Issuing loans in Bitcoin, how we could do it

[ethereumhunter]

I started to think about it. How a bank and folks could issue loans to people?

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

But now, between folks. Let's say I'm the banker and you're the customer looking to borrow money to buy a house. I can lend you the money but how to be sure you will pay me back with full interests? With banks, the solution is easy, the bank seizes the house and you can't do something. But the average Joe hasn't the same 'power' than a bank to collect a debt.

Just same as the fiat money loan,give loan only after collecting valid collateral like documents of house,if the borrower didn't pay you back the lend amount then you can seize the home as per the agreement you made earlier but it is possible only if government makes crypto as legal form of asset or money or there will be no actions can be taken if the borrower refuse the pay back the money.

I think that will depend on the agreement before the lending was made so they can have a deal what will happen if the borrower cannot pay the money to the banks. But the truth is I don't know if the banks will make a deal with bitcoin because they don't know about bitcoin (or they did know), but they don't use bitcoin for loans. So I think if we want to loans in bitcoin, we should use the website which is support for cryptocurrency or institutions which support for cryptocurrency too.

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[BitHodler]

If he doesn't have the strength to ask for a debt, he won't lend it to others. Maybe he has a gangster power behind him and nobody knows it. and when the debtor wants to escape, he can use his forces to suppress it. This is quite simple because I know some crypto lenders and I understand how it works.

What you're referring to is more like how governments work when you owe them whatever amount in tax. They will threaten to throw you in prison or seize all your assets they can get their hands on.

If you contractually set up all terms and rights as bank, there isn't much that can go wrong outside the risks banks already are exposed to. The asset doesn't really matter at the end of the day.

I have seen banks even facilitate the exchange of properties and other goods, so it's not that they haven't dipped their feet into non crypto based loans and whatnot. They know how to cover their risks.

[o_e_l_e_o]

I think your confusing the properties of magically creating money with that of fractional reserves.

Fractional reserve is related, but different to what I'm talking about. Let's say a bank gets a deposit of $100. They keep 10% of it, $10, as a reserve, and loan out $90. That $90 is deposited by another customer. They keep 10% of it, $9, and loan out $81. That $81 is deposited by another customer. They keep 10% of it... and so on. Take that to its limit, and that $100 deposit will end up funding $1000 of new loans, creating $900 out of thin air as I previously described.

Here's another article, from the Bank of England this time: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf?la=en&hash=9A8788FD44A62D8BB927123544205CE476E01654

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

And let's say after the bank has created this free 100$ out of thin air, I decide with that 100$ to come back and pay my debt in full. What happens to the money?
The bank erases your debt, takes back the money and everything is just as before you asked for a loan.

This is true, but not everyone pays off their debt. In the US, for example, consumer debt is now over $4 trillion, and increasing. Include mortgages in that figure, and household debt is over $13 trillion, and increasing.

People often get angry about government's printing new money to pay their debts or increase spending or whatever. The stats suggest governments only account for about 3% of the new money entering circulation. The other 97% comes from banks making loans.

[jrrsparkles]

I started to think about it. How a bank and folks could issue loans to people?

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

But now, between folks. Let's say I'm the banker and you're the customer looking to borrow money to buy a house. I can lend you the money but how to be sure you will pay me back with full interests? With banks, the solution is easy, the bank seizes the house and you can't do something. But the average Joe hasn't the same 'power' than a bank to collect a debt.

Just same as the fiat money loan,give loan only after collecting valid collateral like documents of house,if the borrower didn't pay you back the lend amount then you can seize the home as per the agreement you made earlier but it is possible only if government makes crypto as legal form of asset or money or there will be no actions can be taken if the borrower refuse the pay back the money.

I think that will depend on the agreement before the lending was made so they can have a deal what will happen if the borrower cannot pay the money to the banks. But the truth is I don't know if the banks will make a deal with bitcoin because they don't know about bitcoin (or they did know), but they don't use bitcoin for loans. So I think if we want to loans in bitcoin, we should use the website which is support for cryptocurrency or institutions which support for cryptocurrency too.

I guess OP not talking about getting loan of bitcoin from banks,its like individual loan issuing from one person to another who you may know personally.In that case agreement can be made just like how banks are making the agreement with us for any kind of loans.

[AjithBtc]

What Op has requested is a good question which we need to look onto for the growth relative to bitcoin similar to the fiat banking system. Already we've got loan providers for limited funds on the services section. With banks loans were issued on proper collateral. Mostly what we provide as collateral is valued big than what we get as loan. This keeps the banks on the safer side and similar process can be tried with cryptocurrencies with the help of intermediaries like bitpay.

[LeGaulois]

That's why we will always need banks, whatever if it's to borrow $ or Bitcoin. Banks will always be able to provide some services than us, as the average Joe looking to 'be your own bank' can't provide. Who, as a person, will be ok to lend money to someone if there is no guarantee behind?
The justice takes too long and it has a cost. A bank just takes the money from your next paycheck.

[Reid]

Now you gave me a problem?  

