid when you store your gold somewhere. both gold and bitcoins are hard to lend. Bitcoins even have deflation.

There are gold loan interest rates. Any valuable asset can be loaned for a rate in return. Gold is hard to loan because it can be forged.  Bitcoin does not have this shortcoming. Gold is also indivisable, hard to spend for daily use, thus not suitable for use a money nowadays. But Bitcoin is a combination of gold and money. Anything you do with money can be done with Bitcoin.

In theory bitcon can be deposited in a bitcoin-bank with an interest rate. People may ask where does that interest come from since it's a deflationary currency. The answer is: as long as there's business going on, as long as there's investment and return going on, there can be bitcoin interest rate. In short the interest rate comes from the risk the invester takes (the bank being default, company going bankrupt...). In other words it comes from a successful business that is financed by the bitcoins lent. It comes from the bitcoins (or dollars or any other currencies) that the cusotmers spent on buying that services from THAT business.
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November 28, 2013, 07:57:48 AM
 #7

If I deposit some Bitcoins with a trader like Kraken shouldn't I be earning interest on my bits?

Banks pay interest because they lend your deposit to people at a higher rate. It also protects you against inflation.
Bitcoins are more like gold. Interest isn't paid when you store your gold somewhere. both gold and bitcoins are hard to lend. Bitcoins even have deflation.

There are gold loan interest rates. Any valuable asset can be loaned for a rate in return. Gold is hard to loan because it can be forged.  Bitcoin does not have this shortcoming. Gold is also indivisable, hard to spend for daily use, thus not suitable for use a money nowadays. But Bitcoin is a combination of gold and money. Anything you do with money can be done with Bitcoin.

In theory bitcon can be deposited in a bitcoin-bank with an interest rate. People may ask where does that interest come from since it's a deflationary currency. The answer is: as long as there's business going on, as long as there's investment and return going on, there can be bitcoin interest rate. In short the interest rate comes from the risk the invester takes (the bank being default, company going bankrupt...). In other words it comes from a successful business that is financed by the bitcoins lent. It comes from the bitcoins (or dollars or any other currencies) that the cusotmers spent on buying that services from THAT business.

The only thing preventing interest rate from happening is that bitcoin is not yet acknowledged by law as an asset, so it is hard to sue anyone if he doesn't return your bitcoin. Once it becomes a legal asset, I don't see why interest rate won't happen.

Looking into the future, there will be bitcoin bankers, and bitcoin-backed fiat. I can imagine that the technically versed may be able to manage their bitcoin asset on their one and potentially able to manage bitcoin assets for other people, and thus become bitcoin bankers. While the non-technical people who don't understand the technology enough thus cannot take the risk, will have to use bitcoin-backed fiat. This is similar to the ancient times, when the nobel class use gold, and the poor use coins minted by the king.
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November 28, 2013, 01:07:40 PM
 #8

So I am confused, are these things inflating or deflating? I'm guessing inflating erodes their value so we must be deflating? And what happens when we reach 21000000 Bitcoins on the market?

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Lloydie
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November 28, 2013, 02:00:31 PM
 #9

Btcs are inflating as they are still being issued at a rate of 4,000 per day.  However, the value of each Btc is rising due to demand. Demand is outstripping available supplies.

From that perspective, even though btcs are in the inflation phase, they are overall considered to be deflationary because goods and services are falling in price when priced in btcs.

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November 28, 2013, 02:10:49 PM
 #10

So a currency can both inflate and deflate at the same time?

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November 28, 2013, 02:21:47 PM
 #11

I do not think any site pays interest for BTC. You can try storing it on cloudmining sites.

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November 28, 2013, 03:10:41 PM
 #12

So a currency can both inflate and deflate at the same time?

inflationary in short term (# coins is still increasing thru mining), and deflationary in long term (after reaching the 21M limit the # coins will start to decrease). But this 21M hard limit has a very strong psychological effect even in short term, so people have been trying to save as many bitcoins as they can, knowing that the bitcoin supply will eventually decrease. Thus even though the total number of bitcoins is still increasing in short term, the bitcoins truely in circulation (being spent daily buying goods) are already decreasing. (It's increasing in terms of USD value, but descreasing in bitcoins number). Not very long ago there must have been someone who spent thousands of bitcoins buying a hamburger. That was circulation. But now how many bitcoins can be earned by selling a hamburger?

So over all it is a deflationary currency. But bitcoin's deflationary nature won't cause an economic recession simply because it is not the only currency. Don't worry about it. The world economy will move on happily because we still have other currencies like the fiat. In ancient times, we had the gold standard. Gold did not cause economic recession also because it was not the only currency. The nobel class uses gold, while at the same time they minted coins and printed paper notes, which were very inflationary, for the poor people to use.
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November 28, 2013, 03:18:12 PM
 #13

Bitcoin is a deflationary currency, so doesn't need interest rates.

As more dollars are printed they buy you less Bitcoins.

This is because the supply of dollars is increasing faster than the supply of Bitcoins.

Inflation is a currency phenomenon. The more money you create the less it's worth.

My fiat bank account is paying 1% while inflation is running at 11%, in effect they're stealing 10% of the value a year to bail out the banks. Inflation is a stealth tax.

As nobody can print $85bn new Bitcoins a month to keep up with the Fed, the value of Bitcoin rises instead.

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November 28, 2013, 04:32:52 PM
 #14

No, btc is deflationary so you don't need to earn interest

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November 28, 2013, 07:29:42 PM
 #15

So a currency can both inflate and deflate at the same time?

The meanings of "inflation" and "deflation" are ambiguous.

In economics, "inflation" is an increasing money supply. It may or may not result in increasing prices. In layman's terms, "inflation" means increasing prices of goods, which may or may not be caused by an increasing money supply. "Deflation" is the same, except opposite.

In economic terms, Bitcoin is currently inflationary because its money supply is increasing. When no more bitcoins are mined, then Bitcoin becomes deflationary because its money supply can only decrease as bitcoins are lost.

In layman's terms, bitcoin is currently (and probably will always be) deflationary, because the demand for bitcoins is increasing much faster than the supply, and as the value of a bitcoin increases, the prices of goods decrease.

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May 09, 2014, 11:24:06 AM
 #16

Hello

What a risk free BTC interest rate could look like ?

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2432367

 Wink
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May 09, 2014, 03:10:38 PM
 #17

I think that right now the only Bitcoin exchange which is offering interest on your deposits is Vircurex. But unfortunately, that exchange have been hacked multiple times in the past. So not that secure to store coins there.

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May 09, 2014, 03:18:34 PM
 #18

I think that right now the only Bitcoin exchange which is offering interest on your deposits is Vircurex. But unfortunately, that exchange have been hacked multiple times in the past. So not that secure to store coins there.

What happen with the frozen accounts on Vircurex ?

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May 09, 2014, 03:30:03 PM
 #19

I seen Bitcoin interest services like pirate or TradeFortress but somehow they just dissapeared one day with the Bitcoin deposits, I dunno why  Cheesy
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May 09, 2014, 03:46:32 PM
 #20

In layman's terms, bitcoin is currently (and probably will always be) deflationary, because the demand for bitcoins is increasing much faster than the supply, and as the value of a bitcoin increases, the prices of goods decrease.

Actually, over the recent few months, bitcoin has been inflationary both in economic terms AND layman's terms.

http://bitcoincharts.com/charts/bitstampUSD#rg180zigHourlyzczsg2013-11-29zeg2014-05-09ztgSzm1g10zm2g25


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