Topic: Loans in a Bitcoin world (Read 601 times)

Loans are certainly very risky to use, even in the real world loans can make us poor. So avoid loans in my opinion,
Do not use capital from loans for trading. Use loans only in emergency conditions, and most importantly adjust loans
with our ability to pay.

I never really gave a thought about loans in the Bitcoin or Cryptocurrency World since it might have lots of risk but reading this gave me better insights about it. It also occurred to me that Cryptocurrency might not possible replace cash since its hard to introduce Cryptocurrency to the whole world. We only know that they at least heard about it but not fully knowing its capabilities.

Loaning in the Bitcoin world depends on full trust. If you want your name stained, then scam them BUT nobody wants that since people can get more profit by staying a trustworthy user.

Not now but in the future Defi-Style Lending ; Because while DeFi is covering a wider range of areas — from remittances to derivatives and investments — its most promising sector involves credit and lending. That's because, thanks to the openness, security and transparency of blockchains, it's possible to make loans and credit available to a larger pool of people than ever before, while the interoperability of blockchains opens up the possibility for creating a spectrum of new lending products and services.

Yes, a "Bitcoin Central Bank" would be basically a bank like every other. In theory, one could imagine a state-backed Central Bank even in a society with a Bitcoin standard. Such an instituion could give out Bitcoin-pegged, state-backed stablecoins in times they want to increase supply. A kind of "Government Tether", basically a bond with "character of money". This approach has been used in countries like Argentina (the infamous "Lecop") already, with some (limited) success, although obviously not with Bitcoin but the US dollar as standard.

However this approach would be limited if the Bitcoin price had still a tendency to go up, due to the risk of a state insolvency. It would not be suited for the "Venezuela scenario" I had in mind, but perhaps in the long term when Bitcoin reached a relatively stable price after a period of mass adoption.

I don't understand fully what you mean here. Just the phase with increasing money value would be the one where access to credit would be severely limited.

True, technical solutions like Omnibolt can definitively help. A partial reserve system based on these tools is surely interesting.

What however could be a problem (if my interpretation is right) is the total transparency: Let's say a Bitcoin bank issues partially backed stablecoins. If the level of the reserve goes down because the bank tries to increase liquidity, this would be visible for everybody, and this could unleash a domino effect of sinking trust in this bank and problems to maintain the Bitcoin peg.

One possible idea is to combine the Bitcoin peg with a commodity-based peg. Banks could invest in "real-life" commodities and use these investments to back their Bitcoin-based stablecoin partially.

@extasie: Pretty much this. It would be a systemic fault. While an excessive credit liquidity is also not good, the crunch imo would exceed greatly a "sane" reduction of that liquidity.

it's just your mind and some of the crypto fans are fans, it's clear that a market that works in the background can't be sure of anything. In my opinion, Bitcoin and crypto will never replace fiat money and that is also one of the plans of whales. The whales created this market and fomo of the impossibility for traders and investors to be psychologically manipulated, a trick to manipulate and make money easier. Even if the economy collapses, our coins will die, don't expect it to be something that goes against the rules of nature.

I am not sure if the world uses bitcoin as the basis of the state. Bitcoin is not fulfilling beliefs as the basis for the country's economy or anything else in my opinion. for me bitcoin is still vulnerable in security and now a lot of theft in the digital world. if bitcoin as a small transaction payment instrument in the scope of simple needs i agree about it because the risk is not very large. if bitcoin is the basis of the country's assets i am still in doubt because the risk is very large later ..

It’s not just about loans, imagine that the world decides to start making use of Bitcoin and there is no more Central bank, how do you imagine the world is going to be? The government will no longer be able to monitor how money goes in and out of the country, things are seriously going to change. And people will be doing whatever they want and acting however they want to without having any problem. When you’re scammed there will be no way to trace it, and if you are rich, since all your money is stored in cryptocurrency anyone can break in and steal everything from you and that’s how you will end up losing it.

After the collapse of famous BTC based lending site "bitjam" (please correct me if it was btcjam or something similar to that), I don't think lending into a complete stranger will be working without proper collateral. Because, to deal against complete stranger, we must need how banks are working on that. Without that kind of mechanism, I'm still not thinking about the possibility of successful lending opportunities in bitcoin world.

My contribution to this is that, the reason why fiat seems stable and can be used for everyday transactions as well as for provision of loans and borrowings is because of the regulatory factor and the forces of government in other to ensure that. The moment a particular currency begin to be fluctuate, that is the beginning the of the crumbling of the economy which is something that the country will not take and these seems to put bitcoin at a disadvantage remove all of these interventions and regulations in fiat, it will be the same thing as bitcoin if not worse.

What lending does to regular currency is creating money that doesn't exist. Let's say there are three people, A and B and C, these three people have a total of just one dollar, person A has 1 dollar and person B and C do not have any money at all.

Now, there is just 1 dollars in between them right? Let's assume person A loans the money to person B, that means Person A has rights for 1 dollar and could spend 1 dollar saying he will be paid back by person B right? And Person B has 1 dollar because he got it from person A as a loan.

Now, let's say Person B gives it to person C, same happens, now person B can spend 1 dollar saying person C will pay him and Person C has 1 dollar because person B gave it to him. Then, we can say there is 3 dollars in the market, person A will get it from person B, person B will get it from person C and person C got it from Person B. In reality there is 1 dollar total, but 2 dollar debt, and 3 dollar total money owned by people. That's the problem with loans.