There will be an agreement applied that will have a notary public seal and so on and forth of what else the government does with this kind of contracts.
After all we will still go back to our governments for legalities which is really cruel right?
So better not just loan anything.
After all it is a bad thing to borrow money, you will just get used to it.

[goaldigger]

I started to think about it. How a bank and folks could issue loans to people?

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

But now, between folks. Let's say I'm the banker and you're the customer looking to borrow money to buy a house. I can lend you the money but how to be sure you will pay me back with full interests? With banks, the solution is easy, the bank seizes the house and you can't do something. But the average Joe hasn't the same 'power' than a bank to collect a debt.

If an ICO or a gambling site requires KYC before joining do you think loan business cant?. Its more right to ask for personal information if you will borrow or lend money but when the time comes that there are establishments who really loans bitcoin, the KYC would be on his personal life and his BTC address, not his BTC account.

[miningguru]

I started to think about it. How a bank and folks could issue loans to people?

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

But now, between folks. Let's say I'm the banker and you're the customer looking to borrow money to buy a house. I can lend you the money but how to be sure you will pay me back with full interests? With banks, the solution is easy, the bank seizes the house and you can't do something. But the average Joe hasn't the same 'power' than a bank to collect a debt.

Just same as the fiat money loan,give loan only after collecting valid collateral like documents of house,if the borrower didn't pay you back the lend amount then you can seize the home as per the agreement you made earlier but it is possible only if government makes crypto as legal form of asset or money or there will be no actions can be taken if the borrower refuses the pay back the money.

I think that will depend on the agreement before the lending was made so they can have a deal what will happen if the borrower cannot pay the money to the banks. But the truth is I don't know if the banks will make a deal with bitcoin because they don't know about bitcoin (or they did know), but they don't use bitcoin for loans. So I think if we want to loans in bitcoin, we should use the website which is support for cryptocurrency or institutions which support for cryptocurrency too.

I guess OP not talking about getting a loan of bitcoin from banks, its like individual loan issuing from one person to another who you may know personally. In that case, the agreement can be made just like how banks are making the agreement with us for any kind of loans.

Still, banks don't have a complete relationship with the bitcoin, so we should get a loan in bitcoin on the individual who has bitcoins. Maybe we need to sign the agreement meant with the person we are choosing for loans. Previously some exchange is having option lending bitcoin loans but many people have cheated the system. Now the only option we have is from the individual.

[jrrsparkles]

Still, banks don't have a complete relationship with the bitcoin, so we should get a loan in bitcoin on the individual who has bitcoins. Maybe we need to sign the agreement meant with the person we are choosing for loans. Previously some exchange is having option lending bitcoin loans but many people have cheated the system. Now the only option we have is from the individual.

Why always banks? Bitcoins were created because bankig system is completely wrong so getting loan from the individual is the best possible way for now but in future of bitcoin is the majoor form of payment then we may have some companies which give loans on legal basis after collecting the valid collateral documents.

[leonair]

I think issuing loans with Bitcoin is not suitable right now because people are still used to make profit out of cryptocurrency with their own local currency. I don't see any use cases were an individual use to loan Bitcoin or other cryptocurrency just to buy items or even make a business online.

[metalglowd]

I started to think about it. How a bank and folks could issue loans to people?

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

But now, between folks. Let's say I'm the banker and you're the customer looking to borrow money to buy a house. I can lend you the money but how to be sure you will pay me back with full interests? With banks, the solution is easy, the bank seizes the house and you can't do something. But the average Joe hasn't the same 'power' than a bank to collect a debt.

The only way is to make an agreement, of course this must be done by using the services of legal agencies that have legal status. Because these third parties are needed to avoid things that can later be risky for either party.

[darewaller]

I started to think about it. How a bank and folks could issue loans to people?

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

But now, between folks. Let's say I'm the banker and you're the customer looking to borrow money to buy a house. I can lend you the money but how to be sure you will pay me back with full interests? With banks, the solution is easy, the bank seizes the house and you can't do something. But the average Joe hasn't the same 'power' than a bank to collect a debt.

Don't say what you don't know. Banks does not just edit your account balance to what you need, that doesn't happen. If you're taking a loan from bank, the money they are crediting to your account is coming from their own account. They don't just grab digits from the air and fill it up to your account. So stop saying what you don't know. Stop acting like one of these crazy Bitcoin enthusiasts that are always saying shitty things about banks, it makes no sense and is leading you to no where. And by the way, banks always collect collateral when they are giving you a loan, if you don't pay back they will sell the property you used as collateral to get back their money. That's the same thing Bitcoin loans, before you take loan from any Bitcoin loan service, you will submit your crypto that is worth the amount of loan you need as collateral. I don't even see any difference between them and traditional banks,, they are all the same.

[webtricks]

I started to think about it. How a bank and folks could issue loans to people?

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

But now, between folks. Let's say I'm the banker and you're the customer looking to borrow money to buy a house. I can lend you the money but how to be sure you will pay me back with full interests? With banks, the solution is easy, the bank seizes the house and you can't do something. But the average Joe hasn't the same 'power' than a bank to collect a debt.

