What about adding debt support in Bitcoin ?

[r2dnb]

Hello,

It is probably my first post here, but I've been lurking at several places and learning bitcoin for almost a year now.

I noticed that something is never mentionned in discussions, and it is the question of debt. In the real world, when a debt is created, the equivalent amount of money is created. Actually, there is even more debt than there is money supply at a given time.

However it is clear that this is not possible with bitcoin, since coins creation obey very specific rules, and the number of coins will never exceed 21 millions.

It is in my opinion the greatest entry barrier for a large adoption of bitcoin in any country. I am a Software Engineer too, and you know that when we design new products, it's rarely a good idea to say "anyway, this very used feature of the old system was rubbish". And I think it's especially the case here, because modern societies are all based on debt. I'm not saying debt is good or bad. I'm just saying, it is a used feature that should be taken into account in bitcoin. Because the objective of bitcoin wasn't to destroy debt, and trustless value transfer system is probably able to support debt too if we adapt its meaning.

Debt, is highly correlated with the ability to create money. I have an idea where debt would be a specific transaction type in the bitcoin protocol.

Basically, every node (even user only nodes) would be able to issue any debt they want, but the value of what they issue would be the value that the receiver attributes to the node. It's not a technical matter, I'm talking about the value they attribute to that person in the real world.

For example, if a perfect stranger tells  you you are a good person, you thanks him but it has little value for you. On the other hand, if your mother tells you the same thing it has a great value for you.

Similarly, if a country, who has obliged all merchants on its territory to accept its "bitcoin debt currency" as a payment mean, issue you some debt, it will have a great value for you. However, if I issue you 1 million units of my "personal debt currency", it would have little value for you, but I still can do it.

In practice, countries might have to make larger political agreements, to accept each others debt currencies - that we might preferably call : allowancies - but the idea is here. And the concept of allowance will also be useful for example for merchant who would issue them instead of fidelity cards, etc.

People might also use them for professional references. For example, as a professional I mention a bitcoin  adress on my website, and then when people go and check for transactions of type : "Allowance", they would see the one I've issued and the one I've received to and from people and companies along with a comment for example. And we can imagine that the higher the number is, the better they appreciated us.

It might sound odd because we  see the bitcoin currency as the only thing having value in the bitcoin network. But exchanging value doesn't mean that I want/need to exchange bitcoins, and as long as I do it in a decentralized way, with no indexation on fiat currencies etc... we're still along with Satoshi's vision.

But the point here is that by simply implementing this transaction type, countries will move from fearing bitcoin because it threatens their financial soveignty, to loving it because it would allow them to create money without cost, and without depending on any central bank, or foreign country.

Bitcoin would be as gold whose value is intrinsec and whose value is valued by everybody.

Finally, I think that is important that it  be supported by the official bitcoin network.

Before working our a proposal I'd like to know what are your views on that.

Thanks

[bitkilo]

Maybe im reading your post wrong but it sounds like your thinking bitcoin will take over as the no1 world currency which i dont think will ever happen.
There is already companies like bitcoinjam were users can borrow BTC and pay back with interest, so in effect they are in debt until the BTC plus intrest is paid back.

You are right though, the whole world runs off an ever increasing debt level.
Before anything like this could work, whoever wants to borrow or get bailed out via btc would need he people their in debt with accept bitcoin.
It is still an interesting idea, i would like to hear more,

[CIYAM]

You are free to create a "debt coin" if you like (I suspect no-one will use it though).

Those of us who prefer "real money" rather than "debt money" (around 99% of people that use Bitcoin IMO) are not the slightest bit interested in your idea though (do you work for the banking industry?).

You should read the list of rules "that will never be changed" in Bitcoin before suggesting something that is clearly against those rules (it's in the Wiki somewhere - maybe someone else could provide the link).

For someone who claims to have been lurking around to learn about Bitcoin for a year it seems strange to me that you don't get the fundamentals of its purpose (most people *get it* within a few minutes by watching a video like WeUseCoins).

[Q7]

Just wondering how we will end up controlling debt issuance. I'm afraid it will end up just like the fiat system. I'm a bit reserved with the suggestion.

[AtheistAKASaneBrain]

Maybe im reading your post wrong but it sounds like your thinking bitcoin will take over as the no1 world currency which i dont think will ever happen.
There is already companies like bitcoinjam were users can borrow BTC and pay back with interest, so in effect they are in debt until the BTC plus intrest is paid back.

You are right though, the whole world runs off an ever increasing debt level.
Before anything like this could work, whoever wants to borrow or get bailed out via btc would need he people their in debt with accept bitcoin.
It is still an interesting idea, i would like to hear more,

And how do they force people to pack back? do they ask for private information i guess? like ID and whatnot.

[bitkilo]

Maybe im reading your post wrong but it sounds like your thinking bitcoin will take over as the no1 world currency which i dont think will ever happen.
There is already companies like bitcoinjam were users can borrow BTC and pay back with interest, so in effect they are in debt until the BTC plus intrest is paid back.

