[nahollander]

The collateral can be any other asset that is represented by a cryptographic token. Right now, few crypto-assets map to real world assets in some capacity, but we're willing to make a bet that this will change faster than most expect.

Already, though, there are many interesting assets in the world of crypto that are particularly well suited to being put up for collateral -- namely, the emerging class of crypto-collectibles such as CryptoKitties.

[tango24]

> namely, the emerging class of crypto-collectibles such as CryptoKitties.

You can’t honestly be serious about this. Please get outside the Silicon Valley bubble and look around.

[berberous]

Look at the number of people that collect all kinds of crap: DVDs, video games, stamps, baseball cards, in-game virtual items, comics, art, etc. You can argue that some of it has more utility -- art is culture! you can watch a DVD! -- but the mindset of collecting goes beyond that, and certain utility, like games or trading cards, maps just as well to the crypto collectible world. Cryptokitties is an early example, but I am 95%+ confident something like it will be a HUGE hit within the next few years. So yeah, why not use the crap you already collect to secure a loan?

[Kiro]

You have no idea how much you underestimate what CryptoKitties started. Cryptocollectibles will most likely be the first killer app. It's not about the kitties, it's about the underlying mechanic of owning a truly unique digital item.

[nradov]

Why would there ever be a cryptographic token representing my house or car? It just doesn't make any sense. The map is not the territory.

[wastedhours]

I'm not a crypto-apologist, but this use case I can see (sorry if it's a little rambling).

Each property/car could essentially be represented by its own smart contract, initially held by the mortgage lender. When you pay an instalment of your mortgage, it executes the contract to "release" the equity to you.

When it comes to selling, to change the name on the contract, the buyer would pay based on the split between the lender and the owner, or pay to the owner who has to close the contract with the bank (in the event of moving to a new property, the bank and owner get their relevant proportions on Property 2's smart contract, and it goes again).

You could then "lend" out the equity you've earned from the bank, and use it as collateral for something else, getting it back once you've satisfied the terms of that agreement (meaning, if you don't, the person you lent it to is a creditor on the selling of the house/closing of the contract).

It's essentially automating/giving an interface to an existing contractual relationship. I think this interface might actually be clearer for some people who are financially uneducated, as it expresses their ownership percentage, debt obligations, and potential secured borrowing options in one go. Whilst a lot of it could be done without the crypto side of things if everything happens with the same bank/group of people, with buying and selling assets, you're working on trust with a bunch of different organisations and people, the ledger aspect could help with this.

[bjl]

That's all well and good until someone steals my private keys and and now I'm out a house.

[wastedhours]

"You wouldn't download a house" memes aside, like a lot of the move from analogue to digital, there was always a chance someone could have socially engineered you out of the deeds to a house, the technology just opens up the attack potential exponentially.

[nradov]

What's the point? This doesn't gain anything over existing legal contracts.

[wastedhours]

> What's the point?

>> I'm not a crypto-apologist

> This doesn't gain anything over existing legal contracts.

>> I think this interface might actually be clearer for some people who are financially uneducated, as it expresses their ownership percentage, debt obligations, and potential secured borrowing options in one go. Whilst a lot of it could be done without the crypto side of things if everything happens with the same bank/group of people, with buying and selling assets, you're working on trust with a bunch of different organisations and people, the ledger aspect could help with this.

I'm not arguing for it, merely point out the potential use case people would push for, and if it were to be pushed, I outlined why I think it could beat out existing legal contracts.

Would appreciate a rebuttal to my points.

[krrrh]

> Would appreciate a rebuttal to my points.

People already have a hard time dealing with contracts written in their own native tongues, why would they prefer having to read and validate source code? Even if a few standard blockchained contracts emerged for real estate deals that could be validated into human language, regular people are terrible at using and trusting software that they use irregularly. In some jurisdictions it is possible to buy and sell houses without involving lawyers or bankers, but most people use their services anyway because they are legally obligated to act in their client's interests, and they are experts at such things. Obviously you will also have to include the government-administered land title registry, an institution that have slowly evolved over centuries and works very well. There is no good reason to decentralize land titles, even if it were possible.

So even if bringing public-key encryption and software interpreters into a real estate deal were to introduce some efficiencies compared to dealing with word docs and paper copies that any country lawyer could amend and attest to without having to hire a Solidity developer and praying that it's one that can handle a weird contract addendum without introducing a bug, which is a big if, the costs and complexities would barely budge because there is a lot more that goes into a real estate transaction than validating contracts.

Crypto-apologists (I know you're not one) seem to include a lot of people who have never stressed out over a real estate deal, or worked on a helpdesk.

[wastedhours]

All fair points - but there's no reason not to involve legal counsel in smart contracts either (if we're talking in hypotheticals about a bank being ok issuing a smart contract for a mortgage, then I think we have to make the assumptive leap Solidity developers are two-a-penny), and the benefit of the solution I proposed is that your everyday interaction with your state of the contract is more visible than it is with the current system.

My proposal is less about the legal setup, and more about the ongoing interaction with the contract, which might aid with financial education, especially around equity (see how many people are caught up in interest-only mortgages), and debt leverage.

Whether you use a ledger or not depends on how it could actually work, but there aren't many other solutions that give transparency among multiple disparate parties, without a reliance on a credit agency (which, as we all know, has caused some... issues...).

Not sure whether I'm keen on that vision of the future or not, but I can definitely see the day where physical assets are represented by some digital manifestation/token.

[fiatjaf]

Since there are many tokens (and increasing) that people must hold to be part of some network, tokens that are effectively shares of a business and stuff like that, these may make a good deal as collateral. People do lend out their stock, for example, today.

[Adamantcheese]

If the borrower is the one setting the collateral, what's to prevent me from putting up something that's rapidly depreciating like my collection of e-Beanie Babies and effectively stealing the loan?

[ghthor]

I'm sure the lender could make the right decision there if they had enough knowledge and were able to view what the collateral is.