Loans in BTC

[theonewhowaskazu]

There is no reason why fractional reserve banking could not be done with bitcoins. After all, it existed when the U.S. was on the Gold Standard.

It can't be done with bitcoin, because you cannot produce more bitcoins like you can dollar bills...And when the banks have to fufill the loan, they will have to send actual bitcoins to fund the loan....

Person A deposits 100 BTC. The bank A loans 90 BTC to person B.
Person B deposits 90 BTC. The bank B loans 81 BTC to person C.
Person C deposits 81 BTC. The bank C loans 72 BTC to person D.
Person D deposits 72 BTC. ...

Total apparent number of bitcoins in the system: 1000

That's classic fractional reserve banking and it works with dollars, bitcoins, gold, or seashells.

I think he's saying that the "apparent" number of BTC isn't the same as the "real" number of BTC because BTC isn't a claimcheck on something unprintable, but is itself unprintable. I.e, the fractional reserve isn't built into the currency itself. Sure, I can deposit 100 BTC and the bank loan 90 BTC of it out, but I can't spend that 100 BTC unless the 90 BTC is repaid, or unless someone else deposited another 90 BTC and I requested my withdraw before the bank could lend it out.

This is also true with fiat banking. As long as people do not withdraw their funds in mass fractional reserves works great. When there are bank runs then depositors will stand to take losses, what prevents bank runs is deposit insurance that protects depositors in the event that a bank becomes insolvent.

Actually it isn't, at least not in the US System. Recall that the USD is backed by the "full faith and credit of the US Government."

Now visit this link:
http://fdic.gov/deposit/deposits/brochures/deposit_insurance_at_a_glance-english.html
"Deposits at ... insured banks ... [are] backed by the full faith and credit of the United States government."


In other words, deposits and the currency itself are backed by the same entity in the exact same manner, making them equivalent. Now I guess theoretically deposits greater than $250k or $500k in a single financial institution wouldn't have this quality, but to be honest, not many people have that much in a single account, people with that much money tend to have multiple accounts, and even if they did, the USG basically has set a precedent of never letting commercial banks fail for any reason, so the limit may as well not be there. They keep on increasing it anyway, the moment there's any sign of a bank coming close to failing.

[gmx95]

bitcoin is not the right currency for loans.

I don't know if another alt currency would work or not, but any bitcoin loans would have to take place outside the blockchain and be done by contract.

I don't want BTC to replace fiat anyway, but rather compliment it.

I also think that any loans in bitcoin are risky. btc is a non-reversible currency by nature. If someone does not want to return the loan, what are you going to do?

[theonewhowaskazu]

bitcoin is not the right currency for loans.

I don't know if another alt currency would work or not, but any bitcoin loans would have to take place outside the blockchain and be done by contract.

I don't want BTC to replace fiat anyway, but rather compliment it.

I also think that any loans in bitcoin are risky. btc is a non-reversible currency by nature. If someone does not want to return the loan, what are you going to do?

Take their collateral

Gold isn't particularly reversible either, but there was a time when all loans were denominated in gold.

[hollowframe]

bitcoin is not the right currency for loans.

I don't know if another alt currency would work or not, but any bitcoin loans would have to take place outside the blockchain and be done by contract.

I don't want BTC to replace fiat anyway, but rather compliment it.

I also think that any loans in bitcoin are risky. btc is a non-reversible currency by nature. If someone does not want to return the loan, what are you going to do?

Take their collateral

Gold isn't particularly reversible either, but there was a time when all loans were denominated in gold.

If someone were to be able to give up collateral in exchange for a loan then why would they need the loan in the first place?

[theonewhowaskazu]

bitcoin is not the right currency for loans.

I don't know if another alt currency would work or not, but any bitcoin loans would have to take place outside the blockchain and be done by contract.

I don't want BTC to replace fiat anyway, but rather compliment it.

I also think that any loans in bitcoin are risky. btc is a non-reversible currency by nature. If someone does not want to return the loan, what are you going to do?

Take their collateral

Gold isn't particularly reversible either, but there was a time when all loans were denominated in gold.

If someone were to be able to give up collateral in exchange for a loan then why would they need the loan in the first place?

WTF?

Because they want money but they don't want to give up their asset permanently, obviously? Because they want to buy something else? You know, the reason for any loan ever? Just with a limit equal to the borrowers total equity?

Moreover why would a person take A loan if he had money in his account to be reversed away in the case of non payment???

[zhinkk]

There's an entire subsection here about loans, you can see how well it works out there.

This. Collateral, trust rankings, timely payments, good interest rates. It's similar to how it works in real life. Loans are and will always be based on trust.

[keithers]

BTCjam.com has been doing loans in BTC for awhile where people can do peer to peer lending.   I have never tried it before, and I was just reading how someone made off with a bunch of investor money...but that is always the risk of lending...