You are right though, the whole world runs off an ever increasing debt level.
Before anything like this could work, whoever wants to borrow or get bailed out via btc would need he people their in debt with accept bitcoin.
It is still an interesting idea, i would like to hear more,

And how do they force people to pack back? do they ask for private information i guess? like ID and whatnot.

How do you mean force people to pay back?
If it's something like a loan on bitcoinjam then some lenders will ask for ID and other info, but if your talking big company debt loans then there would be contracts signed and credit history check just like a personal loan from a bank.

You can't really force anyone to pay back what they borrow but if it's a big loan and contracts are signed then legal action could be taken, mind you if the BTC loan is large enough then it would be worth getting lawyers/ debt collection agencies to help recover the amount just like any bank loan, if it's a small loan then it would not really be worth the recovery fees and the lender would just have to take the loss.
These debt collection agencies do take a good % to recover your fiat money, so best doing you maths before going down that path.

Edit: Also I don't agree with payday lenders because they can charge huge fees and trap people in the debt cycle, but i am surprised i haven't seen this offered yet, maybe one day but i hope not.

[nachoig]

Hello,

It is probably my first post here, but I've been lurking at several places and learning bitcoin for almost a year now.

I noticed that something is never mentionned in discussions, and it is the question of debt. In the real world, when a debt is created, the equivalent amount of money is created. Actually, there is even more debt than there is money supply at a given time.

However it is clear that this is not possible with bitcoin, since coins creation obey very specific rules, and the number of coins will never exceed 21 millions.

Wasn't Economics supposed to be the science of scarcity? What went wrong?

It is in my opinion the greatest entry barrier for a large adoption of bitcoin in any country. I am a Software Engineer too, and you know that when we design new products, it's rarely a good idea to say "anyway, this very used feature of the old system was rubbish". And I think it's especially the case here, because modern societies are all based on debt. I'm not saying debt is good or bad. I'm just saying, it is a used feature that should be taken into account in bitcoin. Because the objective of bitcoin wasn't to destroy debt, and trustless value transfer system is probably able to support debt too if we adapt its meaning

We already have the banks for this model. So, why bitcoin?

Debt, is highly correlated with the ability to create money. I have an idea where debt would be a specific transaction type in the bitcoin protocol.

Basically, every node (even user only nodes) would be able to issue any debt they want, but the value of what they issue would be the value that the receiver attributes to the node. It's not a technical matter, I'm talking about the value they attribute to that person in the real world.

For example, if a perfect stranger tells  you you are a good person, you thanks him but it has little value for you. On the other hand, if your mother tells you the same thing it has a great value for you.

Similarly, if a country, who has obliged all merchants on its territory to accept its "bitcoin debt currency" as a payment mean, issue you some debt, it will have a great value for you. However, if I issue you 1 million units of my "personal debt currency", it would have little value for you, but I still can do it.

Oh shit. People work hard to produce goods and services and you propose to those people to be forced to accept in exchange a "debt money", which also in some countries will come with high inflation rates?

In practice, countries might have to make larger political agreements, to accept each others debt currencies - that we might preferably call : allowancies - but the idea is here. And the concept of allowance will also be useful for example for merchant who would issue them instead of fidelity cards, etc.

People might also use them for professional references. For example, as a professional I mention a bitcoin  adress on my website, and then when people go and check for transactions of type : "Allowance", they would see the one I've issued and the one I've received to and from people and companies along with a comment for example. And we can imagine that the higher the number is, the better they appreciated us.

It might sound odd because we  see the bitcoin currency as the only thing having value in the bitcoin network. But exchanging value doesn't mean that I want/need to exchange bitcoins, and as long as I do it in a decentralized way, with no indexation on fiat currencies etc... we're still along with Satoshi's vision.

But the point here is that by simply implementing this transaction type, countries will move from fearing bitcoin because it threatens their financial soveignty, to loving it because it would allow them to create money without cost, and without depending on any central bank, or foreign country.

Bitcoin would be as gold whose value is intrinsec and whose value is valued by everybody.

Finally, I think that is important that it  be supported by the official bitcoin network.

Before working our a proposal I'd like to know what are your views on that.

Thanks

You can look to Colored Coins or Counterparty. Anyone can use this (an individual, a business or even a government). But also I strongly reccomend to watch this video: https://www.youtube.com/watch?v=iFDe5kUUyT0

[Maegfaer]

Actually, there is even more debt than there is money supply at a given time.

And you don't believe that that is a bad thing? Debt is ever rising faster than credit in the current monetary system, and it would happen to Bitcoin as well. Usury and debt-money are at the core of the world's economic problems. The savings of the common populace are in peril due to fractional reserve banking, just a few economic shocks, some panic, a bank run, and most people can wave goodbye to their hard earned savings.

What the world needs is a move away from such a system. Debt money and fractional reserve banking should become exceptions rather than the status quo. The common people should have most of their money savings in secure storage, backed by a 100% positive balance, not dependent on someone else's ability to pay their negative balance.

[bitkilo]

Actually, there is even more debt than there is money supply at a given time.

And you don't believe that that is a bad thing? Debt is ever rising faster than credit in the current monetary system, and it would happen to Bitcoin as well. Usury and debt-money are at the core of the world's economic problems. The savings of the common populace are in peril due to fractional reserve banking, just a few economic shocks, some panic, a bank run, and most people can wave goodbye to their hard earned savings.

