[minimax]

Now that I have a huge stash of bit coins I was thinking of making a service/startup where you could lend out your bit coins to people who would agree to pay you back a slightly higher number of coins in the future. Kind of like a bank but not corrupt and full of banksters like the federal reserve and JP Morgan. Once I have traction I can IPO but instead of sell my shares for cash I would sell them in bit coins.

I think it would have some kind of restful API.

[edwardy20]

Why would anyone want to borrow money in a deflationary currency (Bitcoins) rather than an inflationary one (dollars)?

[minimax]

You want to borrow bit coins so that you can improve your business and then pay back the coins with increased profits due to the improvements. Isn't that obvious? I'm not interested in dollars because I don't think they are particularly useful. I convert all my dollars to bit coins whenever I can. Look at the price of bit coin in dollar terms and you'll see everyone else is doing the same thing.

Do you think the API for borrowing a deflationary currency should have a different API than an inflationary one?

[Jtsummers]

Your conversion makes sense (USD -> BTC) so long as both mantain the current trend (BTC increasing in value wrt USD). Why? It's like investing in a stock or commodity that's increasing. I invested extra cash in a few stocks, including TSLA, while it was on the rise. This gave me a better ROI than holding USD or investing it in a CD or other low interest rate account.

But as a borrower, deflation blows. If I borrow 100 BTC and the terms of the loan are that I have to pay back 100 BTC + 10 BTC as interest, but the value of BTC has increased by another 10% I'm really paying 21% interest on the loan.

But as a borrower, inflation rocks. If I borrow 100 USD and the terms of the loan are that I have to pay back 100 USD + 10 USD as interest, but the value of USD has decreased by 10% I'm really paying 0% interest on the loan (actually, I might be able to beat inflation and come out ahead).

This goes back to what I mentioned in another thread [1] about buying and selling in either type of currency.

Let me hand wave some things, we'll assume that the real value of an item or ROI is static, and only the nominal value is changing with inflation or deflation.

Inflation: I borrow money to buy an item. I pay interest on the loan, and gain the benefit of having the item today rather than a year later when I would have saved up the cash. Over that year I pay off the loan, but with inflation I may get a discount of sorts on the item. If inflation is 10%, the nominal value is 10% higher the next year. If the interest payment is less than 10% I've saved money. If it's more than 10%, hopefully there was a profit in having the item now rather than later or I lost money.

Deflation: I borrow money to buy an item. I pay interest on the loan, and gain the benefit of having the item today rather than a year later when I would have saved up the cash. Over that year I pay off the loan, but with deflation I have an added cost. If deflation is 10%, the nominal value is 10% lower the next year. If the interest payment is negative ~10%, I've saved money. If it's higher, then hopefully there was a profit in having the item now rather than later or I lost money.

In fact, that matrix is essentially the same. Borrowers win in inflation (or might), while lenders might lose (but it beats leaving the cash under the mattress where it will lose value). Borrowers lose in deflation in most circumstances, while lenders win as long as borrowers don't default too often. Lenders under deflation have to be confident that the expected ROI of their loans will beat the deflation rate, or they might as well leave the cash alone. Lenders under inflation are virtually guaranteed that reasonable loan practices (subprime mortgages being an example of unreasonable loan practices) will be better than sitting on the cash if the economy is otherwise stable.

[1] https://news.ycombinator.com/item?id=6811101

[Jtsummers]

I realized after reading other posts that I did, in fact, hear a whoosh earlier.

[bunderbunder]

> You want to borrow bit coins so that you can improve your business and then pay back the coins with increased profits due to the improvements.

That doesn't really answer the question. Grandparent wasn't asking "Why would you want to borrow BTC?". It was asking, "Why would you want to borrow in a deflationary currency such as BTC rather than a traditional, inflationary currency?"

As others have pointed out, the most obvious practical reason why a borrower might specifically desire a BTC-denominated loan is in order to short sell Bitcoin. For something like a business loan, it seems intuitive that choosing BTC over a traditional currency would accomplish little aside from maximizing the interest rate on your loan (in real terms). Admittedly there may be plenty of unwary buyers who'll happily enter into a loan like that without doing any math first - the entire payday/title loan industry is built on this fact - but an operation relying on that unfortunate fact doesn't jibe too well with the stated goal of behaving more ethically than the existing financial establishment. So hopefully there's something else to it?

[edwardy20]

OK, so why don't you borrow dollars, convert to bitcoins, and actually make money on the loan through deflation?

[makomk]

Based on previous businesses that've offered Bitcoin loans, a common reason to borrow money in Bitcoins is because the person has no intention of paying off the loan. It doesn't take a large proportion of loans going bad before lenders start losing money on average at any reasonable interest rate, and increasing the interest rate will just increase the proportion of bad loans to good loans.

[Jtsummers]

What legal or contractual constructs did previous bitcoin lenders attempt to use to ensure repayment? Surely they required some form of collateral or obtained sufficient information to be able to place a lien on the borrower's (thieves by your description) property.

[onebaddude]

>Kind of like a bank but not corrupt and full of banksters like the federal reserve and JP Morgan

Sounds like you're very knowledgeable about the money-lending space. Where do I send my money?

[minimax]

The only thing I'm knowledgable about is disrupting corrupt, inefficient industries/governments. I will send you a note as soon as the API is ready. There will be an API endpoint you can use to send me bit coins.

[cwilson]

You can do something similar to this on Bitfinex right now, though it's specifically lending for margin trading. Also has the option to lend USD, which I have done, and had quite a nice return.

Worth checking out while doing research.

[stingraycharles]

This would open up the possibility of shorting Bitcoins. Could get big.

[jnbiche]

You can already short Bitcoin; it's been possible for several years on Bitfinex and previous platforms (I forget the predecessor's name).

[akrymski]

Out of pure curiosity, what's a "huge stash" of bitcoins these days? Top 100 on the bitcoin rich list? Top 1000? http://bitcoinrichlist.com/top100

Instead of lending, what about investing in startups using bitcoins?

[ph0rque]

you could lend out your bit coins to people who would agree to pay you back a slightly higher number of coins in the future.

Is this something that can be written into the Bitcoin protocol?

[qrohlf]

No. Bitcoins are designed to act like cash, so he would need to ask for some kind of collateral to ensure that people don't just run off with his bitcoins.

[rxp]

What's to stop people from just running off with your loan? Would you require some sort of tie-in to real-world identity?

[jprice]

https://btcjam.com/ ??