[zhinkk]

BTCjam.com has been doing loans in BTC for awhile where people can do peer to peer lending.   I have never tried it before, and I was just reading how someone made off with a bunch of investor money...but that is always the risk of lending...

It's the same sort of system as it is here, except BTCjam has a lot of "trust profile" rankings. Like they verify your income, and things like that. Here, we base it off of account trust and collateral.

[efreeti]

Lending in btc and taking loan in btc are too risky.

1) Mostly scammers take loan in btc with no intention of paying it back.
2) Legitimate loan takes on too much risk on the volatility on bitcoin.

[hollowframe]

BTCjam.com has been doing loans in BTC for awhile where people can do peer to peer lending.   I have never tried it before, and I was just reading how someone made off with a bunch of investor money...but that is always the risk of lending...

It's the same sort of system as it is here, except BTCjam has a lot of "trust profile" rankings. Like they verify your income, and things like that. Here, we base it off of account trust and collateral.

A BTCjam loan is a lot like a signature loan in that the only thing guaranteeing repayment is your signature. Like other signature loans lenders can get a judgment against the borrower if they do not repay the debt.

Loans on this forum are more like loans that use cash as collateral. There are very few if any lenders that will lend without collateral valued at 100%+ the amount of the loan. This provides people an disincentive to borrow as they could simply sell their collateral.

[r34tr783tr78]

There are already websites giving interest for bitcoin and lending back the bitcoins, thus, using a fractional lending system.

That will be very common. But it won't resolve all the serious economic problems created by the deflanionary nature of bitcoin, if it becomes a main currency.

[seandaniel]

still its risky..

[weidalaiyuan]

Person A deposits 100 BTC. The bank A loans 90 BTC to person B.
Person B deposits 90 BTC. The bank B loans 81 BTC to person C.
Person C deposits 81 BTC. The bank C loans 72 BTC to person D.
Person D deposits 72 BTC. ...

Total apparent number of bitcoins in the system: 1000

[zhinkk]

 This is a really dumb question, but can someone answer me nicely? I've always wondered this: Whenever people come to ask a loan, they are usually desperate. And people answer with "You need collateral, like some altcoin such as litecoin". Now what I don't get is, if the person is THAT desperate for money, why doesn't he just trade his litecoin for bitcoin at an exchange? It's reallllly easy and pretty fast. I just don't get why people ask for a loan with altcoin collateral when they can just sell those coins?

Maybe I'm overlooking something.

[nkocevar]

Loans for bitcoins wouldn't work very well, considering once something is sent, it is sent permanently. Unless bitcoin is accepted as a currency and regulated (which we don't want it regulated), then loans wouldn't really work out. At least without proper collateral. 

[hollowframe]

Loans for bitcoins wouldn't work very well, considering once something is sent, it is sent permanently. Unless bitcoin is accepted as a currency and regulated (which we don't want it regulated), then loans wouldn't really work out. At least without proper collateral. 

Loans can work without collateral, but in order for BTC loans to be enforced, there must be fiat still in use that can be seized by the courts to pay the creditor in the event the borrower defaults on his loan. It is obviously not possible to seize a borrower's bitcoin assets without his private keys.

[ghazelhyt]

i did heard about BTC loan, and there is escrow for it. I guess there will be some sorta btc loan company exists when btc becomes reli popular

[theonewhowaskazu]

Loans for bitcoins wouldn't work very well, considering once something is sent, it is sent permanently. Unless bitcoin is accepted as a currency and regulated (which we don't want it regulated), then loans wouldn't really work out. At least without proper collateral. 

Loans can work without collateral, but in order for BTC loans to be enforced, there must be fiat still in use that can be seized by the courts to pay the creditor in the event the borrower defaults on his loan. It is obviously not possible to seize a borrower's bitcoin assets without his private keys.

You can seize all non-bitcoin assets. Not just fiat currency.

[hibr3d]

Well if you want there is a site Btcjam loaning, but you should lend your bitcoins to people that confirmed their identify.

People give about +0.5% so if you want to make $10 in 90 days after lending you should lend someone $2000 worth of BTC.

Its $2000 BTC risk for $10 in 90 days. Thats pretty awful since there can be a guy that comes back after 90 days and says that his plan didnt work out and he lost his btc.

[Xch4ng3]

BTCjam.com has been doing loans in BTC for awhile where people can do peer to peer lending.   I have never tried it before, and I was just reading how someone made off with a bunch of investor money...but that is always the risk of lending...

Thing is BTCJam only does soft credit checking, it's not actually pulling regulated information to asses someone's risk when being loaned money. If BTCJam teamed up with someone like Experian who offer business services they could reduce a lot of time spent checking IDs, get a more reliable credit score and they even include debt recovery.

The downside to this is that people will bad credit will never be able to get a loan, even if they really can afford to pay it back.

Also the BTC would have to be pegged to USD to avoid problems with fluctuation.