Credit is a hard concept in the Bitcoin economy. That being said, lending isn't that terrible. Go back to the basics -
If a bank uses only Bitcoin, then this is how it will make money: through a spread between savers and lenders. That's how traditional banks are supposed to make money too. People deposit their Bitcoins in the bank for safekeeping and they get some rate of interest. If you're borrowing Bitcoin from the bank to start a business, say, then you need to pay back a higher number of Bitcoins. The bank keeps the difference for taking that risk. Same concept as traditional economy.
Remember currency is just the medium of exchange. The total wealth of the world can keep increasing irrespective of the currency.
Topic: Interest rates in a deflationary currency - page 7. (Read 5555 times)
Basically what he said above, there's no way to have a growing economy and a fixed volume of currency, bitcoin was flawed by design to get people to adopt it, it was never meant to be a real currency.
If you have deflation lenders can adjust nominal interest and maintain steady real interest. Problem arises when such adjustment would bring nominal interest below zero. It would cause lending to stop, because one have no interest in borrowing for zero or less than zero. One can just hold currency without any risk. This is one of the reasons why deflation is considered bad.
Hi,
I have searched the forums and haven't found a satisfactory discussion, please correct me if I'm wrong.
Question:How do banks get more coins to pay interest rates if no new money is produced?
Further explanation:
Let's say we have 21M bitcoins and a free-market economy based on them. Everyone has some of those bitcoins and are exchanging them with each other for services and goods. Now, if I am a bank, how do I get more money to pay my lenders? I understand that the things you can buy with your coins grows overtime, but how do you get more money itself? If everyone lends to everyone (like kind of what happens today), then we would want the number of coins to grow, or someone would not be able to get enough to pay back, despite being able to purchase more stuff (his intrinsic wealth growing). On a further note, even a 1% interest would be actually compounded by the deflationary trend, making it quite lucrative. Is it possible that negative or zero interest would be lucrative (just to keep your money safe?)
Perhaps my questions are simplistic, but then again so is my knowledge in economics.
Thanks for reading
I have searched the forums and haven't found a satisfactory discussion, please correct me if I'm wrong.
Question:How do banks get more coins to pay interest rates if no new money is produced?
Further explanation:
Let's say we have 21M bitcoins and a free-market economy based on them. Everyone has some of those bitcoins and are exchanging them with each other for services and goods. Now, if I am a bank, how do I get more money to pay my lenders? I understand that the things you can buy with your coins grows overtime, but how do you get more money itself? If everyone lends to everyone (like kind of what happens today), then we would want the number of coins to grow, or someone would not be able to get enough to pay back, despite being able to purchase more stuff (his intrinsic wealth growing). On a further note, even a 1% interest would be actually compounded by the deflationary trend, making it quite lucrative. Is it possible that negative or zero interest would be lucrative (just to keep your money safe?)
Perhaps my questions are simplistic, but then again so is my knowledge in economics.
Thanks for reading
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