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174 sats \ 7 replies \ @crrdlx 16 Jan \ on: The Future Of Bitcoin Lending? bitcoin
So, Alice has some BTC and wants a new car. She doesn't want to sell her BTC for cash to buy the car. Her preference is to use the BTC as collateral, get a loan in fiat, pay it back like any other loan with the lender's interest, say 60 months. At the end of the 60 month's, Alice has a 5 year old car, it costs her more than had she bought with BTC on day one because of the interest, but she still has her BTC along with the car. Personally, I see this as a wise move.
I see only two possibilities loan-wise though, both requiring trust:
- A third party holds the bitcoin...both parties must put their trust in them. This option would mean relinquishing ownership of your bitcoin (ouch!) by sending it to the third party. You would no longer hold the keys to the coin (ouch!). Even if Alice proved to the lender that she controlled the keys, there's no way a lender would allow her to hold the bitcoin/keys on a promise, "Oh yeah, if I don't pay back the loan, I'll send you my bitcoin." In the same way, Alice wouldn't trust the lender who said, "Just send the bitcoin to me, I'll hold it, then after you pay off the loan I'll send it back."
- Smart contract...both parties must trust the smart contract is bug-free, hack-free (eg, The DAO). This option would also mean relinquishing your keys/coin by sending your BTC to the smart contract (ouch!). You'd really have to trust that the contract is foolproof (ouch!).
Down the road, I imagine firms and smart contracts will simply build trust over time. Kind of like depositing money in the bank, we trust that it will be there next week. That's not ideal, but are other options even possible?
I think of Makinac Island in Michigan. Every year it freezes over. Some imbecile volunteers to become the first person to drive a snowmobile across the ice to test if it's solid enough to support the weight. They might make it no problem, they might break through the ice and die. If they make it across, another person follows those tracks, then another, then another. Eventually there's a full-fledged back and forth highway across the trusted ice road. Maybe this is how the (a) trusted third party and/or (b) smart contracts will pan out.
This example doesn't really work though. The car is the collateral. No Bitcoin or additional collateral is generally required for a car loan.
If Alice stops making the fiat payments, the lender sues Alice, repos the car, sells the car, and pursues Alice for the difference in costs between the sale price of the car and the total amoratized loan, plus court costs.
I think the Bitcoin loan game is going to focus on larger purchases like real estate and things like reverse Bitcoin mortgages so Bitcoiners can retire with cash flow.
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Yeah I think the Bitcoin loan thing will be fiat loans against Bitcoin.
The one area that has not been explored yet to the best of my knowledge is Fiat loans for the express purpose of buying Bitcoin. Amortized over a long term like a mortgage. A 2-3 multisig is PERFECT for this. The borrower defaults on the payment and the lender and the third key holder just take the payment out in sats. You don't have to sell a house or tie up the courts.
Many people would borrow $100K USD right now to get in at a whole coin, if they can pay back a 5% loan over 10 years or whatever.
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Exactly.
Given there's a good chance the BTC would have appreciated in fiat terms during those 5 years, the unrealized capital gains may be greater than the amount paid for the loan.
Kind of like getting a free car.
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the unrealized capital gains may be greater than the amount paid for the loan
I didn't even think of that, but yes! If Alice had taken out a $25,000 loan five years ago at a 10% interest rate, she would have had to pay $37,500 total over those five years. That's a lot more for a 25k car, but that's interest and taking out loans. Her $25k worth of BTC would have gone up by 1,0026% (from $8,902 to $100,186 currently). I think she'd be okay with the extra car cost.
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