Topic: Issuing loans in Bitcoin, how we could do it - page 5. (Read 1362 times)

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.

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.

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.

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.

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.

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.

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.

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
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.

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.

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.

The banks have to have in their vaults, in a way or another, certain % of the money they borrow.
For Bitcoin this will be certainly 100%. It will be in the same way you can borrow an object (eg hammer) from your neighbor.
The banks will have to have those coins, meaning somebody will have to "deposit" coins and get some advantages off that.

This was the wonderful and shiny theory.
In reality the banks certain services will try to offer custodial wallets so people keep money there without getting paid.
In reality those services will try that instead of sending out the loaned money to a certain wallet, make the user keep the money in their custodial wallet.
The result is that they can borrow thin air (I-owe-you notes) and we are back to square 1.


If the borrower needs the money to pay for something as big as a house, it can be done by anybody in the same way the bank does. Only a proper lawyer is needed for the papers.
The things get more complicated for the loans where people don't "put down" something valuable for the loan. The banks get their cut from the next paychecks, here's their power, where I don't know how can average Joe compete.

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.

But if that 100$ is money made out of thin air...the the debt is also made out of thin air, right?   

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.
So, paying back your debt is ...burning money made out of thin air?



Neah, it's far easier and faster.
Two stores had an unpaid debt to our family business, it took us about 3 months to go through the paperwork and have their bank accounts frozen, the debt amount taken and reimbursed.

In my third job, I didn't get paid one month because of "problems" , when the payment day for the second month expired I went to the department that covers workers protection, signed a declaration, attached a bank statement proving I have not received any funds in the last two months and in 30 days I had all the documents I required to go go to a collection agency and ask for their funds / good/ property to be put on a distraint order.
Got my money in about two weeks.

As long as you have a legal contract certified by whatever needs to so to be valid in your country jurisdiction, lawyer, register, notary, you can act the moment the terms were breached.

But yeah, right now, you can stick your smart contract....in a usb port :PPP
You need a real thing.

Banks will still be capable of operating on a fractional reserve basis, even if the loan is denominated in bitcoin.

Much like how we suspect a lot of exchanges and hosted wallets right now to not be keeping full reserves all the time. It's not something impossible to do at all if their operations involve transactions which require coins to be transferred into the receiving entity's sole possession, which is what happens the majority of the time with hosted wallets anyways.

But this involves a ton of trust, and I doubt that a lot of bitcoin users will buy into a fractional reserve system like this given the fact that one of the fundamental aspects of bitcoin is its trustlessness - that you don't need to trust anyone to hold your wealth when it's on the blockchain. But given enough demand, even traditional banks which already have mortgage operations can simply re-denominate loans into BTC, while maintaining the same legal hold over the collateral of the mortgage (the property).

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 know people with credit card debts that have never been arrested or made to pay up. Even banks can have a hard time going through the process and sometimes you just compute how much you can get out of it. If the legal costs exceed what you can gain, then sometimes you'd just charge it up to experience.

So with individuals, the risk is even higher. Again, I know people who lend out cash and some of those never got paid back. That is why the "loanshark" usually charge a higher interest than banks, they have to make up for money lost from defaulting customers.

Back to bitcoins, if everyone is using bitcoins, wouldn't there be pressure to pay up if everyone sees who's receiving what? Maybe a condition for giving a loan is to make the borrower's receiving address public. What I meant is to link the borrower's identity with the address he's going to receive the money with. The lender would also list his receiving addresses for payments.

People would know who's not paying who. If someone is asking for a loan, people can just look them up more easily. Default on debts a few times and soon no one would be lending you anything. The records are also there if the lender wants to pursue a case. I think it'll be just back in time where people live in smaller communities and know each other, there's a negative incentive for ripping off others.

A crypto bank will be an interesting concept but it’ll be equally difficult to operate it as many county’s law do not support bitcoin hence if the person taking loan doesn’t repay there’s nothing you can do about it. One way to go about this is to accept a valid collateral, or hire an escrow agency that will help you recover your debt. In my personal opinion it’s very difficult to continue running a crypto bank, as there’re lots of hassles involved in it.

I think your confusing the properties of magically creating money with that of fractional reserves. There is nothing magic about it and they cannot do it indefinitely, which they would be able to if it was indeed "magic" as you suggest. The same fractional reserve can be done with bitcoin, you just need customer deposits.

It absolutely does. I'd suggest having a read of this article from the International Monetary Fund: https://www.imf.org/external/pubs/ft/fandd/2016/03/kumhof.htm. And if you are really interested and have the time, take a look at this paper published in International Review of Financial Analysis: https://eprints.soton.ac.uk/372866/. A relevant quote from each below:



Essentially, if you take out a new loan of say $100, the bank creates both a credit of $100 and a debit of $100 in your name. You are given $100 of new money and also given a $100 debt to repay. The bank's balance sheet doesn't change, and 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.

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.

Why cant it work the same as a bank? The bank doesn't magically create money, it uses money from deposits to lend out. That could be done with bitcoin. Also, an individual very well can have the same level of claim as a bank to say...your house. You could sign a loan to an individual and put your house up as collateral. The issue is not whether that can be done, but actually collecting on a default. That process gets very expensive and requires lawyers, which may not be as easy for an individual to pursue.
Another issue with loans denominated in bitcoins is most likely, that person is cashing out the coins to purchase something. With a dollar that isn't a huge deal as deflation is a percent or two per year, but a bitcoin that can gain huge gains overnight, there is a very large risk that the borrower could never pay the loan back and that the collateral quickly becomes worth less than the loan amount.