In order to see if this could work out, we have to solve following two limitations:
1. It is impossible to issue loans and charge interest in terms of Bitcoin until Bitcoin becomes primary currency in the economy.
2. Banks can't maintain big reserves in terms of Bitcoin unless Bitcoin becomes primary currency in the economy.

So this returns us to the basic question, Can Bitcoin become the primary currency in the economy? If this could turn possible then issuing loans in Bitcoin is no big deal. Banks don't magically generate money. They do this through a process known as 'Money Multiplier'. The process is also possible with Bitcoins if people start depositing Bitcoins in the bank as it will lead to the maintenance of reserves with banks and secondly, borrower conduct his business in terms of Bitcoin. So yes, corporate lending is possible with Bitcoins but the basic assumption for it had to be the acceptance of Bitcoin as primary currency.

But Bitcoin with its limited supply can never become primary currency in the economy. Hence, all ancillary economic activities associated with currency like deposits, lending, etc. are also not possible at all at bank level. However, it may be possible at individual level like 'Lending' section on the forum but that is also not very successful due to limitation of valid collateral. Not everyone possess altcoins before taking Bitcoin loans.

[maldini]

I started to think about it. How a bank and folks could issue loans to people?

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

But now, between folks. Let's say I'm the banker and you're the customer looking to borrow money to buy a house. I can lend you the money but how to be sure you will pay me back with full interests? With banks, the solution is easy, the bank seizes the house and you can't do something. But the average Joe hasn't the same 'power' than a bank to collect a debt.

If he doesn't have the strength to ask for a debt, he won't lend it to others. Maybe he has a gangster power behind him and nobody knows it. and when the debtor wants to escape, he can use his forces to suppress it. This is quite simple because I know some crypto lenders and I understand how it works.

The problem is how can this gangster power find it? whereas bitcoin is a decentralized currency, should borrowing in crypto have to enter into an agreement? And now there are no clear regulations regarding crypto loans.

[Carreuh]

Maybe banks have guarantees when they borrow money from customers, but if in bitcoin you might find it difficult to collect your debt if there is no guarantee, because this bitcoin is not wooded by some governments so with this we are deceived by parties owed then  we cannot claim that Kate Bitcoin has no legal force in some countries

[BrewMaster]

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

well then they have to go back to the "honest banking" system instead.

which means you lend what you have instead of lending more than you can afford. and they will lend actual money (in this case bitcoin) instead of credit. and having limited supply is not a problem! imagine if price was 1 million and you wanted to loan $100k you simply take 0.1BTC!

but also there is another rout they could take, which is probably what they will too. and that is the same methods of using "credit" instead of actual money. for example when you loan money to buy a house you take a check and pay the check to other person and that other person deposits that in his bank so there is no need for real money to change hand but only numbers in their databases!

[diazepam666]

If you want to issue the loan you need to you have the collateral first from the users who want to lend from you. If you want to start the service in this phone there is a separate board for you to do that.
In forest and collateral I am not so sure about it you could check with the lenders who do that service in the forum.
Observe some banks are coming up with the loan offers via cryptocurrencies. Maybe soon they could have help you.

[jak3]

Issuing loans in Bitcoin committee is not such a good idea. There were a lot of websites like BTCjam and others which used to provide loans to the users and even this form provides loans who need them. But I will still suggest taking loans from banks is a much better option then in cryptocurrency. You can seize digital assets or any other collateral in the online world if you want to provide loan to others but in banking factors, they do not accept digital collateral instead they need physical mortgages.

[Thirdspace]

Currently, when you need to borrow money, your banker just edits your balance account and create money magically. You then pay back monthly.
Banks won't be able to do that with Bitcoin with its limited supply. You can't print bitcoins.

Yes, he edits number on your balance but that's not something magical because behind those numbers there is real money, they can't lend more than they can.

agree... when a bank issue a loan, they need sufficient money to fund the loan
as a borrower you will want to withdraw that loan in real fiat money... hence bank needs to supply that

I think your confusing the properties of magically creating money with that of fractional reserves.

~ Take that to its limit, and that $100 deposit will end up funding $1000 of new loans, creating $900 out of thin air as I previously described.

~ they don't move any money out their reserves to cover your loan. The $100 loan is brand new money created out of thin air.

imo, that's not creating new money but reusing money in circulation to create new credit line
and the problem is, in our social life we treat and use this credit line the same as money

This is impossible to do with bitcoin, since if you were to take out a loan the bank HAS to give you the relevant amount in bitcoin so you can transact it.

it's possible... think of exchange or custodial wallet
"the relevant amount in bitcoin" transacted only when borrower withdraw bitcoin to his own wallet
user sends real btc to deposit address in a custodial wallet and his account balance adjusted properly
a custodial wallet issues a loan to user account, and real btc transacted only when user withdraws
so the custodial wallet can act just like a bank (managing it like a real bank may run into some issues)

a bank will collapse when all depositors take their money at the same while bank doesn't have enough reserve balance
the same thing can happen to custodial wallet who tries to become like a bank or misuse users' funds