Since interest rates would grow with the population, it's inevitable most of the population (including otherwise viable businesses) would eventually be unable to obtain credit, through no fault of their own. It wouldn't have to do with excessive borrowing but rather scarcity of lending liquidity.

That doesn't seem okay to me. Ideally a currency should scale to the size of the economy, not break the entire credit system as the population grows.

I have seen that the NEXO platform offers loans at very low interest rates at 5.9% they demonstrate that they are competitive in the global market to reach a loan on your platform you need to approve KYC and deposit in your bitcoin wallet and you can receive the 50% of what you have in the deposit.
OP has mentioned that banks could have bank accounts with less deposits, I think there will be supply and demand for fiat.

Assuming that economies continue growing, Bitcoin is deflationary. That means that its value grows to meet the demands of the world's economies.

Higher interest rates are ok. Borrowers that cannot afford debt should not borrow. Excessive borrowing is destructive and low rates encourage excessive borrowing.

In general first thing of taking loans is that you take it in currency you get income in. So if you get salary in CHF you dont take loan in Euro. Or the opposite. IF you get salary in Bitcoin you dont take loan in USD. Not now not in 10 years time.

That doesn't address the cost of borrowing money, which may be prohibitive given BTC's scarcity, or the potential lack of lending liquidity that could occur for the same reason.

Let's say the world population quadruples, or increases 100x for that matter. Bitcoin's money supply would of course stay the same, but in order to sustain this population, we would obviously need a much higher economic output.

How does Bitcoin scale in this scenario? How can it be effectively distributed to every borrower in the economy who needs a loan? And how do you get lenders to keep rates cheap enough that borrowers can keep their heads above water? As demand increases for borrowing liquidity, rates will increase. As the population increases, demand for loans increases. This is a vicious cycle. I don't see a way out.

Again, you come up with a Bicycle-starting it with the fact that instead of a round wheel, put a square one. Why BTC and not another cryptocurrency? Why can't I use any stablecoin for lending? Why replace all Fiat exclusively with cryptocurrency at all - this will not give the expected effect, but will only lead to the change of one Unicode character to another? So many questions and so few answers...

If the loans with interest, we return to the pre-1971 point where you will need a lot of money but you do not have sufficient cover for this money. The governments solve this problem by printing more money, but we cannot do that. In other words, in the long run, lending will fail using Bitcioin.

Second layer may be a solution to this problem, and one of the scenarios that can do this is this project ---> https://github.com/omnilaboratory/OmniBOLT-spec.


This feature will provide the possibility of lending in BTC/ALT/stablecoins, such as USDT, and Bitcoin can act as a partial reserve system.

Keep in mind that central banks existed when there was a gold standard. There is no reason there couldn't be a lender of last resort on a Bitcoin standard. However, as your wrote, since the banks are backed by reserves (instead of a printing press), the reserve requirement could not be as low as it is now.

I don't think it would result in a credit crunch since the value of the money would increase until the supply is sufficient to meet demand.

a savings & loan would usually be organized like a credit union, where the institution is mutually held by the depositors and borrowers, who have voting rights re how it is run. i think that's much more attractive in terms of liquidity vs p2p lending, since depositors pool their money together in a joint venture. creditworthiness would probably be handled similarly to financial institutions today.


it comes down to a question of free markets. the wildcat banking era (also known as the free banking era) came to be because of a lack of regulation or enforcement mechanisms around banking. what was the ultimate solution? creating the fed!

pick your poison, i guess.


the problem is it's not just fiat money that is the intermediary glue, but robust systems of credit. interbank lending, collateralized lending, central bank QE, fractional reserve based retail lending etc etc. i dunno how robust these systems would be in a bitcoin-based economy.

that hard cap on the bitcoin supply really lends itself to hoarding.

Yep, that would be basically the P2P lending business. It could be perhaps refined, if banks would take care of risk management and could give a pseudonymous rating to those who want to borrow money, according to the securities they show as collateral.

Economic stagnation would be okay if we have already a world in which basic needs are guaranteed to everybody, like today in "First World" countries. In this case, efficiency and productivity gains due to technological progress would be enough to continue to rise the living standards. We're unfortunately a bit away from that still. Above all in the "Venezuela" scenario I mentioned before, a mechanism should exist which would help to build up the economy - above all infrastructure - fastly. This is today achieved by loans and growth.

It isn't necessary that this mechanism is based on loans, I have some hopes with respect to better bartering systems, maybe based on cryptocurrency technology. At the end the economy always boils down to a trade of goods (including work and services) for other goods, the intermediary "glue" (which is fiat money, in the current economy) is the interesting part where the mechanism would work.

the emergence of CBDCs is interesting to me because it would do the same thing---people have their own wallets so they can cut out the banks.

bitcoin holders do love to see a return on their holdings though---as a group, they love to invest. maybe we'll see the emergence of savings & loan type institutions, which bring together lenders who want a return and borrowers who need loans. maybe we'll return to the days of wildcat banking, where bank notes are inherently risky.


you can't have your cake and eat it too. austrian economists say perpetual growth as a goal is ridiculous, and that we should get used to economic stagnation as the normal course of things.

if you want to build a global economy on a currency with a completely inelastic money supply, you better prepare for a big slowdown in growth. austrians welcome that. if you want bitcoin to replace fiat money, then you should too.