What the world needs is a move away from such a system. Debt money and fractional reserve banking should become exceptions rather than the status quo. The common people should have most of their money savings in secure storage, backed by a 100% positive balance, not dependent on someone else's ability to pay their negative balance.

Well said, but when the fiat runs low due to debt don't some countries just print more notes therfor devaluing the countries currency more.
If all 21mil BTC has been mined and its all lent out as debt what happens then?

[Maegfaer]

If all 21mil BTC has been mined and its all lent out as debt what happens then?

People will default on debts when they become insolvent, and those who lent out Bitcoins have no choice but to take their losses, and maybe default themselves if they have debts as well. If those defaults happen gradually at the correct moment, when the debt has obviously become a 'bad debt', it's not necessarily a large scale problem. It becomes a large scale problem if deception is used to delay necessary defaults, because the bubble will build up and the eventual burst will be far more damaging to anyone directly and indirectly involved in the chain of bad debt. In the current fiat system, that's basically everyone. In Bitcoin, those who have their coins on the blockchain itself rather than in a bank or an exchange are not affected, because actual real Bitcoins on the blockchain is not debt-based money.

All creditors to those who default get screwed over. That's why the banks are considered 'too big to fail'. Everyone with savings in banks is a creditor to that bank, and that's the majority of the first world's population. If those banks default, all those people lose their savings. Not only that, but financial infrastructure is also dependent on those banks. Printing money is not a solution, it devalues the currency and will eventually backfire. In the long run it destabilizes the monetary system even more, causing a big swing from deflation to hyperinflation.

That's why having your life savings in fiat currency is dangerous, especially if it's on the balance sheet of a bank. I'm not saying people should throw it all into a crypto-currency, but definitely diversify. Real-estate, gold, silver, crypto, you name it.

[Erdogan]

Anybody is free to lend or loan bitcoins.

The loans can not extend the volume of bitcoins on the block chain, but any debt is to a degree the same as money. The safer it is, he longer maturity it has, and the more transferable it is, the more it likens to money. So even if it is not base money, the bitcoins itself, it can be a part of the supply of bitcoins and depress the price. It is unavoidable.

[coric]

Isn't Ripple basically that, with its "IOU" that can be denominated in Bitcoin or other values?

[funkenstein]

Another one to file under: "Bitcoin won't work because I can't counterfeit it".

[polynesia]

Once Bitcoin expands in adopting and gains some acceptance as an international currency, you will have Bitcoin banks.
Enter debt support.

[ajareselde]

Once Bitcoin expands in adopting and gains some acceptance as an international currency, you will have Bitcoin banks.
Enter debt support.

Traditional banks will provide loans and credits when this gets widely adopted, but if ure searching for something like
bitcoin loan , you can allways make a bank loan and simply buy bitcoins.. judging by current price it would be more
acceptable than having to pay back in fixed amount of bitcoins..

[B.A.S.]

IMO, Bitcoin ownership (amassing) will mean nothing in the future if BTC stays around. Once the majority are mined, a few will have managed to get rich (for hodling so long), but the majority will have little to no coins. The technology is what will stick around. The using of BTC will be in the form of conversions.

Real debt (fiat debts) can be incorporated into BTC. The lender would save a bundle of fiat on the buying and selling of their 'assets' to other lenders/collectors and the debt holder could benefit from utilizing digital BTC denominated debt for BTC related services/goods.

[dodadoo]

Anybody is free to lend or loan bitcoins.

The loans can not extend the volume of bitcoins on the block chain, but any debt is to a degree the same as money. The safer it is, he longer maturity it has, and the more transferable it is, the more it likens to money. So even if it is not base money, the bitcoins itself, it can be a part of the supply of bitcoins and depress the price. It is unavoidable.

[KoinKartel]

Anybody is free to lend or loan bitcoins.

The loans can not extend the volume of bitcoins on the block chain, but any debt is to a degree the same as money. The safer it is, he longer maturity it has, and the more transferable it is, the more it likens to money. So even if it is not base money, the bitcoins itself, it can be a part of the supply of bitcoins and depress the price. It is unavoidable.

Agreed. But the one problem is there is no automated system on the blockchain for automated 'debt-retrieval' if you will, so what stops debtors from absconding with their loans? The blockchain currently provides nothing that would deter borrowers from purposely defaulting, therefore any coin that is developed and based on or around the concept of debt issuance is unlikely to flourish - unless the system that I described above is developed to support it

[alani123]

Creating debt isn't a feature to a currency, it's more or less institutions that take the currency and use it for fractional reserve. In theory, this is doable with bitcoin and even used to be in practice at certain cervices (Cryptsy, MtGox), but the success rate wasn't all that great. 

You could create a bitcoin bank at any time, but the number of user's it's going to have is bound to be small given that bitcoin's fundamental values very pretty much the notion that an alternative to central banking was needed.

[r0ach]

Technically, all money is debt, an IOU to redeem you with goods or services at a future date since you can do nothing actually useful with the currency itself.  So, you're in luck, you have nothing to complain about here.