Topic: Issuing loans in Bitcoin, how we could do it - page 6. (Read 1329 times)

There are some points we need to consider:

1) The person requests a loan of $100,000 payable in bitcoins
2) The person requests a loan of 12BTC (~$100,000)
3) the lender is a banker
4) the lender is a joe average

A question coming is, should contracts settle in fiat or Bitcoin? What about the interests.
If the contract is in dollars, for example, the lending portion of 12 bitcoins ( $100k) you repay 1% per month,  $1000 (without interest)
If the contract is established in Bitcoin, the loan part 12 Bitcoins and you repay 0.12 BTC per month (without interest)
You can end with a very very cheap interest rate to buy a house.

As a bank, it's easy if the borrower doesn't pay, it goes to the court, the bank seizes the house. remember in 2008 how many people in The US lost their house. Whatever, you will always have to pay soon or later.

For the average Joe, it's a bit more difficult. Yes, he can hire a lawyer and go to a justice court. How many time it will take? 3 Years or more to see a judge? A judge that will surely say he's not competent to give a judgment since he doesn't even know what you're talking when you say Bitcoin and the chance that Bitcoin itself has not really a legal status in the said country.

I don't say it's impossible but the average Joe it's not so easy as banks, not the same power. Since we claim 'Be your own bank', let's say I lend you 50BTC and you're supposed to repay 1BTC per month during + 4 years. The first year, you repay me regularly without incident, the second year you start to ask for a delay, the third year you're gone. Will I be able to seize the funds on your bank account as banks can do? No

Let's say now we use a smart contract. Not sure which, for exemple, if the total amount isn't repaid after 5 years, the house bought with the money changes its ownership to the lender. Will, it even be considered as a legal contract? you can't send your smart contract to the land registry and say now it's mine.

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. For example there is some percent of money taken from every deposit and saved in reserves for every bank, ie you deposit 100$, bank can only lend 70$ from it, 30$ must be in reserves.
Yes, average "joe" has same power too, just agreement is different, you have to go in notary beauro, sign contract and etc, there are a lot of details in different countries which can't be written here well.

How is it a win for the borrower if the borrower has to spend more to just pay back the bank its Bitcoins?

It only adds more risk and cost to the side of the borrower. One way or another, there is always one party that's losing if you deal with a loan in Bitcoin. Also, it's not even sure that the bank has won when the price has gone up because it depends on the borrower to pay back first, and by the time the debt has been settled, the price may have corrected again.

It's more likely that loans will be handed out in tokens like Tether. You can print them whenever you want or just do it based on the demand for them, and there is way less risk involved for both parties.

If banks are accepting bitcoin deposits, they can just lend out those bitcoins and ask for interest in return. One simple way of looking at it or perhaps I'm missing something?


Before agreeing to loan terms, create a contract and make it so that both parties will never break the rules of the contract. The average Joe always has the same power to collect payment when payment is not fulfilled by the debtor. They can always come to a court of law and file a case against the debtor. The problem is, if bitcoin isn't considered as money on where the loan is fulfilled, it would be difficult for the loaner to collect payment from the debtor as the courts would surely be scrambling around thinking what case could be filed as bitcoin isn't defined on their law.

Banks don't deal with Bitcoin not because they hate it, but because it doesn't have determined legal status, and regulators would probably get very suspicious if a big company started using it, as Bitcoin has reputation of being used in money laundering. If governments gave green light to use Bitcoin, banks would totally do so, it's just another currency for them, another opportunity to earn profit.


It's another problem with regulation, if Bitcoin is not viewed legally as money or as commodity, it can create loopholes which can lead to much harder collection of debts.

Exactly this. If you have a loan or a mortgage from a traditional bank, and you cease making payments, the bank don't just send some employees round to strong-arm you in to making a payment or handing over you house keys and paperwork. They take the contract which you signed to the relevant local court and begin proceedings for debt recovery, foreclosure, repossession, or similar. There is no reason this couldn't happen with a bitcoin loan, provided the paperwork was altered as necessary and full KYC procedures were carried out.

Loans issued in Bitcoins is a win win situation between the borrower and lender. If the  price of Bitcoins goes up after issuing, the lender has more to pay in fiate and vice versa for the borrower.

Why wouldn't it work the same way? With dollars, banks are legally required to keep a certain proportion in reserve. The rest can be lent out for interest. Why can't banks take Bitcoin deposits the same way and then lend them out in fractional reserve?


Through the courts, they do. If you draw up a contract with a borrower securing the debt with their house, that contract is enforceable in court the same way it is for banks.

As I heard centralized crypto currencies are having a option to control the transaction by higher end but it in block chain nodes i am unsure about it.
Here you could  find a board how people are issuing loans with collateral or other things.
You may check the thread link here.
https://bitcointalk.org/index.php?board=65.0

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.